Alex Tiller's Blog on Agriculture and Farming

Does Corn-Based Ethanol Increase Hunger?

Thu, 19 Apr 2012 20:34:00 GMT

I talk occasionally about corn-based ethanol, and the various issues and controversies surrounding this use of agriculture to produce fuel. The questions aren’t simple, and the interplay of economic factors often lead us to counter-intuitive findings.

One such finding – despite the rhetoric of anti-corn ethanol activists, corn-based ethanol doesn’t actually drive up food prices or create hunger. In fact, if we stopped making ethanol from agricultural sources tomorrow, there would be MORE hunger! That’s because one of the most important components in food production and distribution costs is the cost of fuel.

Fuel is used by the farmer driving his tractor and combines. It’s used by the ships and trucks that move produce to market. And most critically, it’s used by the fertilizer industry in the production of modern fertilizers, the foundation stone of today’s incredible crop yields. If fuel prices go up, food-sector productivity goes down – particularly in the developing world, where fuel prices are higher because of a lack of infrastructure, and where trucks are used for inland distribution more than trains or ships.

Ethanol from corn has one important economic effect that is often ignored: it reduces the price of oil. There is insatiable demand for fossil fuels; advanced nations pursuing “green” economies are only slowing the increase in their use of fossil fuels, while the developing world is moving full-speed ahead towards more fossil fuel consumption. That means that any reduction in the supply of oil causes big price shocks as the countries that need oil for their economic survival bid up the price to get what IS available.

It’s hard to know for sure what the impact on oil prices would be if there was an end to ethanol, but a reasonable estimate is a 15% bump. That is an increase that would absolutely devastate food production in the developing world, where fertilizer prices are already high. If developing-world farmers have to pay even more for fertilizers, for many producers the economics of attempting high production just won’t make sense, and they will switch to subsistence farming to meet only local needs. The net result would be an enormous increase in hunger and a greatly increased need for food aid, with all of the deleterious effects that brings.

There are some reasonable arguments in favor of moving away from ethanol – but the food welfare of the developing world is not one of them. On balance, ethanol does those hungry people a service, by making the food they grow for themselves that much more affordable.

Farmland Prices, Forecasts Continue Upward Trend – Latest Figures

Wed, 18 Apr 2012 16:20:00 GMT

Creighton University has released their latest Farmland-Price Index, and as predicted by me and other observers of the farmland market, values have continued on an upward trend, for the 26^th consecutive month. Strong consumer demand and continued low interest rates are thought to be fueling the rise.

Nebraska farmland prices have reached an average $2,410 per acre – up an astonishing 31% from a year ago. That’s the largest uptick in year to year price in the 34 years that the academics have been collecting the data. Other states have posted similar trends, if not similarly outsized returns. Unsurprisingly, investors have been entering the market in increasing numbers; one major Illinois land broker reports that non-farmer investor involvement jumped from 66% of sales in 2010 to 73% in 2011.

Finally, bankers are also showing confidence in the continued strength of the sector. The Confidence Index, a metric that follows bankers’ expectations for rural economic performance over the next six months, rose to 63 in March of 2012, a bump from 60.3 in February. The most pessimistic analysts I am hearing from are predicting slowing and plateauing of growth; nobody is expecting prices to go down. It continues to be a great time to be involved in the rural economy.

Farmland Value Components - Part Three

Fri, 16 Mar 2012 15:10:00 GMT

Over the last couple of weeks I have been talking about some economic analysis of farmland prices done about a decade ago, and how that analysis can help the savvy investor (or farmer) understand the trends in the market price for land.

We understand now that when something permanent or long-term changes in the fundamentals (the interest rate, and the level of farmland rents), this has an impact on farm prices for many years. The current regime of low interest rates means a steady inflationary trend for farmland prices, if other factors remain steady. And we understand that more transient changes in the market – the weather, for example, or world events – will also impact farmland prices, but will tend to do so over the short term rather than the long term.

Most of Falk and Lee’s categories are easy to understand – temporary fundamentals means basically the weather, and every farmer understands the weather in his or her bones; the non-fundamentals tend to be the things that you hear about on the news, but not directly on the farm report. We all know what interest rates are. But what about farmland rent?

Farmland rent is a concept that economists use to cover a whole host of information. A change in the quantity of arable farmland, for example, is going to cause an increase or decrease in average farmland rent, for obvious reasons. Changes in the total global agricultural demand cause a change in rents. Permanent climactic changes can cause a change in rents; if global warming makes all of Canada a breadbasket, we’ll be watching those Iowa land prices sink into the basement. If (as seems more likely) global warming makes all farmland somewhat less productive, we’ll see a somewhat-paradoxical increase in rents. (You would think that less-productive land would be worth less rent, and if everything else was staying the same, that would be true. But if the total output of the farm system goes down, then the importance of each particular piece of land goes up.) Changes in global wealth level can cause a change in rents; aggregate demand may not go up or down, but consumption patterns might shift, making some types of land more or less valuable than others.

The key element to look at is whether a change, innovation, shock, or development is likely to impact the underlying value of farmland or the overall trend of national interest rates. Next in importance is the magnitude of the change. A huge decrease in arable land is going to have a much bigger impact than a modest shift in the eating preferences of a midsized European nation. And remember that in the case of economic shocks, such as the fiscal crises in Europe, there are two important elements: what is the overall economic trend, and of more direct importance, what will it do to interest rates. For example, the current European economic crisis is likely to lead to a decrease in agricultural demand as austerity-pinched citizens of the Eurozone cut back. But the crisis is also likely to keep interest rates down as central banks, including ours, work desperately to hold the value of their currency.

So with all that in mind, what are the current trends looking like? I am going to go into more detail on this in upcoming posts, but the overall picture is very positive for farmland values. The long-term trends favor higher prices, while the short-term picture is more mixed but still quite positive. Continued economic development of the third world, adjustments to make the European markets more viable, the overall impact of climate change, and continued global population growth are all combining to push values higher. Is there an end in sight? I’ll look at that question too.

Sources:

Fads versus Fundamentals in Farmland Prices, Falk & Lee. http://www.jstor.org/discover/10.2307/1244057?uid=3739568&uid=2129&uid=2&uid=70&uid=4&uid=3739256&sid=47698761047467 (Retrieved March 2012) (JSTOR Subscription required.)

Farmland Value Components - Part Three

Fri, 16 Mar 2012 15:10:00 GMT

Most of Falk and Lee’s categories are easy to understand – temporary fundamentals means basically the weather, and every farmer understands the weather in his or her bones; the nonfundamentals tend to be the things that you hear about on the news, but not directly on the farm report. We all know what interest rates are. But what about farmland rent?

Sources:

Impacts of an Oil Crisis

Tue, 03 Apr 2012 18:02:00 GMT

I attended an interesting conference last week in Washington DC. One of the most thought-provoking presentations I saw was a study on the impact of an oil crisis on Africa. in short, the result would be a catastrophic, and it is not a farfetched idea. Please download and view the research report here: Impacts of oil crisis on Sub-Saharan Africa

Imagine the impact we would feel in America if gasoline went from $4 per gallon to $10; or more. It will undoubtedly happen. The question is when. How will you and your family fair? -Many Americans will, lose jobs and those who have them still probably won’t be able to afford to get to work. What will happen to the food supply? In Africa, where the poorest people in the world live, it gets even worse.

In these unstable times in the Middle East, and having already reached peak oil, this is truly something we should all be aware of.

Farmland Value Components - Part Two

Fri, 16 Mar 2012 15:08:00 GMT

Last time we talked about Falk and Lee’s development of a new economic model for evaluating farmland prices. Their model divided the components of farmland value into fundamental and nonfundamental components; fundamental components were those relating to interest rates and the rental rates charged on the market for farmland. Fundamental components can be permanent (meaning slow to change) or temporary (meaning changing rapidity). There are also non-fundamental components; elements that are relevant to farm prices but that do not directly impact rents or interest rates.

At the time Falk and Lee were writing (the late 1990s), economists were somewhat in a muddle over farmland prices. Traditional economic models of prices, models that worked very well at explaining and even predicting the prices of other resources, did not work at all well when applied to farmland prices. Falk and Lee, by studying farmland prices and their relationship to a variety of other factors over a long time span, made a profound discovery - one that has serious implications both for farmers and for farmland investors, so listen up.

Their analysis showed (and later predictions compared with actual outcomes confirmed) that most of the short-term variation in land price is caused by fads, short-time-horizon changes in the temporary fundamentals and the nonfundamentals. Most medium- and long-term variation in price is explained primarily by changes in the permanent fundamentals. In the long run, farmland prices tend to be very rational and set by the components that traditional economics would predict, but in the immediate term the prices tend to be set by factors that are, if not irrelevant, at least not of lasting importance or significance.

What does this information mean for farmland investors? I think it means a great deal and has about a dozen important lessons to unpack, but here are a couple of the most obvious ones.

1. The upward farmland price trend is not a short-term trend, it is a long-term trend. The fads are up and down; the permanent fundamentals of farm rent and interest rate are both pointed in the growth direction. There may be overpricing due to speculation in the farmland market, but that is a local phenomenon caused by overreaction to the genuine long-term trend. In the long haul, this land really is worth this much and is going to be worth more.

2. Farmland prices in the short term respond very strongly to things that are not fundamental changes. The savvy farmland investor needs to be able to assess and identify farm economy news, and understand what kind of change is coming. Short-term deflationary trends can be capitalized on by the investor who recognizes that the long-term trend is running in the other direction; short-term inflationary trends can be noted as good times to “let the money rest” by bargain-conscious investors who recognize that there’s no need to pay a 20% premium on land that will be cheaper – but still heading up – six months from now.

I’m going to take one more look at the components and bring them into a little closer focus, to help you understand what kind of news item goes into each category, in my next entry.

Sources:

Time for an Energy Policy Based on ENERGY INDEPENDENCE

Mon, 19 Mar 2012 15:56:00 GMT

Like him or not, we can all agree it’s time for an aggressive energy policy based on ENERGY INDEPENDENCE.

video platform video management video solutions video player

Farmland Value Components - Part One

Fri, 16 Mar 2012 15:07:00 GMT

I talk on this blog about farmland value quite a lot, both from the point of view of financial investors (who often know a lot about capital management but not a whole lot about farming) and from the point of view of farmers (who tend to know something about both). With farmland prices on yet another upward binge, this is a good time to take a brief look at the components that go into the price of farmland – and to see how these components can predict changes in that price over time.

Noted economists Barry Falk and Bong-Soo Lee wrote a paper back in the late 1990s that took an intensive look at the way Iowa land values moved, comparing the price levels with a whole slew of things thought to be components of the basic price of land. They came up with two important insights: first, that there are different types of price components, and the different types of components respond differently to changes or shocks in the market. Secondly, that short-term changes in land prices were almost always caused by “fads” – temporary or transient changes in relatively non-fundamental components of land price, while long-term trends were almost caused by “fundamentals” – core elements of the price.

That second insight is extremely important in assessing the farmland market and deciding whether it is going to continue to expand, or if it has overheated and is ready for a contraction, so let’s unpack it a bit. Without getting too technical – I don’t want to write about multiple regression analysis and you don’t want to read it – Falk and Lee divided the components of farmland prices into three different types of components. These are:

Permanent fundamental components – The two major components here are farmland rents, and nominal interest rates. “Farmland rents” is an extremely useful concept to an economist because it boils down a whole host of information about what you can earn on a piece of farmland into a single value expressed by what it will cost to rent that piece of farmland from its owner. Nominal interest rates in the United States, of course, are set by the Federal Reserve. The recent run of near-zero interest rates has been a major factor in the expansion of farmland prices. A third permanent fundamental component is farm technology changes and the impacts of same, but this component always changes in the same direction (getting better) and at a fairly steady rate, so it is not nearly as significant as the rent and interest components.

Note that when economists call these “permanent” components, they mean that they usually adjust slowly and with advance notice, not that they never change at all. The Federal Reserve doesn’t suddenly announce new interest rates at random, for example, but rather on a regular schedule. When a piece of property is bought on a mortgage, that transaction usually has a fixed interest rate (unless you re-finance later). Similarly, farm rents are locked in by contract for periods of months or even years.

Temporary fundamental components – These are components that are important to farming, but that change with much greater rapidity than the permanent components. Technically, this category covers components that can change the rental rate of farmland or, less likely, the interest rate. For example, a transient change in local interest rates owing to a credit crunch might increase the spot cost of borrowing money for operations. However, the main temporary fundamental component is the weather.

Non-fundamental components – Everything else which does not in and of itself affect farmland rents or the interest rate. For example, an outbreak of a corn disease, or a war that disrupts trade between agricultural nations, or the development of a non-farm technology that increases or decreases the demand for a particular crop, but does not impact the agricultural sector as a whole.

So how do these components interact, which components control prices over the short term and the long term, and where are they all headed? More on that next time.

Sources:

Strong Fundamentals Continue in 2012 US Farm Industry

Fri, 09 Mar 2012 20:42:00 GMT

You may remember that back in December of 2011 I discussed how low interest rates and a sagging national economy were helping to fuel an expansion in farmland prices. This phenomenon is caused by a combination of two factors. First, with poor returns in conventional investments, a continuing residential and commercial real estate bust, and financial instruments paying almost nothing, investors have been pouring into the farmland sector as being one of the few good places to earn a solid return. Second, low interest rates make it possible for operating farmers to take out loans to expand their land holdings, and – despite the high prices of good land – make the investment pay, simply because the ongoing mortgage payments are relatively low.

That second factor can often cause some head-scratching. How can a difference of just a few points on an interest rate make the difference between a profitable or unprofitable land investment? A quick back-of-the-envelope calculation should make it plain. If Farmer John takes out a 30-year loan for $1 million and uses that to buy prime land on which to expand, he’s going to be making payments on that loan for 360 months. The size of the payments will depend on the interest rate. Not too many years ago, Farmer John would be lucky to get that million at 7% interest. At 7% interest, his amortized payment would be $6653 per month. But the current prime interest rate (the rate set by the Federal Reserve) is just 0.25% - about as close to zero as we can get. Farmer John doesn’t get to borrow money at 0.25%, unfortunately for him, but if he’s on good terms with his bank he can get a loan at 3%. And at 3%, his monthly payment on that land is only going to be $4216 per month – less than two thirds of what he would have had to pay a few years ago. A few percentage points of interest can mean a difference of hundreds of thousands – even millions – of dollars on the total price paid for the land.

Many farmers are also in an expansionary position because these low interest rates have allowed them to refinance old debt at the new rate – which can put thousands of dollars a month of cash flow into the operational stream. Since crop prices continue to do well overall, the best possible use for that cash flow is very often expanding existing operations – which again means buying more land. Even farmers who don’t immediately expand are able to pay down old debt and improve their positioning for later land acquisition. (In fact, during 2011 total US farm debt declined from an estimated $246.9 billion to $242.5 billion, even as farmers were taking on new loans to fuel expansion – and an actual decline in total debt is a very unusual thing to have happen.)

And land values have continued to steadily appreciate – almost 6% in 2011. That means that the ongoing expansion of farmland prices is based on real accruals in equity via improvements in fundamental land values, not just on speculation and loan-driven expansions or acquisitions. (If a lot more investors are scrambling after the same, largely fixed, supply of farmland, then a “bubble” in farmland prices can begin to form…and bubbles tend to be bad for farmers and most investors alike. We are seeing an influx of investors – but we are not seeing an artificially inflationary rate of price growth on the land. I’ll discuss this more in some upcoming blog entries.)

