WASHINGTON, Nov. 11 – After meeting with fellow Democrats serving on the Senate Agriculture Committee yesterday, North Dakota Sen. Kent Conrad told reporters that “we don’t have anything in writing, we’ve not reached conclusion. So it’s really impossible to say where we are.”
Agriculture committee leaders had previously pledged to produce a package of $23 billion in farm bill cuts that would be delivered to the Joint Select Committee on Deficit Reduction by Nov. 1.
Although negotiations continue, some farm and commodity groups are pushing back against what they view as major reversals in farm policy reforms achieved over the last few farm bills. Under one option being considered, target prices would be set in relation to operating costs and payments would be tied to planted acres rather than being decoupled. Payments would be based on prices for crops that had established base acres.
“We’ve worked for 20 years plus at building up markets,” explained American Soybean Association president Alan Kemper, “But with Chairman Lucas possibly looking at tying target prices to cost of production, this really seems to be regressive.”
According to sources familiar with the one of the commodity title options under discussion, target prices for wheat would be set at $5.50/bushel and rice at $14.00/cwt. Currently, target prices for counter-cyclical payments are $4.17.bu for wheat and $10.50/cwt. for rice.
Although has not been told at what level target prices would be established for soybeans and corn, some corn and soybean growers fear that market distortions could result when market prices are at or below the target prices under this type of “recoupled” program. They also argue that operating costs are not a determinant of crop prices, and weighting them more heavily in setting target prices would be particularly negative for soybean production.
“Unless it is equalized, it will make 3 million acres of rice maybe explode to 5 or 10 million acres. At the same time, we’ve increased soybean acres by about 20 million acres over the last 15 years and we might be shrinking that back down,” Kemper told Agri-Pulse. “This is not allowing markets and economics to function.”
For example, if you assume that target prices are established that are twice as high as recent operating costs, targets would be $3.80 for corn and $5.58 for soybeans. If prices for both crops fell low enough that these target prices determined producer returns, it would imply a net return that is far greater for corn than for soybeans in terms of dollars per acre. Here’s why.
Corn: $3.80 target price - $1.90 operating cost = net return of $1.90 per bushel x 150 bushels per acre (avg. yield/planted acre in 2009 and 2010) = net return of $285 per acre.
Soybeans: $5.58 target price - $2.79 operating cost = net return of $2.79 per bushel x 47 bushels per acre (avg. yield/planted acre in 2009/2010) = net return of $131 per acre.
Given those kind of expected returns, any rational producer would plant corn, according to sources who are analyzing potential commodity title options. This occurs because the per-acre cost of growing soybeans is so much less than that for growing corn, but the same would apply for cotton and other crops grown in rotation with soybeans.
ASA believes believes farmers deserve the right to make their own agronomic and economic choices based on the market, Kemper added.
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