Farmers scramble for profits as grain boom ends

WASHINGTON Fri Jan 9, 2009 5:23pm EST

In this file photo a farmer inspects a soybean head before an auction in Mackinaw, Illinois, June 28, 2008. REUTERS/Mark Weinraub

In this file photo a farmer inspects a soybean head before an auction in Mackinaw, Illinois, June 28, 2008.

Credit: Reuters/Mark Weinraub

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WASHINGTON (Reuters) - American farmers are in a bind this year -- land, fuel and seed costs are up but crop prices are down sharply after a three-year, ethanol-fueled boom, say leaders of the largest U.S. farm group.

"We're looking for less net farm income ... The only question is how much less," said Bob Stallman, president of the 6 million-member American Farm Bureau Federation, in an interview ahead of the group's annual convention.

About 5,000 people are expected at the convention in San Antonio, Texas, which opens on Sunday. Farmers will hear the first forecasts of U.S. harvests and farm-gate prices this year before 369 delegates vote on farm policy proposals.

Some delegates are concerned the new administration will try to trim farm spending. President-elect Barack Obama has objected to subsidies to "millionaire farmers" and wasteful spending on farm programs.

Obama supports a $250,000 a year "hard" cap on subsides per farmer and has said he would close loopholes in payment limits.

Stallman and the state Farm Bureau presidents in Indiana and South Carolina said there was pervasive anxiety about the pinch on profits.

"We can't afford to raise the crop," said Indiana president Don Villwock. "Prices are below the cost of production for corn and soybeans."

Farmers are waiting far longer than usual to decide which crops to plant, said South Carolina president David Winkles.

"There is so much uncertainty of what you can pencil in for a profit," Winkles said. At the moment, cotton appeared to offer the best prospects, he said, thanks to federal supports.

"The big concern is the input cost," said Winkles.

Wheat, corn and soybean prices soared to record highs last summer thanks to rapid expansion of the fuel ethanol industry. But market prices tumbled last fall.

Parts of the 2008 farm law, enacted on June 18, still must be implemented. Winkles said farmers would oppose any change in the farm safety net.

House Agriculture Committee chairman Collin Peterson said there were no signs the Obama administration would try to cut crop subsidies. "That is not going to happen," said Peterson, Minnesota Democrat.

Peterson said lawmakers would press the Agriculture Department to enforce rules against paying farm subsidies to the wealthiest Americans rather than seek new rules.

The 2008 law bars crop subsidies to people who have more than $500,000 in adjusted gross income from off-farm sources.

Delegates also will hear from the outgoing Bush administration's Agriculture Secretary Ed Schafer.

During a news conference on Friday, Schafer pointed to an unsuccessful Bush administration proposal to cut off subsidies to farmers with more than $200,000 in adjusted gross income.

"We encourage the new administration to look at this again," Schafer said.

Deputy Agriculture Secretary Chuck Conner said the Bush administration proposed "a modest change" in the "very, very loose" eligibility rules for subsidies. It would require people to document their management activities when they claim crop subsidies. The rule would take effect after Obama is in office.

(Reporting by Charles Abbott; Editing by David Gregorio)

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