The US Department of Agriculture announced last week that it will spend $20 million to buy 5,500 tons of cheese from American dairy farmers. The food will be given to families in need, but charity is only a byproduct: The purpose of the purchase, according to a USDA press release, is “reducing a cheese surplus” and “assisting the stalled marketplace for dairy producers whose revenues have dropped 35 percent over the past two years.”
By recent standards, this isn’t exactly a massive bailout-we’re talking millions of dollars, not billions-but it could be an ominous sign of things to come.
All across American agriculture, production is up and prices are down. This fall, on my farm in Iowa, I expect to have a bumper crop of corn, growing more than 200 bushels an acre. But corn prices have tanked, dropping to about $2.85 a bushel today from $6.50 three crop-seasons ago. When I go to sell at the local elevator I expect to lose as much as $1.50 a bushel.
Other farmers who grow different crops will suffer large losses as well, many for the third year in a row. Cutting back on production wouldn’t help because farmers have substantial fixed costs-rent, land taxes, insurance, depreciation of equipment, seasonal labor. So instead we’re going to hear more demands for emergency aid.
The National Milk Producers Federation probably hopes that the USDA’s recent cheese purchase is only a down payment. In an Aug. 12 letter to Agriculture Secretary Tom Vilsack, the federation requested up to $150 million in special assistance. The same day, Sen. Jerry Moran, a Kansas Republican, asked Mr. Vilsack to buy up excess wheat. Boosting the ethanol mandate from a 10% blend to 10.5% or even 11%, a discussion that is beginning in the ag community, would help corn farmers, though it would also raise gas prices.
Perhaps a few of these short-term measures make sense. But even if they don’t, many farmers will applaud them, joined by the bankers and suppliers who want to be paid back for the farm loans they’ve made and the tractors they’ve sold.
The calls for help could grow even louder in another few weeks: We’re on the threshold of what might be the biggest harvest in the history of American farming. In my area, the weather has been about perfect, with hot days, cool nights and timely rains, plus no major storms or flooding. I’m hearing similar reports from farmers who grow wheat and soybeans in other states. Advanced seed technologies, improved crop protection and the revolution in precision agriculture are helping American farmers grow more food than ever before.
Normally this would be excellent news. Yet we’re in a moment of oversupply and weak demand, caused by three consecutive years of good weather. On top of that, the strong dollar discourages exports. This year’s huge harvest will make a bad problem worse.
Most farmers will simply have to tough it out. Some years, when both yields and prices are high, we hit it big. In 2013, I remember pulling 200 bushels an acre when prices were roughly $6.50 a bushel. That’s when farmers have to save our money for days like these. Over time, we enjoy gains, suffer losses and eke out a living.
There’s an old saying that the cure for cheap corn is cheap corn. Today’s oversupply will persuade many farmers to switch to other crops, such as millet or pinto beans. Next year’s commodity markets could look very different, depending on everything from the weather to those thousands of individual choices that farmers will make in the coming months.
Lawmakers in Washington, D.C., probably can’t stop themselves from reacting to the problems of the moment. But if they really want to help American farmers they’d be wiser to focus on expanding long-term opportunities. Foreign customers already buy more than $130 billion in U.S. farm products each year according to the USDA. That includes more than $20 billion of soybeans and oilseeds and nearly $6 billion in beef. Asian countries might be encouraged to buy even more, if only Congress would approve the Trans-Pacific Partnership, the proposed trade agreement between the U.S. and 11 other nations. Courtesy The Wall Street Journal