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Published December 01, 2014, 09:42 AM

Expected farm bill payout draws critics

The U.S. farm bill is working as intended and criticism of a potential $10 billion government payout is both premature and unfair, Upper Midwest farmers and farm group officials say.

By: Jonathan Knutson, Agweek

The U.S. farm bill is working as intended and criticism of a potential $10 billion government payout is both premature and unfair, Upper Midwest farmers and farm group officials say.

“That’s what it’s designed to do,” says Bruce Peterson, a Northfield, Minn., farmer and president of his state Corn Growers Association. “And we’re a long way from knowing what the numbers (government payments) will be.”

The farm bill, passed every four or five years, is the centerpiece of U.S. food and agricultural policy. The current farm bill, approved earlier this year, provides government payments to farmers when and if yields and crop prices fall below certain levels.

Critics typically classify the payments as a subsidy. Farmers generally describe the payments as “a safety net” that helps them survive tough economic times, keeping U.S. food supplies safe and affordable.

The new farm bill offers Agricultural Risk Coverage, which provides payments when revenue falls, and Price Loss Coverage, which provides payments when prices fall. Farmers must choose one of the options and then are locked into that decision for five years. Producers have until the spring of 2015 to make their choice; the selection period began Nov. 17, leading to more national attention on potential payments.

Because the big U.S. grain harvest has pushed down crop prices, it’s increasingly likely that some farmers will collect ARC or PLC payments in 2014, the first year the new farm bill takes effect. The payments could total as much as $10 billion, according to estimates and published reports.

The reports note that Congress, which approved the farm bill before crop prices tumbled, had anticipated spending far less than $10 billion.

But don’t take the estimates of huge payouts too seriously, at least not yet, says George Haynes, a professor and agricultural policy specialist at Montana State University.

It’s too early to know how many farmers will qualify for ARC or PLC payments and how much money those who do qualify will receive. The answers depend, in large part, on fluctuating, still-to-be determined crop prices, he says.

“A lot can still change,” he says. “So much depends on (crop) price projections.”

Some farmers, especially ones who grow wheat, the price of which has held up relatively well, might not collect at all, says Matt Flikkema, a Manhattan, Mont., farmer and president of his state Grain Growers Association.

Regardless, farmers’ expenses have risen even as crop prices have plunged, putting farms at financial risk, he says.

Only partial compensation

It seems likely that government payments will be higher than Congress first estimated, says Doyle Johannes, an Underwood, N.D., farmer and president of the state Farm Bureau.

“I wouldn’t doubt it costs more than what they projected,” he says.

Corn prices, in particular, have fallen, which probably will lead to payment amounts higher than first expected for that crop, he says.

But Peterson, the Minnesota Corn Growers president, says per-acre payments for corn, if any, “will be a fraction of what the total revenue was two years ago” from those fields.

Farmers who might collect $50 to $70 per acre in government payments would still be making $500 to $600 less per acre than two years ago because of lower corn prices.

“That’s how the program operates. If they (crop prices) drop substantially, you’ll get some payments. If they don’t drop substantially, you won’t,” he says.

Keith Alverson, a Chester, S.D., farmer and a board member of the National Corn Growers Association, also says the farm program is working as intended.

“We’ve seen dramatic drops in prices, and that’s when the safety net kicks in,” he says.

Farmers say they prefer to get all their income from grain sales and go without government payments.

“We’d sooner get the price from the market than from the government,” Johannes says. “But so many factors (including the actions of U.S. and foreign governments) come into it, things we can’t control.”

Cyclical business

Ag is inherently cyclical, alternating between prosperity and financial difficulty, says Doyle Lentz, a Rolla, N.D., farmer and chairman of the state Barley Council.

“That’s why we wanted the safety net, to give us some protection” in tough times, he says.

Agriculture was enjoying high crop prices when the last farm bill was approved. Some people apparently assumed that would continue and are surprised falling crop prices could trigger substantial safety-net payments, he says.

Some outside agriculture might question why government payments are needed after the multi-year run of prosperity.

Farmers and farm group officials say producers can’t control expenses, some of which are soaring.

The overall price U.S. farmers pay for things such as chemicals and land rent has risen roughly 4 percent in the past year and 22 percent since 2009, according to information from the National Agricultural Statistics Service, an arm of the U.S. Department of Agriculture.

A safety net offsets farmers’ inability to control rising costs, says Doug Peterson, president of the Minnesota Farmers Union.

“We always have our detractors, typically people who haven’t farmed. Farmers, with unstable prices, don’t have the stability of long-term planning. We need a safety net to make long-term decisions,” he says.

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