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Moneywise

April 9, 2009
 
 


Setting priorities in ag and food

Under President Obama's budget, direct payments to the 126,000 farmers with sales of more than $500,000/year would be phased out over the next three years. This would save $9.8 billion over 10 years, or about 20% of the $5.2 billion spent annually on the payments. That about equals the boost in childhood nutrition programs Obama favors.

The budget also calls for a $250,000 cap on commodity program payments. Comparing Census years and allowing for price inflation, it would have taken almost $350,000 in sales of all farm products in 2007 to equal $250,000 in 2002 (see chart below).

"It just doesn't make sense to cut subsidies to farmers based on gross sales when our input costs are historically high and recent grain price volatility has made our income so unpredictable," says Bing Von Bergen, president of the Montana Grain Growers Association. "A farmer could have a negative net return and still see a cut in safety net support."

Indeed, according to USDA data, more than 12% of farmers who are part of an operation with sales greater than $500,000 have negative household income due to ever-increasing input costs, including fuel, fertilizer and equipment.

Furthermore, a single farm with $500,000 in sales could be supporting multiple branches and generations of a farm family, says Bob Hansen, president of the Montana Farm Bureau.

Finally, farms with sales of more than $250,000 are far more reliant on farm income than those in lower sales categories. So larger farms are more vulnerable in bad times.

The Obama budget also proposed reducing crop insurance subsidies, requiring farmers to pay more and sellers to take less. —Linda H. Smith



 



U.S. farmers today

3,281,534 All farm operators (defined by sales over $1,000)

23,350 Farmers who list agritourism as part of their operation

$557 million: Value of agri-tourism to agriculture

20,437 Number of organic farmers

12,549 Farmers who sell through community-supported agriculture

1,399,791 Operators who say farming is their primary business

1,881,743  Operators who list something else as primary business

1,313,817 Operators who work 200 or more days off the farm

1,117,957  Operators who say they have no off-farm income

418  Average acres in a farm as defined (sales over $1,000)

 



Lock in margins

Keith Swanson, manager of dealer risk management services for CHS Inc., told USDA's Ag Outlook Forum that the U.S. fertilizer industry was lacking in risk management and hedging skills. "Retailers typically buy six to nine months ahead, while sales are just-in-time. So they haven't worked through high-priced inventory yet," he said.

The crop nutrient industry is on the speculation end of the risk-management spectrum, he added, buying when they think the price is low and holding to sell higher at demand time. He tries to move them closer to the hedger end, with zero risk.

Swanson tells retailers to work with farmers to lock in margins by contracting both inputs and grain sales. —Linda H. Smith



Stimulus bill perspective

Commenting during the Ag Outlook Forum on the difficulty people have in grasping large numbers such as the $3.6 trillion in the Obama budget, Ag Secretary Tom Vilsack gave these benchmarks to put things in perspective:

 

  • 1 million seconds ago was last week
  • 1 billion seconds ago was 1974
  • 1 trillion seconds ago was 30,000 years before Christ

 















One-liners

"Don't allow life to make decisions for you by just following the path of least resistance."
Marc Thompson, Laminators Inc., Hatfield, Pa.

"In good times, we load up on the overhead."
Dave Kohl, Virginia Tech ag economist

 

 

 



Top Producer, Spring 2009

 

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FEATURED IN: Top Producer - SPRING 2009

 
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