WASHINGTON/CHICAGO Nov 19 U.S. farmers are
about to reap a bumper harvest not just in corn and soybeans but
also in new subsidies that could soar to $10 billion, blowing a
hole in the government's promise that its new five-year farm
bill would save taxpayers money.
If payments for 2014, the first year the farm bill takes
effect, do come in at that level - as some private economists
have calculated - they would be more than 10 times the U.S.
Department of Agriculture's working estimate and more than
double the forecast by the Congressional Budget Office.
Farmers will be in line for payouts if revenues fail to meet
benchmarks tied to long-term price and production averages. Both
the USDA's and the CBO's estimates were made before crop prices
tumbled this year on oversupply from a huge harvest.
The farm budget blowout for 2014 is unlikely to cause a
furor in Washington, despite the clamor for cost-cutting among
Republicans who now control Congress. The trillion-dollar farm
bill took so long to enact because of controversy over some of
its other major planks, including food stamps for low-income
families, that lawmakers are loathe to re-open it.
From Monday, farmers were able to start signing up for the
compensation programs. Most participants will be the families
who own and operate about 98 percent of all U.S. farms, large
"The (farm) bill actually did little to rein in costs," said
Republican Representative Tom Petri of Wisconsin, in an emailed
statement. "What we're seeing is a program that still costs far
more than it should and fails to include reforms that actually
save taxpayer dollars."
The farm bill's new programs were meant to cost the taxpayer
less by replacing a nearly two-decade-old scheme of direct cash
payments to farmers, which were about $5 billion a year and were
made regardless of need.
But the payouts for 2014 now look likely to far exceed that
Because of ample supplies, corn prices have fallen well
below the long-term average price used as a benchmark for one of
the new programs. Ironically, this year's bumper harvest may not
be large enough to compensate for those price falls and revenues
for some farmers could be low enough to trigger payments.
"Crop insurance has drifted away from that basic safety net
concept and the farm bill has taken it even farther away," said
analyst Craig Cox of The Environmental Working Group, a
non-profit, non-partisan body that researches environmental
health, food and agriculture.
"IT'S GOING TO BE EXPENSIVE"
In August, the USDA forecast subsidies for the 2014 crop
under the farm bill's Agriculture Risk Coverage (ARC) and the
Price Loss Coverage (PLC) programs would be $762 million, using
$4.20 per bushel for corn as an average market price for 2014.
It put average annual payments over the lifetime of the bill at
The CBO, forecasting in January before the farm bill became
law, put the 2014 payment for both ARC and PLC at $3.8 billion
and the average annual figure at about $2.3 billion.
As forecasts are based on several variables, including price
and the amount of crop produced, estimates can change. The
long-term average used as the benchmark also alters in coming
years as it always reflects prices in the previous five years.
Corn futures on the Chicago market hit a five-year low of
$3.18-1/4 per bushel in October and are now around $3.70 per
bushel. The USDA estimated in its monthly report on Nov. 10 that
the price would be between $3.20 and $3.80 per bushel for the
crop year that runs from Sept. 1, 2014.
Chris Hurt, professor of agricultural economics at Purdue
University and a regular speaker at farm investment conferences,
estimates that support payments to the average Indiana farm
using the farm bill's formula and an average 2014 corn price of
$3.40 bushel would be around $70 an acre under the ARC program.
"It's going to be expensive," he said, adding that Indiana
would be fairly typical across the country where about 85
million acres could be sown to corn. "That's $6 billion for corn
for 2014 alone. Maybe $8 billion to $10 billion is likely in the
first year when you consider other crops," he said.
Patrick Westhoff, director of the Food and Agriculture
Policy Institute, said he calculated payments could reach $8
billion for the 2014 crop for ARC and PLC. Congress set up the
institute to prepare forecasts for the agriculture sector.
The USDA said it was too early to know what the actual cost
of the farm bill payments would be this year.
USDA Chief Economist Joe Glauber conceded that ARC payments
could be high this year and next. But, "if prices remain low,
those ARC guarantees will be potentially getting much, much
smaller over time," he told Reuters.
Farmers have until March to sign up for the new programs and
must choose only one. Payouts for the 2014 crop will come next
October and the average price for the year will be set then.
The program likely to be most popular is ARC, which
calculates compensation based on a 5-year average of national
prices and county yields, less the high and the low. The PLC
program uses a reference price, currently at $3.70 per bushel
(Editing by Ross Colvin)