FEDERAL BUDGET CUTS

President Bush has released some proposed cuts in the level of spending on farm program commodity payments in 2006 and 2007. The expected expenditures on these commodity payments in 2005 are estimated at approximately $24.1 billion, which is up significantly from the $14.5 billion estimated payments in 2004 and $15.9 billion in 2003. Actually, the 2003 and 2004 spending levels were $7 billion and $8 billion under the USDA budgeted amount, due to higher grain prices, which resulted in lower than anticipated levels of counter-cyclical payments and loan deficiency payments (LDPs). This was a savings to U.S. taxpayers of about $15 billion in two years. However, this kind of gets lost in the Federal budget rhetoric. The President’s budget proposals would cut the level of all farm program payments by 5% each year, and would limit the bushels eligible for LDPs or a CCC marketing loan to about half to two-thirds of the bushels of corn and soybeans produced. Currently all bushels produced are eligible for LDPs or a CCC marketing loan. This would result in a significant reduction in the level of LDPs or marketing loan gains in years such as this year, when we have very low corn and soybean prices.

The concept of the current Farm Bill was to have counter-cyclical payments (CCPs) that are based off of a “target price” for each crop, and availability of CCC marketing loans or LDPs that are based off of County loan rates for a commodity, as “safety-nets” for producers when commodity prices are low. So, when producers had favorable commodity prices for corn, soybeans, and wheat, such as for the 2002 and 2003 crops, the levels CCPs and LDPs were very low, thus reducing the Federal outlay of farm program payments. In years such as now with the 2004 crop, when producers really need the “safety net,” the level of CCPs and LDPs increases, along with the total outlay of Federal spending on commodity programs. The “safety-net” concept of the current commodity farm program seems to be working just as it was designed in the 2002 Farm Bill. However, it seems that just when a Federal Farm Program is working as it was designed to, that someone in Washington, DC, wants to change it!

Editors note: Kent Thiesse is a former University of Minnesota Extension educator and now is Vice President of MinnStar Bank, Lake Crystal, MN. You can contact him at 507-726-2137 or via e-mail at kent.thiesse@minnstarbank.com.