U.S. seen keeping crop price supports in 2013

Watch for leaks out of the U.S. Senate agriculture committee over the next two weeks to get the best fix yet on where the U.S. is heading with its next Farm Bill, slated to begin taking effect next January.

The U.S. Department of Agriculture’s chief economist Joseph Glauber says he will be pouncing on those leaks, and he’s already betting they’ll show that despite the budget hawks in Congress, Washington won’t cut its farm spending by nearly as much as the US$3.2 billion a year that the Obama administration has recommended.

In fact, if global commodity prices start going south, the 2012 Farm Bill could be among the most generous in history.
Glauber was in Ottawa late last week meeting senior Agriculture and Agri-Food Canada and U.S. Embassy officials, and making a presentation to the new Institute for the Advanced Study of Food and Agricultural Policy on the likely shape of the new Farm Bill.

Glauber’s job is to cost out farm proposals, make predictions about how effective different options will be for getting money into the hands of farmers, and then analyze how they will impact market prices.

Glauber expects to see smaller numbers in the 2012 law, but not by much. More dramatic, he says, will be a new generation of so-called "shallow loss" crop and revenue insurance programs that will essentially guarantee many American farmers 87 per cent of their historic margins.

Early indications from Senate ag committee chairwoman Debbie Stabenow (D-Michigan) are that her committee will push for US$23 billion in savings over the next 10 years, or roughly 10 per cent on an annual basis. Glauber’s reading is that Frank Lucas (R-Oklahoma), chair of the House of Representatives’ ag committee, is on the same path.

That’s a surprise, given the power of Tea Party budget hawks in the House, and also because of the pounding that farm spending is getting in the popular press, Glauber said.

He pointed, for instance, to a media campaign by Environmental Working Group (EWG) to paint farm programs as subsidies for rich non-farmers. "The national media have been having a field day," Glauber said.

Farmers are facing a tough PR battle because of high commodity prices too. Because of those prices, Glauber said he had been on side with most pundits in thinking farmers would likely lose the $5.9 billion they get in direct payments from the Farm Bill every year. With three years of record net cash income, he said, it was difficult to see how Washington could justify continuing to send cheques of $25 to $50 to every corn grower for every acre they plant.

Technically, it still looks like farmers will lose those direct payments, but half the savings will likely be put into an enriched crop insurance program, which Glauber says will be the foundation of U.S. ag support for the next five years.

Glauber, a former U.S. negotiator at the World Trade Organization (2007-09), says the shallow-loss insurance program will be safe under international trade rules.

Price supports

Livestock sectors will get strong support too. For instance, he expects dairy farmers to get a margin insurance program that will make payouts when the margin between fluid milk prices and a basket of feed grains drops below pre-set levels, a program designed by the National Milk Producers Federation.

Yet Glauber also expects the Farm Bill to retain the system of grain and oilseed price supports that attracted the ire of Canadian and other farmers over the past decade.

Because commodity prices are trading so high, Glauber said, many politicians believe they can leave the price supports in the Farm Bill — thereby escaping a battle with farm lobby groups — without any real risk that there will ever be any payouts.

"The real issue is what happens if prices really fall," Glauber said. Early drafts call for a wheat support price of $5.50 per bushel, and $3.64 for corn.

Will prices fall that low? "Our estimates are that 94 million acres will take corn prices to $5 or below," Glauber told Country Guide. "In the end, it’s the market that makes the decision."

If prices do fall, however, the U.S. could once again turn interventionist in a big way. The initial numbers that Glauber has run convince him the numbers could get very big very fast, he said. "There’s is a potential for payouts of $10 to $11 billion."

— Tom Button is editor of Country Guide at Ridgetown, Ont.

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