Syndicated farm columnist Alan Guebert tells us that the United States government now holds no grain reserves whatsoever. At one time, back in the 1950s, the U.S. government, through its Commodity Credit Corporation, held billions of bushels of wheat, corn (maize), soybeans, cotton, dried milk, and other agricultural commodities. Most Americans probably assume that this is still the case, but they assume incorrectly.
The government became involved in the grain business in the 1930s, as part of the Roosevelt administration’s program to stabilize commodity prices. The government opened a commodity loan program, which was basically a pawn shop. If a farmer harvested his grain at a time when prices were disastrously low, instead of selling his crop at that time he could offer his stored grain as collateral for a government loan, with the loan value of the grain set by Congress. If the market price later rose, he could pay off the loan plus interest, reclaim his grain, and then sell it at the higher price. If the price stayed the same or went even lower, he could pay back the loan by simply allowing the government to keep the grain. This program helped farmers in times of low market prices by giving them an alternative to selling produce at prices well below the cost of production. The loan rate for each kind of grain was set low, but not so low that a farmer would go broke by selling at that price.
But just as a pawn shop eventually accumulates a lot of guitars and wedding rings, a commodity loan program eventually own billions of bushels grain. In years of overproduction, many farmers deliberately forfeit their grain rather than redeem it, and government stores increase. In years of crop shortfalls and high prices, the government could always sell off some of its grain to prevent prices from going higher. So the program had the effect of stabilizing prices, which was its purpose. At a time when the United States regularly grew more food than we could usually eat or sell, there was a tendency for grain stores to continually increase. Defenders of the program felt that this was not a bad thing, since, if we ever had a serious drought, no one would be hungry. Critics saw the ever growing hoard of government grain as proof that the program was unworkable. So to counter the built-in bias toward accumulation, the government imposed limits on the percentage of a farmer’s acreage that could be used to grow any particular grain. For a couple generations, America’s farm program regulated the supply and price of many commodities by continually adjusting the loan rate and the acreage allotment. And these vast stores of grain insured not only that Americans would never be hungry, but also offered a degree of food security to our overseas customers.
But the critics, some of whom were farmers, observed that any price floor above the cost of production becomes an effective price ceiling, as production would expand without limit as long as farmers were assured that every additional bushel of grain produced could be sold for at least what it cost. It was argued that while the price floor established by the loan rate kept farmers from going bankrupt, the program also kept the farmers from ever making much money, due to the price limiting action resulting from sales of government grain in times of short crops and high prices.
A typical grain farmer might own a fifty percent equity in his farm, with the other half owned by the banks. And every year he would take out an operating loan to plant his crops, and hope to pay it off at harvest. Over the years, the general tendency was to sink deeper and deeper in debt, although this was often offset by gradually increasing land prices, so that a farmer’s actual net equity value could increase, even as his indebtedness grew. Yet once in a generation, a spike in farm prices might be so high that many farmers might pay off their entire debt in a single year—and then spend the next generation borrowing again. Critics of the price stabilization plan argued that by limiting the price spikes, the program had eliminated any possibility of a farmer ever paying off the debts and owning his own land. Interestingly, the critics' objection was not that government had regulated prices badly, but that they had done so at all. Conservatives argued that farming had always been a wild gamble, and government should step aside and let winners win and losers lose.
In recent years, administrations of both parties have bowed to conservative pressure and tried to quietly get the government out of the grain business. They did this not by enacting any statutory changes that would end the commodity loan program, but rather by setting the loan rate so far below market price than no one would use this program. Then, as existing stocks were sold off (grain can be stored for a long time—but not forever) the bins were finally empty.
So, if the government no longer stores grain, then who does? Actually, no one stores any great amount. Corn (maize) stores are now at a record low, and it will be September before this year’s crop of North American corn will be harvested, by which time we will have less than an eighteen day supply. Wheat and soybean reserves are also at record or near record lows. With corn at over $7.00 per bushel, farmers are making record profits and land values are going through the roof. Mr. Guebert says some Iowa farm land has sold for $14,000 per acre. This is a triumph of free market economics, right? So, what happens if we have a severe drought in the northern hemisphere, or perhaps a volcanic eruption? With essentially no food in storage, what happens to the world’s seven billion people if little or no food can be produced for a year or two? One can argue that farming should or should not be a gamble. But should eating be a gamble?
No comments:
Post a Comment