Des Moines Register
12-17-06
Katrina left Iowa awash in subsidies
Flow of government funds should slow as ethanol buoys corn prices
By PHILIP BRASHER
Washington, D.C. - When Hurricane Katrina struck New Orleans in 2005, the
aftershocks rippled all the way to Iowa. Grain shipments down the Mississippi
River were shut down and the price of corn plunged.
What resulted was a virtually unprecedented flood of government cash to Iowa's
farmers, triggered by the drop in prices.
Iowa growers and landowners collected $2.24 billion in subsidies last year, up
from $1.25 billion in 2004, and more than 10 percent of the total payments
distributed nationwide, according to data compiled by the Environmental Working
Group, a Washington-based advocacy organization that tracks farm payments.
"It was a windfall situation, which normally we wouldn't expect to occur," said Bob
Bowman, a De Witt farmer who is president of the Iowa Corn Growers
Association.
And farmers won't expect the windfall to occur again soon. Despite another
record crop, the ethanol-fueled demand for corn is pushing prices higher. That
means farmers will receive fewer subsidies.
Of the 2005 payments to Iowa, $1.8 billion were subsidies linked to the
production of corn.
Nine Iowa-based farm operations received more than $700,000 in total subsidies,
according to the environmental group's analysis.
Altogether, 119,912 Iowa individuals, partnerships and other entities received
payments, but 55 percent of total subsidies went to 10 percent of the recipients,
the analysis showed.
T-4 Land & Cattle, an operation run by Dennis Topf and his family in Charter
Oak, collected nearly $1.2 million in subsidies on farmland in three western Iowa
counties, Crawford, Harrison and Monona, and Ziebach County, S.D. The
payments included nearly $820,000 in subsidies tied to corn, the operation's
primary crop.
"As low as the corn market has been the last few years, there have been
considerable LDPs (loan deficiency payments)," said Topf, using the acronym for
a type of subsidy that is tied to fluctuations in market prices.
The combination of bumper crops and the stoppage in grain shipping pushed the
price of corn below $1.50 a bushel at one point last fall. That, in turn, triggered
LDPs of 50 cents a bushel or more.
"We had so much corn in the state, and we had a hard time getting it out of the
state," said Chad Hart, an economist at Iowa State University.
This year, thanks to the booming demand for grain to make ethanol, the price of
corn has soared above $3 a bushel, well above levels that trigger subsidies. That
means farmers will be getting relatively little from the government.
"That's the way the thing is supposed to work. You get it from the market instead
of having to depend on the subsidy or something," Topf said.
On the east side of the state, Greenview Farms of De Witt collected $879,535 in
subsidies last year, according to the data. Kevin A. Green, who oversees the
family operation, declined comment on the subsidies. But he has received public
attention for his reliance on renting rather than owning land. In 2004, he farmed
10,000 acres, according to Top Producer magazine. The Greens "plow their
profits into farm expansion, not outside investments," according to the magazine.
Advanced Pork, based in Iowa Falls, ranked third in total subsides with $830,061.
Its part-owners include two leaders in Iowa's ethanol industry, Bruce Rastetter
and J.D. Schlieman. Rastetter is chief executive and Schlieman is president of
Hawkeye Holdings Inc., the state's largest home-grown ethanol producer.
Bowman, the Iowa corn growers' president, received $123,760 in subsidies last
year directly and another $128,006 went to Bowman Farm Enterprises, a
partnership with his son.
The total farm payments statewide in 2005 fell just short of the record set in 2000
of $2.3 billion.
Iowa ranked No. 1 in total subsidies in 2005 for the second year in a row, ahead
of Texas with $1.97 billion and Illinois with $1.75 billion.
Economists don't think corn growers will see another windfall of government
subsidies like last year's for the foreseeable future, given the fast growth of the
ethanol industry.
Nearly 2.2 billion bushels, or 20 percent of this fall's harvest, will be used for
ethanol this year, compared with 1.6 billion bushels in 2005, according to the
U.S. Agriculture Department.
As a result, USDA estimates that the price of corn this year will average about
$3.10 a bushel, nearing the high recorded in 1995 after a series of poor crops.
"With what we're seeing with the increased demand, especially due to ethanol,
it's highly unlikely we would see prices drive down as low as we saw in '05 to
trigger such payments," said Hart.
The National Corn Growers Association is promoting a plan, developed by
economists at Iowa State, to overhaul the system in a way that could trigger
payments even when market prices are high - if growers lost crops to drought or
bad weather.
Under the proposal, subsidies would be based on changes in a farm's annual
revenue rather than on fluctuations in commodity prices. With the current
program, bumper crops can trigger payments by depressing commodity prices,
as happened in 2005. A drought, on the other hand, can drive prices up,
preventing farmers from claiming subsidies even if they lost their crop.
"It just looks like a lot fairer method of providing a safety net for everyone,"
Bowman said of the plan.
Whether the corn growers can sell the idea to other farmers when Congress
rewrites agricultural programs next year is another matter. So far other farm
groups have been cool to the idea.
Since farmers are going to be getting less money in farm subsidies, Congress
should take the opportunity to shift farm spending into conservation payments,
said Ken Cook, president of the Environmental Working Group.