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Old idea that's timely

Agriculture.com Staff 02/18/2009 @ 2:32pm

I'm heading out on a limb to back an idea that's never been hugely popular with grain growers. There aren't too many of us out here. There's the National Family Farm Coalition, the American Agriculture Movement, and the American Corn Growers Association. And I shouldn't forget the respected agricultural economist, Daryll E. Ray, who heads the University of Tennessee's Agricultural Policy Analysis Center.

What do we all have in common?

We favor reestablishing some kind of significant national grain reserve.

As early as last May, Ben Burkett, a vegetable grower who is president of the National Family Farm Coalition, was complaining that the new farm bill has no grain reserve.

"We are now just one weather disaster away from seeing $10-a-bushel corn or $20-a-bushel wheat with absolutely no plan in place for such a calamity," he said.

At the time, many of us probably would have asked what was wrong with $10 corn.

Now we know.

The Corn Belt didn't have a serious drought last year. But planting delays and widespread flooding in Iowa and nearby states helped push cash corn prices above $7 last summer. A few fortunate corn farmers sold near the high. Most didn't.

Only months after that, one of the nation's largest ethanol companies, VeraSun Energy, was bankrupt. So was the chicken producer, Pilgrim's Pride. Overexpansion and management undoubtedly were factors, in VeraSun's demise. In hindsight, we know that speculators helped drive grain prices upward.

But 2008 was a classic example of the saying, "Nothing cures high prices like high prices." In a recent supply/demand report, the USDA trimmed expected corn use for ethanol by about 300 million bushels.

I've written about this before. And I've heard from many of you who say that grain reserves are a ceiling on market prices. They are. But they also provide some stability for feedlots, ethanol plants, and other end users.

Last year we saw what happens to your customers when they're whipsawed by extreme price volatility. The effect of end users going out of business was probably far worse for your bottom line than any weight on prices from a reserve. Grain prices didn't just hit a ceiling, they fell like a rock. The collapse of the general economy had a lot to do with that, too. But a widespread drought like the one we saw in the Corn Belt in 1988 would be just as bad, maybe worse, for agriculture.

Unlike some members of groups who want to reestablish the supply management that existed until the 1996 farm bill, I don't see grain reserves as a route to prosperity.

The larger commodity groups that have long promoted new uses for our crops -- ethanol, plastics, lubricants, and other products -- have the real answer for driving prices higher.

But those industries cannot thrive without a reliable supply of inputs. A drought on the scale of 1988 would make last year's food-vs.-fuel debate look downright polite.

Conventional wisdom says international trade will fill any gaps. Economist Daryll Ray disagrees.

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