Volatility in the grain markets is causing a serious kink in the marketing process for 2009. I was recently at a farm conference and the scuttlebutt was that the elevators have been hammered so hard by recent margin calls that they just don’t have the cash to buy any 2009 contracts. I’d heard rumbles about the volatility levels as early as April of this year – wheat prices haven’t been this volatile since 1980, and traders in the first quarter were predicting a range of prices with a whopping 72% percent spread.

That’s hard on the elevators, which are often the market makers for these crops. This is not an easy time to be a grain or soy farmer – on top of the volatility, it seems likely there will be no counter-cyclical payments (scroll down to “Farm Bill Implementation Begins”) for wheat, corn or soybeans this year owing to the high general price on the markets. Small consolation if you’re locked into a low-price contract.

If elevators fail, which seems likely at this juncture (at the conference I heard of elevator owners who were saying they had been writing $2 million dollar checks for a days, were $50 million in the hole, and can’t get financing for operations because all their credit dried up), then the agro giants like Cargill or ADM are going to need to step in as market makers. Wheat farmers who don’t have marketing in place for 2009 should probably increase their leverage by building or buying more grain storage now – it’s not a good idea to count on the elevator being there for the 2009 crop at this point.

We’re borrowing money from China to buy oil from the Persian Gulf to burn it in ways that destroy the planet. Every bit of that’s got to change.

Al Gore

The other day I looked at John McCain’s proposed agriculture policies. Today it’s Barack Obama’s turn under the microscope. Interestingly, Obama does not refer to his policies as agricultural – rather, they are classified under “rural” on his website. I’ll be skipping the policies which are relevant to rural voters but not particularly agricultural in focus. (Methamphetamine addiction and production in rural areas is a serious problem, but it doesn’t have much to do with farming.)

Obama’s policies seem to fall into the general category of increasing regulation and providing economic subsidies to rural areas (not necessarily specifically to farmers or farming communities). As the top issues in his “Rural” policy section, Obama names family farms being squeezed by price competition from larger operations, pollution problems caused by feedlot operations, and economic inequity between rural and urban communities.

To combat these problems, Obama proposes a limit on farm payments. In contrast to McCain’s plan, which takes an approach of setting income limits on farms that get subsidies, Obama wants to restrict the quantity of payments to $250,000 per year, an interesting approach but one that still puts significant sums into the hands of large farm operations.

In order to prevent “anticompetitive behavior” in the meat industry, Obama proposes making it illegal for meatpackers to own livestock. While I am sure that some small ranch operations like such an idea, I am not sure that barring people from making logical economic decisions is the right approach to take. When primary producers can afford to capitalize their own infrastructure, they gain greater control over their business – something every farmer aspires to.

Obama supports the Country of Origin Labeling law, which would mean each piece of produce in American grocery stores would be labeled as to its point of origin. This is a great idea which supports American farmers by making it possible for consumers who would rather patronize American farms to know what they are buying. Less compellingly, he also promises to make it easier for farmers to certify their crops as organic. Easier certification is more likely to water down the value of an “organic” label, although we should certainly encourage any farmers who want to pursue that path.

Obama says he wants to encourage young people to become farmers through a new federal program. I think that young farmers can probably make that decision on their own – we need to make it more attractive to become a farmer. Obama does offer to do that with a program to give tax incentives for new farmers to buy their first farm – something that could help young farmers get into the business with a lower debt load.

Obama also has a number of suggestions to boost rural economies, such as promoting renewable energy industries, providing access to loan capital for small business development, improving rural communication infrastructure, and other programs.

Overall, Obama’s policy ideas are focused on making it easier to farm (at least in certain ways), and making it more attractive to be in farming. That’s an important priority and one I support. However, he does not tie American farm policy to the global market and the world food situation, taking an approach that seems more like a list of what government will do for farmers, rather than what government will do about farming. As with McCain’s policy ideas, there is a definite sense that agricultural issues are not front-burner topics for the candidate.

In November this year, we’ll be getting a new agricultural policy at the federal level. This week I’ll be taking a look at the agricultural policies of the two major party candidates.

I’m not going to tell you who to vote for, or even whose policies are “better for agriculture” – this isn’t a political blog. (and much of that is still unclear) I’m just going to take a look at the policies, as provided today, and see what they might mean for the farm industry.  The direction each candidate will take also relies heavily on who they choose for running mates.  (stay tuned on that one)

Today I’ll examine John McCain’s proposed agriculture policies, and on Thursday I’ll look at Barack Obama’s ideas.

McCain’s policies can be fairly summed up as “opening markets, reduce trade barriers, reduce subsidies, reduce regulation”. McCain says he will expand access for American agricultural exports in overseas markets. This sounds great, but I’m not sure how much increased access we need. Mostly, countries that want to buy our produce, can. If he means lowering tariffs at the foreign port, that would be great, but it’s also something he probably can’t deliver on unilaterally. McCain does want to lower trade barriers worldwide – and perhaps US participation in trade negotiations will make this a reality.

McCain says he wants to alleviate the world food crisis through reduction of trade barriers – again, great idea, but not something he can do directly. He wants to cancel the law that requires a certain amount of ethanol production in the United States. I have mixed feelings about that. Biofuels make sense on their own terms, and perhaps we don’t need to mandate them; at the same time, the mandates are creating a “push” that is giving biofuels a momentum they wouldn’t have on their own.

McCain promises to continue, with “reasonable reforms’, our flood and drought insurance policies, the crop insurance program, and the countercyclical payment scheme. He hasn’t produced specifics on this, so it’s hard to say whether his “reasonable reforms” actually are reasonable. There’s certainly room for improvements to the system. He says he wants farm policy to focus on farmers with “clear need” – sounds good to me. Large commercial farms don’t need subsidies and if he’s going to cut out the corporate welfare that a lot of farm aid boils down to, more power to him.

McCain says he wants to push the USDA to research better crops to increase production per acre. This is useful, but not something that the federal government necessarily needs to do. Last time I looked, the seed companies were doing a pretty good job on their own. Putting that amazing success into government hands might be a disaster. McCain also supports conservation programs to encourage environmental stewardship on American farms, and that sounds good to me, if it doesn’t end up putting unreasonable burdens on farmers who already have enough to do.

McCain wants to fully fund federal food and nutrition programs, and boost the Emergency Food Assistance Program. These programs are good for farmers, as they boost demand for basic staple crops. They also help keep poor families fed, so I approve of that. McCain wants to index food stamps, which would amount to a large increase in that program – again, good news for farmers.

He wants to loosen up the EPA’s rules in general, allowing regulatory bodies to waive rules when they would have a negative impact on farmers or the food industry. It’s hard to judge this one without more specifics; the one regulation he specifically addresses is the ethanol production rule that I have mixed feelings on.

Overall I get the impression that McCain’s farm policy is not all that well thought-out, and it clearly isn’t a main focus of the candidate’s policy position. We could probably look for a continuation of status quo ante from McCain’s farm policy, unless there’s some major development from him in the coming months.