Chicago Tribune / By Judith Graham
Last spring, farmers in the Corn Belt were dreading the prospect of a hot, dry summer that would parch their fields and shrivel their crops. Now, they're looking at what could be the best harvest of a lifetime--yet chafing at the low prices that accompany such abundance.
This year's corn crop should be a record breaker, agriculture officials said Friday, with as many as 10.4 billion bushels expected, a 10 percent boost over last year. That would be the largest corn harvest since records started being kept in 1866.
If the weather holds, soybean crops also should reach unprecedented highs, according to the first official crop estimates by the U.S. Department of Agriculture. The agency projected a bean crop of 2.99 billion bushels, up 13 percent from last year, based on actual counts of what's coming up in the fields.
Certainly, farmers are relieved their worst fears didn't come to pass. But feelings are decidedly mixed as they confront the lowest prices of the last 13 years. Experts suggest prices are likely to slip further as the huge corn and soybean harvests come in, beginning in September.
"This will probably be the most abundant harvest we have ever seen," said Phil Simpson, a farmer south of Springfield, in Dawson. "But the prices are very, very bad."
Ironically, the logic of agricultural markets appears to dictate that these good times will have some unfavorable consequences.
For one, the lower that prices fall, the more the government will pay under its safety net "loan deficiency payment" program for farmers, which guarantees a minimum price per bushel for corn and soybeans. So, the most productive year in the Corn Belt's history looks like it will become an extremely expensive year in terms of government subsidies. (Farmers also are still getting a separate transition subsidy under the 1996 Freedom to Farm Act.)
According to an informal estimate by Terry Francl, senior economist at the American Farm Bureau, government "loan deficiency" subsidies for corn and soybeans alone could reach $10 billion or more this growing season. Currently, the cash price in the Iowa countryside is $1.30 to $1.40 per bushel of corn, significantly less than the $1.89 government price guarantee. Soybeans are at about $4, well below the $5.40 minimum.
"It's a sad state of affairs when a bushel of corn is worth no more than a cup of coffee," said Don Hutchens, executive director of the Nebraska Corn Board.
What's more, the vast amount of corn harvested this year won't be consumed by demand from either consumers or commercial markets, experts believe. And so the already large glut of corn sitting in grain elevators will swell to 2.3 billion bushels of unsold stock at the end of this growing season, up from 1.8 billion bushels last year, predicts Dan Zwicker, a market analyst with AgriVisor Services, an affiliate of the Illinois Farm Bureau. Soybean stocks could grow to 480 million bushels, up from 300 million last year, he said.
In turn, that huge supply will put significant, ongoing pressure on agricultural prices in the year ahead. "When you have product reserves at these levels, it's a price depressant," Zwicker said. And so even more government subsidies will kick in going forward, unless demand from export markets grows faster than is expected.
To some extent, this year's Corn Belt successes underscore technological advances--better seed stocks, better management techniques--that continue to make farming in the Midwest more efficient and productive. But to some extent, it's a very big surprise.
It wasn't what farmers expected back in the spring, when government agriculture and weather officials issued a severe drought forecast, the first official action of its kind in the nation's history.
Impressed by the government's apparent certainty, and worried by the drier-than-average fall and winter that had just passed, farmers sprang into action. They planted crops in early April, two to three weeks ahead of the normal schedule. They planted in stream and creek beds that usually are wet but this year were dry, filling almost 2 million extra acres. And they held back on selling reserve supplies, hoping that the smaller crops of the summer would result in higher prices. Then, many farmers figured, they'd get a better deal for all their hard work.
They were wrong. Instead, the rains came in May and the stands of corn flourished. When it became clear the drought was a phantom and crops would thrive, prices began to plummet, and speculators who had entered the market exited. And farmers such as Gene Manternach of Cascade, Iowa, who usually sell off their leftover product in the spring but who held on to the stocks this year in anticipation of summer price increases, were left holding the bag.
"My problem is going to be having room for all this new crop in my bins, since they're already full from last year," said the fourth-generation farmer, who lives between Dubuque and Cedar Rapids. "I guess I'm going to sell the new stuff for whatever I can get this fall direct from the fields."
Some frustration is being directed at the National Weather Service, which rolled out its drought forecast in March with much fanfare, including a warning to farmers to get ready from Dan Glickman, agriculture secretary. "It think it would be appropriate for $2 billion to $3 billion in subsidy payments to come out of (the weather service's) budget, not USDA's," said Francl, the American Farm Bureau economist. "It was very unfortunate they made the statements they did."
But those hurting the worst aren't the farmers who got the rains instead of the drought. They'll get government subsidy payments and end up all right, agricultural economists said. Instead, it's the farmers in pockets of the Midwest where drought actually has settled in--southwest Nebraska and northwest Iowa, in particular--who are in real trouble.
That's because in those areas there either are no corn or soybean crops at all or much smaller yields than usual. Since government loan subsidies are based on the number of bushels grown, the farmers who are hurting the most financially will get the least assistance.:
