Minnesota Farmers Union

(June 12, 2009) - In this series of columns we examine the impact of the rapid run-up and subsequent decline of crop prices on various groups, including crop farmers; livestock, dairy and poultry producers; importing countries; and consumers and whether or not a properly managed grain reserve program could have mitigated the problems faced by each of these groups. In this column we look at the ethanol industry as an important cause and casualty of the price bubble.

To some extent the increased use of corn in the production of ethanol can be attributed to changes in agricultural policy in 1996 and the growing scientific consensus on the role of human activity on global warming. The 1996 Farm Bill effectively eliminated the floor on crop prices and, when the universally anticipated structural increases in corn exports did not materialize, allowed grain prices to fall well below the cost of production.

The explanation for the low prices was "over production" even though the year-ending stock-to-use ratio for the years beginning with 1998 was well below historic levels. With significant fixed costs, crop farmers continued to plant their fields to minimize their losses, hoping that a random crop failure somewhere would lift prices to profitable levels.

(April 1, 2009) - Former General Motors boss Rick Wagoner evidently did not understand the meaning of the Biblical admonition of those who live by the sword often die by it.

It's easy to see why. Detroit has owned Washington, D.C. for, well, forever: no increase in car mileage standards since the Pinto; no new fuel technologies since Henry Ford poured ethanol into his Model A; gazillions for interstates, peanuts for public transportation.

Now, however, the roles are reversed and Washington owns most of Detroit. As such, the auto oligarchs are shaking in their wood paneled offices and crying in their parked private jets.

And they should.

Golly, would you expect to keep your job if, as in the case of Wagoner since 2004, the company you ran lost $82 billion, had its marketshare hacksawed from 33 percent to 18 and its stock price from over $70 to $4 while the biggest brainstorm you had to quell the growing calamity was the Hummer?

Hey, only Wall Street bankers and Capitol Hill lawmakers can sport such a sorry record and still keep their jobs. You, me-and now, Wagoner-couldn't.

(March 31, 2009) - No matter what one thinks about the proposal of the Obama administration to eliminate direct payments to farms with gross sales in excess of $500,000, it is becoming clear that they want to put their own imprint on farm policy. That can be seen in the argument that farmers could make up their loss of direct payments with payments for environmental benefits and carbon sequestration.

The issue of improving the environment through carbon sequestration fits in with the emphasis Obama has given to green energy investments, the reduction of atmospheric emissions of fossil-fuel-based carbon dioxide, and reducing the dependence of the US on imported oil.

Farmers have made significant investments in biofuels as a means of both increasing farm income and reducing the number of barrels of oil that are imported by the US every day. Public support is conditioned on the ongoing acceptance of these goals as important elements of public policy.

(March 17, 2009 )  - Secretary of Agriculture Tom Vilsack wants to ship a portion of the money promised to farmers in the 2008 farm bill to child nutrition programs. Pitting identified farmers with gross sales over $500,000 against children participating in nutrition programs puts farmers at a definite public relations disadvantage. No one is against feeding children, least of all food producers.

The mere positing of such a "choice" suggests that agricultural policy is quickly approaching a crossroad-a crossroad that agricultural commodity policy has been moving toward for a couple of decades.

Navigation of agricultural policy's crossroad may be as significant for agriculture as the policy decisions to address the current financial crisis is for the economy as a whole.

In the case of policy for program crops, the crossroad decision is: Will agricultural policy toward commercial, program-crop agriculture continue its recent focus on transfer payments, many of which are politically tricky to defend. Or will agricultural policy be reformed to moderate extreme variations in crop prices and free farmers' from reliance on politically uncertain payments.

In some ways, the recent journey toward agriculture's crossroad parallels the happenings that led to the financial crisis.

(March 9, 2009) - In his February 24, 2009 speech before Congress, President Obama said, "In this budget, we will...end direct payments to large agribusinesses that don't need them." We were listening to the speech and when he said that we did a double take.

What did he mean?

Large agribusinesses like Monsanto, Cargill, ADM, AGCO, and Pioneer Seed don't receive direct payments. Direct payments are the current iteration of the AMTA (Agricultural Market Transition Act) payments that were made a part of the 1996 Farm Bill in order to entice farmers to support a radical reordering of farm programs. These payments are made to growers of the major crops (corn, soybeans, cotton, wheat, rice, etc.) so Obama wasn't talking about many large livestock producers, orchardists, and fruit and vegetable producers.

To our ears the wording was strange because, in most cases, we do not think of crop farmers, even the large ones, as "large agribusinesses." They may be incorporated to simplify tax and inheritance issues, but for the most part, they are family operations-hardly what comes to mind when the President talks about "large agribusinesses."

(February 17, 2009) - Major changes in crop programs are usually accompanied by uncertainty on the part of farmers. The late passage of the 1996 Farm Bill and its radically new provisions had farmers scratching their heads as they struggled to understand AMTA payments (Agricultural Market Transition Act) and the Marketing Loan Program with its Loan Deficiency Payments and Marketing Loan Gain provisions.

By way of contrast, farm bills, like the 2002 legislation, that make only incremental changes are taken in stride. Farmers, along with their bankers and CPAs, know what to expect and the uncertainty is low.

The 2008 Farm Bill included a new program ACRE (Average Crop Revenue Election) that would reduce Direct Payments (by 20%), replace the Counter-Cyclical Payment program, and lower the rate for marketing loan payments (by 30%). Farmers must decide whether to switch to the ACRE program or continue to use the current set of payment programs.