Not all it seems

Agriculture.com Staff 09/22/2007 @ 10:16am

House Agriculture Committee Chairman Collin Peterson has orchestrated a masterpiece of a farm bill. He got cattle ranchers and meatpackers to agree on mandatory country of origin labeling. He found $1.6 billion in new money for fruit and vegetable growers. Reformers are depressed by his new income test for commodity payments -- you're ineligible if your adjusted gross income is above $1 million. And the committee raised limits and did away with any cap at all on marketing loans. But Peterson pushed Southerners on his committee to agree to give up the three-entity rule. (The rule allows a large producer who has hit payment limits to set up two more business entities that can collect half of the limit. In effect, it doubles their limit on direct and countercyclical payments.)

"Eliminating three-entity is a huge change," Peterson says.

If the Senate adopts similar farm bill language, this means that critics of farm programs will find it easier to trace payments to wealthy individuals, putting even more pressure on future farm bill writers to cap or even end commodity payments.

That pressure isn't over in this farm bill, either. Senators Charles Grassley (R-IA) and Byron Dorgan (D-ND) are pushing the Senate not only to end the three-entity rule but also to firmly cap all payments at $250,000 per farm. That cap would include LDPs.

And some Senators are pushing for bigger changes in commodity programs. Senator Dick Durbin of Illinois, the assistant majority leader in the Senate, favors replacing the countercyclical program with a revenue-based program something like the one favored by the National Corn Growers Association.

"I think the old-time religion we've had on some of the farm bills just really doesn't apply to the market today," Durbin said when he rolled out his Farm Safety Net Improvement Act. That was when the House was wrapping up its more conventional bill. The House bill does offer a one-time option to sign up for a revenue-based plan instead of counter-cyclical payments.

The fact that Durbin and Senator Sherrod Brown (D-OH) had to hold a press conference to announce their bill suggests they don't have a lot of support on the Senate Agriculture Committee. My guess right now is that the final farm bill will include significant changes in areas outside of commodity programs -- more money for food stamps and conservation, and a few crumbs for beginning farmer loans and subsidies for organic farming research. But the commodity title may well be very close to the House version. It's a safety net. But by the year 2012 when the farm bill expires, it strikes me as a net that's about 2 inches above the concrete.

With corn production almost universally profitable today, the House would leave the corn target price at $2.63 a bushel, unchanged from the 2002 farm law. As you probably remember from the pre-ethanol boom days, prices have to fall another 28 cents (the amount of your direct payment) before you start collecting any countercyclical payments. What economists call "the effective target price" is $2.35 a bushel.

How does that compare with your break-even cost per bushel for corn this year? In Greene County, Iowa, it's $2.88, according to an estimate by Iowa State University economists that includes a cash rent payment of $162 an acre. What kind of safety net will $2.35 be for you in 2012, when a 2007 farm bill would expire?

All this isn't to put down the long days and short nights that Peterson and his committee put in struggling with a shrunken federal budget. But like it or not, I think the safety net is being phased out. Marketing and accounting will be your true safety net. For better or worse, the free market that many say they want is arriving.

House Agriculture Committee Chairman Collin Peterson has orchestrated a masterpiece of a farm bill. He got cattle ranchers and meatpackers to agree on mandatory country of origin labeling. He found $1.6 billion in new money for fruit and vegetable growers. Reformers are depressed by his new income test for commodity payments -- you're ineligible if your adjusted gross income is above $1 million. And the committee raised limits and did away with any cap at all on marketing loans. But Peterson pushed Southerners on his committee to agree to give up the three-entity rule. (The rule allows a large producer who has hit payment limits to set up two more business entities that can collect half of the limit. In effect, it doubles their limit on direct and countercyclical payments.)

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