One key metric to look at in assessing the financial health of the farming industry, whether from the perspective of someone looking to farm or from the perspective of someone looking to invest in farming, is the overall debt to income ratio and debt to asset ratio of the sector as a whole – that is, how much do farms owe vs. how much do they bring in, and how much are they worth. Farm economists call these “solvency ratios” and they are very informative figures to track. The USDA’s economic research service forecasts that from 2011 to 2012, total farm debt will go from $244 billion to $254 billion – but total farm assets will jump from $2.3 trillion to almost $2.5 trillion. That means the debt:asset ratio will fall to 10.3 (lower is better) – continuing a multi-year steady decline in the ratio. Income for 2012 is projected to be $91.7 billion, a debt:income ratio of just over 27, another very solid figure.

These figures are the best they have been, not in years, but in decades. Farms haven’t been so ahead of the debt game since the 1950s, while incomes continue to grow (for some sectors) or hold steady for others. This is the happy opposite of the farm crisis of the 1980s, when sky-high interest rates and flat commodity prices put many farmers out of business. There are many factors that farmland investors need to keep an eye on – and I will discuss some of those factors – but financially speaking the sector has not been on a sounder footing in living memory.

Sources

http://www.ers.usda.gov/briefing/farmincome/wealth.htm

http://www.ers.usda.gov/features/farmincome/

http://www.nationalaglawcenter.org/assets/crs/R40152.pdf

Great Video Depicting Agriculture in the US

Mon, 13 Feb 2012 18:03:00 GMT

Farmers Try Cover Crops to Protect Their Product

Sat, 07 Jan 2012 01:28:00 GMT

Efficient farming can be practiced in many ways, but one method that has become more popular in recent years is the use of cover crops. The quality of the soil has a direct impact on the health of the farm and its output, so crops that boost soil quality rather than degrading it actually add to the value of the land they are grown on. There are various kinds of cover crops which have different ecological impacts on the land, but the general idea is that rain water is held in the soil by the plants, and nitrogen from lower soil layers is drawn higher up in the soil. This way, the next crop, such as corn, can make better use of nutrients. Peas and soybeans have traditionally been used for cover crop purposes, but Minnesota farmer Dean Schuette took part in a trial using tillage radish as a cover crop in November 2011. The goal is to see if this increases the corn yield in 2012, but early results from the mix of radish and an oat-pea mix have already yielded radishes that are larger than normal.

Researchers say that deep-rooted cover crops work best in drawing up the nitrogen, as do mustard crops. The effectiveness of using a cover crop is dependent on the species of crop; different plants grow roots at different speeds and which extend to different depths. Planting dates matter too, because most plant roots will grow longer over time. This is crucial in selecting the type of plant depending on the type of winter expected for a certain region. Even if plants die the nitrogen can still be left at higher level in the soil for the next crop. Oats and oilseed radish usually leak their nitrogen storage quicker than other plants so that it is there when the next crop is established. With other cover crops, such as rye, the timing of nitrogen release can be unpredictable.

In Iowa, a trial using rye cover crops has been taking place for the last couple of years. Farmer Arliss Nielson planted hairy vetch and sweet clover, both along with winter rye, over 350 acres. The rye was seeded into the corn crop by airplane in September 2010, and the corn stalks the following season seemed to be more protected, even though the vetch and clover didn’t survive the winter. Nielson plans to continue participation in the project, while other farmers have considered being involved as part of a cost-sharing program called the Boone River Watershed Mississippi River Basin Initiative.

Cold temperatures eventually kill many cover crops. Radish, for example, often dies off in late fall, but rye can capture some of the nitrogen released by the plant matter. Combinations of cover crops, therefore, have been seen as beneficial. Other projects, such as one in Ontario, Canada, used cover crops and manure following a wheat harvest in 2003. Cover crops were planted after an early harvest of a vegetable crop; both studies are just a couple of examples of how farmers have looked at cover crops and continue to do so. The effectiveness of various methods is still being studied to find the most effective ways to protect main crops as well as make them more lucrative.

