Federal Government and Energy & Environment and Environment and Agriculture/Farming and Government & Economic Development and Government

Farm subsidies may face cuts amid record profits

October 4, 2011

U.S. farmers earning record profits are fighting to maintain agricultural subsidies, a likely target of the congressional supercommittee working to reduce federal spending.

Farm-state members of Congress and agriculture industry lobbyists say they want to make sure that agriculture takes no more than its fair share of cuts as the panel of 12 lawmakers attempts to trim $1.5 trillion from the federal budget deficit in the next 10 years.

The Department of Agriculture forecasts record farm profits of $103.6 billion this year as livestock sales expand and exports set records. Farmers’ relative prosperity while unemployment remains stuck at 9.1 percent has made them inviting prospects for cuts, said Mark McMinimy, an analyst for MF Global Inc. in Washington, D.C.

“Given the outsized deficit and weakness in the rest of the economy, you have to ask, is this really the best place to spend federal dollars?” McMinimy said. “Payments are becoming less defensible.”

Farm-program supporters have reason to be nervous because both Democrats and Republicans have called for steep cuts in farm programs as part of a budget deal, and only one congressional agriculture committee member — Democratic Senator Max Baucus of Montana — is on the 12-member supercommittee, McMinimy said.

Crop-price increases, which result in lower subsidies under the formulas for some programs, will drive down payments to an estimated $10.2 billion this year, less than half the record $24.4 billion in 2005, according to government data going back to 1929.

Federal subsidies encourage greater production and reduce raw-materials costs for grain traders such as Cargill Inc., Bunge Ltd. and Archer Daniels Midland Co. Meatpackers that rely on corn-fed livestock, including Tyson Foods Inc., and food processors such as Kraft Foods Inc. also benefit.

President Barack Obama last week proposed a $33 billion, 10-year cut to farm programs as part of his debt-reduction plan. It includes shrinking so-called direct payments to farmers, which are made regardless of commodity prices, and in crop insurance, where the government subsidizes overhead costs to companies including Wells Fargo & Co. to encourage them to underwrite policies.

“We view the president’s proposal like we view the president’s budget,” said Rep. Collin Peterson of Minnesota, the top Democrat on the House Agriculture Committee, who said Congress will ultimately decide spending. “They put all this stuff in, and we ignore it,” he said.

Republican Rep. Paul Ryan of Wisconsin, chairman of the House Budget Committee, proposed about $30 billion in farm-subsidy cuts over 10 years in April, and reductions in farm aid also have been urged by Sen. John McCain, an Arizona Republican, and Rep. Ron Kind, a Wisconsin Democrat.

Corn futures surged 25 percent in the year ended Monday, cattle climbed 23 percent, and hogs and soybeans gained more than 12 percent on higher domestic use and overseas demand. Most commodity prices have fallen in recent weeks on bleaker economic prospects.

Helped by a weak dollar, U.S. agricultural exports probably reached a record $137 billion in the fiscal year ending Tuesday and will match that figure next year, the Agriculture Department said last month. The U.S. is the world’s largest shipper of farm products.

In June, the House approved a $125 billion bill funding the Agriculture Department that was $7 billion less than Obama requested. More than three-quarters of the department’s budget goes to nutrition programs that assist poorer families.

Those reductions may not be enough to satisfy the supercommittee. Congress set up the bipartisan panel in August in legislation that resolved a standoff over raising the federal debt limit. The panel was instructed to create by Nov. 23 a 10-year plan to cut at least $1.5 trillion from the budget deficit. The law requires automatic, across-the-board spending cuts if Congress doesn’t approve the panel’s recommendations.

Depending on the types and size of cuts the supercommittee calls for, Congress may begin forging a new farm bill late this year or early next year, as lawmakers struggle to keep programs running with less money, House Agriculture Committee Chairman Frank Lucas, an Oklahoma Republican, has said.

The 2008 farm bill, which authorized agriculture programs for five years, was enacted over the veto of President George W. Bush, who balked at its cost.

Four senators, including Richard Durbin of Illinois, the chamber’s second-ranking Democrat, and Richard Lugar, an Indiana Republican, introduced a bill last week eliminating or consolidating several subsidy programs into a plan that would back up crop insurance when farm revenue declines.

“It’s not easy to get the kind of reductions we’re talking about” in the federal budget without significant farm-program cuts, Agriculture Secretary Tom Vilsack told reporters in Washington on Sept. 22. Still, he said, examining what works creates “an enormous opportunity for government to modernize itself,” he said.

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