June 17--Many North Dakota farmers are willing to give up direct payments under the new farm bill because of increased reliance on crop insurance. Long-term protections are still a concern, though.
The Senate began debate on a national farm bill last week that will save $9.3 billion by replacing direct payments with subsidized insurance programs to protect farmers against low prices and yields.
"Having a good, solid crop insurance program is more important than direct payments," said Dennis Renner, a Mandan farmer. "It's getting harder to defend them with the strength in the commodity prices. There's only so much money in the pot for ag programs, so it's a question of where do you want it to be used."
Renner farms 2,500 acres south of Mandan. He plants a mix of soybeans, barley, corn, sunflowers and spring and durum wheat.
In 2011, 265 million acres were insured nationwide. More than 23 million of those were in North Dakota. Farmers in the state usually receive $220 million in direct payments annually. Across the U.S., about $5 billion is paid out each year.
"We've never been particularly supportive of direct payments because they're made in good times, when they're not needed, and in bad times, when more is needed," National Farmers Union President Roger Johnson said. "The concern that we have is that crop insurance does not deal with long-term price collapses."
Johnson said insurance works really well when farmers have high prices, but when the market goes down markedly for a long period of time, coverage goes down.
"That's when people get really pinched and find it hard to stay on the farm," he said.
Johnson said a farm policy that only deals with short-term decreases is insufficient.
"All you need is a very good growing season where everything yields above expectations," he said.
Corn was $8 to $10 a bushel a year ago. Now, it's in the $7 range, Renner said.
"If this corn crop turns out, there's going to be lots of bushels of corn," he said.
Renner said the global economy makes the market more volatile. Prices may only have fluctuated 10 cents a bushel during a calendar year in the '60s. Now, they may go down 15 cents in one day or drop $1 in a couple of weeks.
Most of the frustration over the loss of direct payments has come from southern farmers, but Johnson said North Dakotans are still worried about the same kinds of things.
A shallow risk program in the bill is meant to help mitigate the major market drops, but it caps annual payments at $100,000 for a married couple and restricts them to farmers with adjusted gross incomes of less than $750,000.
"It provides price protection on less than 10 percent of the price decline," Johnson said. "That is, in our opinion, insufficient."
Johnson said one reason price protection is important is that farmers have no control over the market.
"It's a different economic structure that farmers work in," he said. "No one farmer has any influence over price."
"We're the only industry in the entire world that we can not charge for or guarantee a return on our costs of operation," North Dakota Agriculture Commissioner Doug Goehring said.
Johnson said consumers often forget that farmers' production costs have gone up with prices.
"If the price of wheat doubles, the cost of fertilizer that farmers pay will double or more," he said. "Farmer prices go up rapidly when commodity prices go up. When the market then collapses, these costs that farmers face go down much more slowly."
Renner said his seed cost per acre for corn has gone from $30-$40 to $60-$70. The cost for fertilizer has gone from $600-$700 per acre to $700-$800. He said his cash expenses for farming total about $250 per acre.
"My cost of operation has went up 10 times in the last 25 years," Goehring said. "I borrow 10 times more to operate the same amount of acres."
Even the crop insurance that farmers want to protect is expensive. Renner said he pays $30-$40 per acre.
The federal government does subsidize part of farmers' premiums. For 65 percent coverage, a 57 percent subsidy is the highest a farmer can get, Goehring said. He said farmers can only insure 80 percent to 85 percent of their crop. Increased coverage means lower subsidies, though, and more dollars out of farmers' pockets.
"With a very capital-intensive industry, it puts a lot of pressure on people's bottom line," Goehring said.
Johnson said good farmers try to achieve a 20 percent gross profit on total revenue. If a farmer's total revenue is $100,000, he's going to pay out $80,000 in expenses and the remaining 20 percent will be used to pay taxes and live on.
"Farming, like any other business, you handle a lot of money but don't get to keep it all," Johnson said. "So, a little bit of fluctuation in commodity price has (a) big effect."
The current farm bill expires at the end of September.
"At the end of the day, you want something that is affordable to taxpayers, that supplies farmers with the protection they need and that you can justify to the public," Johnson said.
"I realize there's going to be cuts in the farm bill," Renner said. "I just hope there's something to help us ride out bad weather events."
(c)2012 The Bismarck Tribune (Bismarck, N.D.)
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