Sources:

AgriNews (http://www.agrinews.com/cover/crop/trial/tries/tillage/radish/story-4047.html)

AgriNews (http://www.agrinews.com/farmers/are/giving/cover/crops/a/try/story-3472.html)

Eastern Ontario AgriNews (http://www.agrinewsinteractive.com/archives/article-5504.htm)

Low Interest Rates Keep Farmland Prices High

Sat, 07 Jan 2012 01:27:00 GMT

Depending on which side of the table they are on, farmers will talk differently about U.S. agricultural policy. Those that see profit argue for subsidies and the volatile market for crops and commodities. Others struggle to make ends meet and advocate change in the subsidy structure and the market that encourages overproduction. For investors, times have never been better for buying up farmland, with interest rates at historic lows. Land values are now increasing at up to 8% per year, while commodity prices being as high as they are making investing in farmland very lucrative. All of this in a time where economic troubles persist and when traditional investments, particularly money market investments on Wall Street, are considered too risky.

Crops are also attributing to the situation. The high prices of corn and soybean are yielding support for investors because they raise the value of the land, and are expect to do so into 2012. Department of Agriculture experts see no reason why this won’t hold up. Economist Scott Stiles with the University of Arkansas Division of Agriculture said high commodity prices, along with low interest rates for loans, real estate, and equipment are favorable for investors. The demand for crude oil in farm operations is not much of a concern, since prices have dropped with economic woes, although daily supplies like seed and fertilizer remain high in cost along with soybeans and corn.

Like other markets that have sustained a boom for periods of time, like the housing market, other experts worry that the farmland market could go bust at some point. The housing bubble burst and wrecked havoc on the real estate market. At the same time, low mortgage rates are helping investors as they buy up farmland. Borrowing costs have helped as well, with an average rate of 5.8% on variable-rate mortgage loans for farmland between April and June 2011. Heartland rates were the lowest, while mortgage rates were higher in areas affected by drought like Oklahoma and Texas. Reasonable rates across the board have allowed more buyers to seek out farmland as the situation has been favorable for more investors to afford it.

What few people outside the farming industry realize is that there is a volatile economic market in play. Investors have caught on quickly and have bought up a significant portion of Midwest farmland, which could prove valuable as they cash in down the road. While other markets recover from the recession, agriculture remains a place to put their money in, but how long the bubble continues to expand is anyone’s guess. The low interest rates and high land prices favor investment deals. Whether another bubble burst in the future is uncertain, but hopefully by then the housing market, equity markets, and other targets of investment will be lucrative once again. For now, many investors continue to keep their eye on the farm and are doing quite well this way.

Sources:

Delta Farm Press (http://deltafarmpress.com/markets/low-interest-rates-and-farmland)

Farmland Investor Center (http://www.farmlandinvestorcenter.com/farmland-power-menu/landowner-resources/farm-mortgage-rate-watch)

Farmland Values Rise as the U.S. Economy Struggles

Sat, 07 Jan 2012 01:24:00 GMT

While tough economic times have affected most markets, including housing, farmland has risen in value, particularly in Illinois and other Midwestern states. Economic recovery in 2011 has been slow and many experts fear another dip in the economy and perhaps another recession. With little to put their money in, investors have seen opportunity to make gains, or at least limit losses, by putting their money into farmland. This has led to appreciable price gains in many important markets. In Illinois, for example, farmland prices per acre were up 18% year-over-year in September 2011, while this number climbed to 23% in October. There were rises in value in Indiana, Wisconsin, and Michigan as well, while Iowa had a 31% year-over-year increase in farmland value in October.

Gary Schnitkey, an agricultural economist and farm management specialist at the University of Illinois, said that farmland prices are 2.2 times what they were in 2004. The trend of falling interest rates has something to do with it. Schnitkey has also attempted to determine whether farmland prices are rising too much by using capitalized value analysis. This is the average cash rent, divided by the interest rate; future returns in value are also factored in. If these returns are high, then capitalized value increases; this trend is also supported by low interest rates.

