Record Farm Profit Amid Drought Raises Questions of Aid

A projection that U.S. farmers will make a record profit amid the worst drought in more than five decades shows that government help for producers can be scaled back, critics say.

Higher prices and crop-insurance payments will outweigh losses from dry conditions, propelling aggregate farm profits to $122.2 billion this year, up 3.7 percent from 2011, the U.S. Department of Agriculture forecast yesterday.

“It’s compelling evidence that what started out as a basic safety net has become a program that is essentially guaranteeing business income,” said Craig Cox, head of agriculture and natural-resource programs for the Environmental Working Group, a Washington-based advocacy organization that opposes many farm subsidies.

Federal crop insurance dates to the Dust Bowl droughts of the 1930s. The program and subsidies were boosted in 2000 as lawmakers sought to use them as a way to avoid near-annual disaster-aid appropriations that the Congressional Research Service says cost taxpayers $68.7 billion from 1989 to 2009.

This year the USDA has declared natural disasters in more than 1,800 counties in 35 states, or more than half of the country’s total, mostly because of the dry, hot weather. Futures prices for corn surged 57 percent since mid-June through yesterday. Soybeans were up 31 percent and wheat 40 percent.

Crop Sales

The sale of crops this year will result in an estimated $222.1 billion for farmers, up 6.7 percent from the year before, according to the USDA projections. Receipts from livestock and livestock products will total $165.8 billion, down 0.1 percent. Farm-related income, a category that includes government-backed crop-insurance payments, will be up 32 percent to $34.5 billion, while other federal subsidies will rise 6.3 percent to $11.1 billion, the USDA said.

Some agricultural sectors are faring better than others. Corn and soybean producers will see record income, buoyed by high prices for farmers who have crops and insurance for those who don’t. Meanwhile, milk receipts will fall 11 percent and livestock income will stay flat as dairymen and ranchers deal with feed costs that will jump 13 percent, the USDA said.

The differences among producers argue for a robust insurance program, said Bob Young, chief economist for the American Farm Bureau Federation, the largest U.S. farmer group.

Corn Crop

“If you’re one of the lucky guys with something to sell, you’re OK,” Young said yesterday in an interview. “If you’re the guy who was expecting 180 bushels and you got 20, you need something to help with your costs.”

This year’s corn crop, the country’s most valuable, will total 10.779 billion bushels, 17 percent smaller than last year, the USDA said this month.

Under the crop-insurance system, the government covers about 60 percent of premium costs. It shares profits with private insurers some years and covers part of the payouts in disaster years.

Because the programs are commonly based on average yields over 10 years, future payouts will be lower in drought-struck areas.

Agriculture Secretary Tom Vilsack said in an e-mailed statement that while “strong farm income” will help many farmers and ranchers through the drought, “it is important to remember that thousands of farm families, particularly livestock and dairy producers, continue to struggle.” Vilsack repeated his call for Congress to pass a new farm bill that will provide “more certainty” for agricultural producers.

Farm Bill

Phone calls and e-mails seeking comment from Debbie Stabenow of Michigan, the Democratic chairwoman of the Senate Agriculture Committee, and Republican Representative Frank Lucas of Oklahoma, Stabenow’s House counterpart, were not returned.

A plan that would provide $383 million in aid to livestock producers, who aren’t covered by government-backed insurance, has stalled in Congress, as have efforts to pass a bill governing agricultural policy for the next five years, before current law expires Sept. 30. Both the House Agriculture Committee and the U.S. Senate have approved bills that would eliminate about $5 billion in annual subsidies paid directly to farmers while boosting other support programs, including insurance, by smaller amounts.

New subsidies are needlessly extravagant in a time of record deficits, according to Josh Sewell, a policy analyst for the Washington-based group Taxpayers for Common Sense. Essentially, government programs are eliminating the element of risk from agriculture, he said.

“Agriculture’s been on a big run of record or near-record profits for years,” he said. “What we have now isn’t a safety net, it’s a springboard toward profits.”

In July, when his panel approved its farm bill, which contains new funding for insurance programs, Lucas called the legislation “a balanced, reform-minded, fiscally responsible bill that underscores our commitment to production agriculture and rural America.”

To contact the reporter on this story: Alan Bjerga in Washington at abjerga@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net

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