Bloomberg News

Lower Crop Prices Seen Erasing Savings in U.S. House Farm Plan

June 14, 2013

A drop in the price of corn, rice and other crops may trigger so much additional aid to farmers under a bill being considered by the U.S. House that it would wipe out the bill’s projected savings in crop subsidies, according to a study by opponents of the measure.

A 15 percent drop from the government’s projected prices for corn, rice (RR1:US) and other crops, for example, would trigger payments of $6.9 billion a year, exceeding by 40 percent the cost of programs lawmakers plan to cut, Nick Paulson, an assistant professor at the University of Illinois, said in a study published today by Environmental Working Group, which opposes the proposed $939 billion House bill. Higher support prices and new insurance programs would raise farmer payouts and leave taxpayers a bigger bill, the report said.

“What the new programs do is create the exposure to potentially greater outlays” because they’re price-based compared with the fixed-payment approach that now covers much of subsidy spending, Paulson said in a telephone interview yesterday. “The expected cost is less, but the potential cost could be larger.”

The farm bill benefits crop-buyers such as Archer-Daniels-Midland Co. (ADM:US), grocers including Supervalu Inc. (SVU:US) and insurers including Wells Fargo & Co. and Ace Ltd. (ACE:US) Lawmakers have sought to revamp the subsidies for almost two years.

Prices of corn and soybeans, the two most valuable U.S. crops, have entered a bear market after reaching records last year, during the worst U.S. drought since the 1930s. Corn traded in Chicago closed yesterday at $5.3525 a bushel, down 37 percent from its Aug. 10 peak, while soybeans cost $13.005, a decline of 27 percent from its record reached Sept. 4. Wheat is also down, while cotton and rice prices have risen this year.

The Senate on June 10 approved reauthorizing all U.S. Department of Agriculture programs, at a cost $955 billion over 10 years, by a 66-27 vote. The House, which last year declined to debate a plan crafted by its agriculture committee, may take up its version of a law next week.

The Senate bill is S. 954. The House bill is H.R. 1947.

Environmental Working Group funded the study, Paulson said.

Editors: Steve Geimann, Jon Morgan

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


Silicon Valley State of Mind
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

Companies Mentioned

  • ADM
    (Archer-Daniels-Midland Co)
    • $49.8 USD
    • 0.11
    • 0.22%
Market data is delayed at least 15 minutes.
 
blog comments powered by Disqus