From a historical perspective, according to Schnitkey, a similar trend occurred in the early 1980s, after which Illinois farmland prices declined for several years. Assets such as farmland are considered safe by many investors, and are perceived as favorable during times of economic instability. Experts suggest that if the economic outlook turns more stable, farmland prices may rise at a slower rate.

It is not only the state of the economy that is impacting the prices of farmland. The costs of corn and soybean have some effect, as well as the technology used to produce these crops. Economist David Oppedahl cited the fact that farmers can produce more than twice as many bushels of corn per acre than they could in the 1970s. This also makes farmland more valuable. On the worldwide market, the American dollar has weakened compared to other currencies, increasing the demand for farm products grown in the United States.

The local business climate in many farmland communities is contributing as well. Local farmers sometimes bid against each other for the same land, so many factors come together to make the situation perfect for prices to continue to rise. With many local farm economies doing well in rural areas, Oppedahl also suggests that other types of economic growth, at least on the local level, may follow. The economic success of farmland is not immune to downward trends, however. China is a growing market and imports many U.S. farm products. If its economic growth slows in combination with other geopolitical events around the world, then land values could fall. That all depends on whether the demand for products being exported by the U.S. drops, making their production less profitable. With various factors in play, even experts are unsure whether the persistent rise in farmland prices in Illinois and other states will continue, or if the trend will moderate or even reverse in the future.

Sources:

University of Illinois (http://web.extension.illinois.edu/bdo/news/news26092.html)

Quad City Times (http://qctimes.com/news/local/farmland-values-in-iowa-illinois-skyrocket/article_fbd83fe2-2484-11e1-8115-0019bb2963f4.html)

Iowa Crop Damage, Insurance Payments, and Lease Contracts

Sat, 07 Jan 2012 01:20:00 GMT

Flooding on the Missouri River in the summer of 2011 severely affected corn and soybean production, as well as inflicting infrastructure damage on the roads used to carry the crops. Crop losses were total for many farmers, which could force many farming businesses to fold, creating a burden on an already struggling economy. Many crops were underwater for more than a month in the Missouri River Valley. This long-term loss of access to the land for any purposes may make recovery impossible for some farmers. There are some policy and economic factors that may mitigate some losses; some farmers have insurance on either their crops or their income for the year that may cover the losses. Agricultural operators can also terminate their rental contracts if the land is not salvageable for use during the following year. Land owners, farmers, and operators have spent the summer and fall making the determination of which plots are salvageable at all for production in the next few years. Some farms and farmers will be luckier than others, but overall, recovering from such a catastrophe will most likely take years.

What kind of insurance was available for farmers affected by the floods? The typical crop insurance policy in Iowa covers 75% to 80% of a producer’s land, so with a total loss, the farmer will have losses of up to 25% of the total crop. There are also Revenue Protection policies which insure up to 90% of the acreage in Iowa, according to economist William Edwards. These policies provide a price guarantee if commodity prices rise anytime between February and October, and (more relevant to the flood losses), insured farmers get $1 per bushel of corn and $0.25 per bushel of soybeans in the case of a loss. The state agricultural department has also put in place some relief policies for those whose land was wiped out; the savings from these initiatives come to about $20 per acre for soybeans and $70 per acre for corn. Land owners and farmers, therefore, have financial options even if the bulk of their crop revenue has been lost. All of the effects of the flooding probably won’t be known for months, even after the waters return to normal levels. Nature does not follow insurance company schedules, so renters and owners of farmland may be left with additional dilemmas as they recover.

Insurance coverage and state policies can help, but economists like Edwards also say net revenues are still going to be down for the year. Even farmers with 80% insurance coverage on their operation could see total revenues drop by $100 per acre. Some producers may be lucky if they were able to plant on land that wasn’t flooded and get in a late crop, but the flooding was unprecedented in scope. Many farmers have no idea what it will take to bring their land back into full production. Although the valley bottoms are naturally long since dried out, whole farms need massive soil reworking to be viable places to plant again. Debris had to be removed, while eroded areas had to be leveled out and soil re-fertilized to start planting.

