Tuesday, November 24, 2015

Farm Bill Funnels Money to Overproducing Peanut Farmers


A mountain of peanuts is piling up in the U.S. south, threatening to hand American taxpayers a near $2-billion bailout bill over the next three years, and leaving the government with a big chunk of the crop on its books.Peanut growers in states including Georgia and Alabama boosted sowing acreage by a fifth this spring and now are wrapping up harvesting their 3.1-million-ton crop, the second-largest ever, even as prices plumb seven-year lows...
One way or another, U.S. farmers look set to keep producing more peanuts than Americans can consume, leaving taxpayers on the hook.
First, the U.S. Department of Agriculture (USDA) is paying farmers most of the difference between the "reference price" of $535 per ton (26.75 cents per lb) and market prices, now below $400 per ton. A Nov. 18 report to Congress estimates such payments this year for peanuts exceed those for corn and soybeans by more than $100 per acre.
Secondly, government loan guarantees mean once prices fall below levels used to value their crops as collateral, farmers have an incentive to default on the loans and hand over the peanuts to the USDA rather than sell them to make the payments....
Through forfeitures, the USDA amassed 145,000 tons of peanuts from last year's crop, its largest stockpile in at least nine years, according to data compiled by Reuters.That stockpile is enough to satisfy the average annual consumption of over 20 million Americans - more than the population of Florida - and puts the administration in a bind.Storing the peanuts in shellers' and growers' warehouses comes at a cost. Selling them could depress the market further and in turn would add to the price subsidy bill.
Payments to peanut farmers could total between $960 million and $1.9 billion through fiscal 2018, according to estimates from the Congressional Budget Office (CBO) and USDA projections cited in the Congressional Research Service report.
The higher costs come as the 2014 Farm Bill set high peanut reference prices relative to historic averages and cut support for production of cotton, an alternative crop, encouraging growers to dedicate more acres to peanuts, the report and experts said.
The government spends far more on big cash crops such as corn, wheat and soybeans, with support for corn alone expected to cost $3.6 billion this year, according to CBO estimates. Yet relative to crops size and value, peanut crops are costlier, with payments worth more than a third of the crop's value.
I anticipate we are going to see a massive increase in government subsidies to farmers in all of the commodity programs.  Most corn and soybean farmers signed up for the program that guaranteed them payments in the next two years, but if prices continue to fall, I expect disaster payments or other program modifications to be made to ensure that farmers receive larger payments.  We had a massive commodity bubble, and the popping of that bubble will be extremely painful for rural areas which only had that bubble to keep them from being pummeled through the recession which mangled the manufacturing and construction sectors of the economy.  Farmers vote, and politicians know this.  There will be a multitude of articles similar to this in the next few years, although many will focus on other commodity crops.  We had our seven good years, you can expect we'll have seven or more bad ones.

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