Des Moines Register
08-20-06
Brasher: High corn prices mean no subsidy windfall
Government payments on this year's crop are likely to be 80 percent less than
last year's, which helps from a budget perspective.
PHILIP BRASHER
REGISTER COLUMNIST
Washington, D.C. - The price of corn is up. Too bad for farmers.
Sometimes it can pay for prices to drop. Many growers stand to make a lot less
money this year than they did last year, thanks to the way farm programs work
and another unlikely factor, Hurricane Katrina.
When Katrina shut down the Gulf Coast ports a year ago, the price of corn
collapsed in the Midwest, falling well below the level that triggers the federal
subsidies known as loan deficiency payments, or LDPs.
Many farmers claimed the subsidies and then held on to their crops and sold
them when the ports reopened and prices recovered.
"If you enjoy checks from the government, then it was a blessing in disguise,"
said Keith Sexton, a Rockwell City farmer who is president of the Iowa Corn
Growers Association.
Corn growers pocketed $217 per acre in net income on their 2005 crop,
according to economists at the University of Missouri's Food and Agricultural
Policy Research Institute.
This year, even though corn prices are higher, those same farmers are expected
to make just $165 per acre. Do the math and that's a difference of $26,000 on
500 acres of corn.
Multiply by Iowa's predicted corn crop - 12.4 million acres - and the difference is
nearly $645 million.
If those numbers hold true, that's certain to have a ripple effect across Iowa. For
every dollar earned from agriculture production, $1.50 is generated elsewhere in
the local economy, said Dan Otto, an Iowa State University Extension
economist. Eighty cents is generated for every dollar of federal farm payments.
In Sexton's area, the LDP briefly reached as high as 51 cents a bushel last fall.
This year, if prices stay high, the amount would be zero.
"All things being equal, producers would rather get their income from the market
than from the government," Sexton said. "But I do agree with FAPRI that we
won't see enough of an increase to make up for the higher LDP last year."
The lucky farmers had corn on hand and claimed the subsidy at the right time,
said Steve Bohn, vice president of Washington State Bank in Washington, Ia.
"That's such a timing thing. Some farmers were able to take advantage of it and
some weren't, depending on their marketing plan," he said.
The good news for farmers, at least those who don't have to buy grain for
livestock feed, and for taxpayers is that economists expect prices for corn and
other major crops to remain strong this fall and the next several years, well above
subsidy rates.
Corn growers will wind up collecting about $10 billion in subsidies on last year's
crop, according to economists at the U.S. Agriculture Department.
Farmers are likely to get as little as $2.1 billion from the government for this
year's crop. That's the minimum amount they are guaranteed to receive in direct
payments every year under the 2002 farm bill.
Payments may even be down to growers of cotton, one of the most governmentdependent crops there is.
All this means that the cost of government farm spending will be declining just as
agricultural programs come up for renewal in Congress next year.
The rise in commodity prices, and drop in federal spending, "obviously helps us
from a budget standpoint. It's very, very positive," said Charles Stenholm, a
former congressman who now lobbies for farm groups.
Because of the booming ethanol industry, the University of Missouri economists
estimated in July that the price of corn would average $2.33 a bushel for this
year's crop, up from $1.98 in 2005, and continue rising in following years. (About
17 percent of this year's corn crop is expected to go into ethanol, up from 10
percent just two years ago.) Cotton prices are projected to average 51 cents a
pound this year, up 3 cents from last year.
Total farm subsidies were expected to reach $21.7 billion for the fiscal year that
ends Sept. 30, driven in part by those huge payments to corn growers on their
2005 harvest.
Economists at Missouri's FAPRI say spending is expected to drop sharply for
fiscal 2007 and continue falling after that.
And if prices keep going up as expected, corn growers at least should be making
their money from the market rather than the government.