Responsibility for repairing flood damaged farms falls to the landowners. However, smart landowners will be using these fallow winter months to work with their rental farmers – the farmers have the heavy equipment and the know-how of how to use it. Some economists have suggested that non-farming owners and their tenant farmers should work out long-term leases on the land to give the farmers a personal incentive to get it back into production, and extend discounts on land rentals for 2012 so that the farmer who does the cleanup will reap the benefit. Both owners and renters can benefit if they work together to get farms back into production.

Sources:

Iowa State University (http://www.extension.iastate.edu/agdm/articles/edwards/EdwAug11.html)

Trucking info (http://www.truckinginfo.com/news/news-detail.asp?news_id=75178)

Where U.S. Agricultural Policy Goes from Here

Sat, 24 Sep 2011 21:04:00 GMT

The agricultural resources of the United States, while the most productive of any in the world, have been severely harmed by government policies. A commodity-based industrial system has encouraged overproduction, lowering prices and making it difficult for farmers to survive without government assistance. Meanwhile, erosion and water pollution have exacerbated the man-made problems facing the farming industry. It is clear that something needs to be done at the national level, if turning the U.S. agricultural base into a sustainable industry is still possible.

Current U.S. agricultural policy has evolved over the time from the colonial era, to the Revolutionary War, to the Industrial Revolution and beyond. Resource overproduction and land exploitation were always at the top of the list, and as technology progressed in the 20^th century, new and more efficient ways of doing so were devised. The trade policies of other countries around the world, often modeled around our own, and the nature of worldwide trade all have led to low prices in an already unsustainable agriculture.

The questions are what is to be done about the situation and what path does U.S. agricultural policy go from this point? The corporate nature of agriculture and farming feeds the practice of overproduction with the aim to increase profits, while the earnings farmers receive for their product continues on a decline. A 1996 farm bill which aimed to control production and set prices based on market conditions failed, while a 2000 bill ensured government money to farmers. Subsidy payments were set to new highs by a 2002 farm bill, without any policies to manage production.

A program to encourage conservation by farmers was included in the 2002 bill. This Conservation Security Program was designed to help improve the environment, and offer financial rewards to farmers who make conservational efforts. Congress placed a ten year cap on the funding for this program. Little would be accomplished if additional funding wasn’t put in place, and the program was accompanied by policies that contradict its intent. Continuation of the program would keep subsidies going to farmers, but at least the general public could benefit from the cleaner environment resulting from more sustainable practices.

Trade policies need to also follow the regulations of the World Trade Organization, which require that subsidies do not influence how commodities are traded. Since environmental concerns are expressed worldwide, the Conservation Security Program is looked upon favorably. In instances where watersheds are polluted, the problem can be addressed by seeking out the source and helping farmers to fund pollution control measures. The initiative was further boosted by the Conservation Stewardship Program in 2008, meaning that this could prove to be a viable path for U.S. agricultural policy in the coming years.

Perhaps the most efficient direction to follow, and where U.S. agricultural policy may be heading towards, is to directly address practices that aid in environmental conservation. The best incentives may be financial, but support of organic farming and ways to reduce the flow of pollution and prevent erosion will address the major environmental impacts. Methods such as longer crop rotations and mixing of crops that do not deplete resources as quickly should be encouraged as well. The best way to enforce sustainable practices is to create incentives for farmers to follow them, and financial rewards at a time when cash resources are short hold promise. This could only be accomplished at the national policy level. It may already be that the future structure of U.S. agricultural policy is in its formative stages as programs initiated over the past decade build momentum.

Source:

The Minnesota Project (http://www.mnproject.org/pdf/A%20New%20Agriculture%20Policy%20for%20the%20U.S.%20by%20Dennis%20Keeney%20%20Lo..pdf)

The Minnesota Project – Agriculture & Water: Conservation Stewardship Program (http://www.mnproject.org/csp/)