February 26, 2009 / 4:44 PM / 10 years ago

U.S. farmers face shrinking markets, subsidy woes

WASHINGTON (Reuters) - American farmers will face shrinking export markets and sharply retreating prices this year, while some of the richer ones will fight to hang on to long-cherished subsidies.

After a record-shattering year, U.S. farm exports could shrink by $20 billion in fiscal year 2009 to $95.5 billion as global economic growth posts its worst performance in the post-World War Two era.

“What a difference 12 months makes,” Joseph Glauber, chief economist for the U.S. Department of Agriculture, said on Thursday at USDA’s annual outlook conference.

“We have seen prices for most commodities fall 40 to 50 percent from their mid-year peaks,” said Glauber.

Last year, as poor around the globe worried about soaring food prices, American farmers flourished with exports rising $33 billion to a record $115.5 billion.

But this year, with margins and farm income under pressure, farmers are expected to slash planting of major crops by 5.2 million acres to some 247.6 million acres.

The world is awash in wheat after last year’s bumper crop, putting further pressure on prices, Glauber said.

But U.S. consumers are not expected to get a break at the grocery store. U.S. meat prices are headed higher in 2009 as part of a broader jump for all foods that will hit shoppers already bruised by the deepening global recession.

“I don’t think we can avoid higher retail price food inflation in the meat category, the question is when it happens,” Bill Lapp, president of Advanced Economic Solutions, told the conference.

The USDA has forecast food prices will jump 3.5 percent in 2009, marking the third straight year where prices have risen by that level or higher. For his part, Lapp is projecting a 5 percent jump in overall food prices.

While farmers face a leaner year, President Barack Obama proposed a $250,000-a-year cap on farm subsidies and a phase-out of the direct payments to the largest U.S. farmers in his new budget released on Thursday. There is no effective limit on payments now.

Obama also sought elimination of cotton storage payments, reduction in the crop insurance subsidy and reform of a program to build overseas markets for U.S. goods.

Obama’s proposals reflect campaign pledges to target farm programs toward small- and medium-size growers.

Agriculture Secretary Tom Vilsack told reporters at the conference that the U.S. farm payments cuts could affect only a small number of U.S. farmers.

“These are farms for the most part that receive a disproportional amount of direct payments, and I think over a period of time, the president believes ... that those need to be adjusted,” said Vilsack.

National Cotton Council Chairman Jay Hardwick called Obama’s subsidy cuts “troubling.”

“The president’s proposed limit penalizes the farms that are responsible for the majority of food, feed, and fiber production in the United States,” Hardwick said in a statement.

Senator Kent Conrad, a North Dakota Democrat, said the cuts could be a sensitive issue in his state.

“Twenty percent of the farmers in my state under this budget plan would suffer some significant reductions,” he told reporters.

Congress in 2008 rejected a $250,000 “hard” cap on farm payments but did make modest changes in subsidy rules. Lawmakers also squabbled over direct payments guaranteed to farmers regardless of crop prices or farm profitability.

The White House said a phase-out of direct payments to large growers would save $9.8 billion over 10 years, a one-fifth cut in outlays that run $5.2 billion a year.

Hard times are also hitting the once-robust U.S. ethanol sector, with as much as 15 percent of production capacity likely standing idle, Glauber said.

“The U.S. ethanol industry remains under significant financial pressure as the result of current economic conditions,” Glauber told the forum.

Analyst Aaron Brady with Cambridge Energy Research Associates agreed that “The biofuel industry is going through a painful time right now” with overcapacity and idled plants.

Additional reporting by Christopher Doering, Roberta Rampton, K.T. Arasu and Chuck Abbott; Editing by David Gregorio

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