Corn, soybean revenues to cut aid outlays

11/18/2003

Taxpayers who have never set foot on a farm should benefit from recent price increases for corn and soybeans.

Prices for the soybean crop harvested this fall are so high that two key government subsidies will barely be activated. Corn prices are lower than last year s but are still significantly higher than in many recent years.

Economists say that means the U.S. Department of Agriculture is likely to spend less than $1 billion on two subsidy programs for corn, soybeans, and wheat crops harvested this year. When Congress approved the programs, experts anticipated they would cost $5 billion to $10 billion most years.

The higher prices paid to farmers aren t likely to lead to sticker shock at the grocery store, said Neil Harl, an agricultural economist at Iowa State University.

Corn, soybeans, and wheat typically are fed to livestock or are used in highly processed foods such as cereal or cookies. The price of grain and oilseeds is such a small portion of the final cost of those products that even dramatic price moves for farmers seldom make much difference at the grocery store, experts say.

The prices farmers receive, however, have changed dramatically.

Farmers are expected to sell the soybeans they harvested this fall for the highest price in seven years, an average of 28 percent more than they received for the previous year s crop. Compared with two years ago - when the federal government spent billions subsidizing soybeans - market prices are 62 percent higher.

Prices are up largely because of poor crops in the West that are expected to help shrink the U.S. stockpile to the smallest in three decades.

Those market prices have a direct effect on two government farm programs.

One of those programs is fairly simple. When prices are low, the program essentially gives farmers the difference between the market price and a government minimum price for about 20 crops.

Those checks, called loan deficiency payments, amounted to $277 million in Ohio and $6.2 billion across the country for crops harvested in 2000 when market prices were low. Farmers in Wood County, one of the largest local crop counties, got $9.5 million that year.

But for crops harvested last year, when prices had increased, the government spent only a fraction of those amounts: $1.3 million in Ohio and $508 million across the country. Wood County was down to $65,000.

The other program directly affected by market prices is much more complicated. It is called counter-cyclical payments. When prices are low, it gives farmers money using a complex formula that is based on what was produced on land as far back as 20 years ago.

So, some area farmers this year received a payment for wheat because decades ago wheat was raised on land they now own or rent, even though they personally might never have raised wheat. The odd formula was devised in an attempt to help farmers during lean years and still comply with World Trade Organization standards on subsidies.

Such payments are expected to be made for corn as well this year, although they will not be nearly as large as they would have been if prices were lower.

Although the higher grain and oilseed prices are a win for crop farmers and taxpayers alike, they will be hard on local dairy and hog farmers, Mr. Harl said.

Soybean-oil meal is a favorite protein source for hogs, and higher prices could take much of the profit out of raising hogs for farmers who did not make feed contracts before prices increased. Milk prices are low enough that higher feed costs will hurt dairy farmers.

But high soybean and grain prices would have to last for a year or two before many livestock farmers would quit, thus leading to meat and dairy prices to go up in the grocery store, Mr. Harl said.