Ag Econ 101:

What Goes Up Does Come Down

By ART CULLEN

Corn prices hit 30-month highs the last week in January at $6.69 per bushel in Chicago based on surging demand, a weak dollar and political unrest in Egypt.

A tract of land my Northwest Iowa county recently sold for more than $9,000 an acre — a record high for Buena Vista County.

The United Nations’ Food and Agriculture Organization reported that food prices hit all-time highs in January. “Upward pressure on world food prices is not abating. These high prices are likely to persist for months to come,” said Abdroleza Abbasian, an economist with the United Nations.

Agriculture Secretary Tom Vilsack in a recent interview was bullish about corn and beans for as far as the eye could see. “We’re going to have steady to strong markets for quite some time,” he said.

Sound like 2008 to you?

That July, corn crested over $7.61 per bushel. By Dec. 5 the price was at $2.90 as world markets and weather recovered — following a lot of hand-wringing and jawboning over world food costs and the instability it engenders.

Rules of gravity apply in ag economics: What goes up must come down.

One might recall that in 2005 on Dec. 31 the corn price was $1.86 per bushel.

We took our fatalistic view to Sen. Tom Harkin, D-Iowa, who until last year chaired the Senate Agriculture Committee.

With all the talk of deficit reduction, what becomes of the farm safety net under American row crop production agriculture? Will there be one when the next farm bill is written in 2012?

“There will be some kind of safety net,” Harkin replied. “Agriculture is unique enough that we’re going to need a safety net.”

But it will be one that doesn’t cost much when times are good, the senator said.

And he did not talk much about direct government grain marketing, as has been the model since the New Deal. Instead, Harkin led the conversation talking about crop insurance and revenue assurance — the new ACRE program that pays a farmer based on historical revenue baselines.

“I do think we have support for that,” Harkin said.

He failed to mention his own Conservation Security Program, which pays farmers for voluntary soil and water stewardship.

Across the Capitol in the House, the view might be different. It is controlled by Republicans elected on the promise to slash government spending and reduce the budget deficit.

“I’ve been saying now to folks for months and months and months that everything is on the table,” said House Ag Committee Chairman Frank Lucas, R-Ok., in an interview with AgInfo.net.

“They got to all be up to a scrubbin’ to see what’s working and what’s not working,” added Rep. Mike Conaway, R-Texas, who chairs the ag subcommittee on general farm commodities and risk management.

Conventional wisdom holds that direct payments instituted in the 1986 Farm Bill are history. Harkin said they were supposed to expire in 2002. “We’re still making those payments today,” Harkin said.

Many will remember that 1986 Farm Bill as the one that rescued Iowa from the depths of the Farm Debt Crisis. High corn, soybean and land prices led to a diminished safety net from those who thought that $4,000 land was the new paradigm in 1984. By 1985 the new paradigm was $1,500 per acre.

Corn carried close to the $2 range throughout the 1980s and 1990s, until ethanol ramped up in a big way. Most of the ethanol seers now say that corn is but a stepping stone to a new ethanol feedstock — algae, beet sugar, switchgrass or some other non-corn energy source. Ethanol is said to represent about a third of the value of a bushel of corn.

“It has to be more than corn-based,” Vilsack said of the ethanol industry.

Should something happen to the corn ethanol market, such as lower oil prices, different environmental regulations or a changed political environment, that safety net could be needed.

“If the bottom falls out we have to have it,” Harkin said.

And he did not argue that the bottom could not fall out.

From The Progressive Populist, March 1, 2011