Tens of thousands of Minnesota corn and soybean farmers are receiving nearly $600 million in checks or deposits to their bank accounts this week, part of a new safety-net payment program set in motion by the 2014 farm bill.
The payments compensate many but not all crop farmers for low grain prices and yields in 2014 and range up to nearly $100 per acre, depending the type of crop and where it was grown.
"If either the market price drops or there is a natural disaster, you're going to get payments, but if you have good yields and good prices, there won't be any," said Jane Ray, acting executive director of the Minnesota office of the Farm Service Agency, the arm of the USDA that administers the program.
Under the previous direct-payments system, Ray said, crop producers received subsidies whether they needed them or not, in good years and bad. Congress changed the much-criticized program after a few years of record crop profits and replaced it with the safety-net system.
But critics have said the new payment programs are neither a true reform nor an improvement and are costing taxpayers about the same as in the past.
"It's the most complicated set of farm programs ever invented," said Bruce Babcock, economics professor at Iowa State University. "It has nothing to do with need, and everything to do with Congress delivering the goods to its farmer constituents under the name of reform."
U.S. Agriculture Secretary Tom Vilsack said last week that the new safety net "protects producers only when market forces or adverse weather cause unexpected drops in crop prices or revenues." Vilsack made the remarks as he released nearly $4 billion for 2014 crops to farmers across the country, who earlier had signed up for one of three different programs.
Minnesota will receive $590 million of that amount, said Michelle Page, chief program specialist for the state office of the Farm Service Agency.
Virtually all of the 90,939 corn farmers registered in the program will receive payments, she said, with preliminary estimates ranging from $29 to $97 per acre. Payments are also triggered in about 30 percent of the counties where soybeans are grown by 77,597 farmers who enrolled in the program, Page said, with unconfirmed estimates ranging from $0 to $61 per acre.
Payments will also go to about 20 percent of counties where wheat is produced, she said. Exact numbers will be finalized once the funds are distributed, Page said.
Payments are different in various counties because counties experience varied weather and soil quality, so their typical yields per acre can vary considerably.
The new system uses county yields averaged over several years in a formula with national benchmark prices and compares those calculations with 2014 yields and prices to determine whether to trigger payments. The overwhelming number of Minnesota crop producers signed up for the program called ARC County (Agricultural Risk Coverage). It is not crop insurance, but rather a separate system of federal payments if farm income drops below the guaranteed revenue levels.
Bob Craven, University of Minnesota Extension economist and director of the Center for Farm Financial Management, was not surprised that so many Minnesota farmers qualified to receive payments under the first year of the new program.
"This payment now is really a reaction to the low farm income numbers from 2014," he said, when Minnesota producers harvested below-average yields, and corn and soybean prices were also low.
A University of Minnesota database of about 1,000 crop farmers showed that the median net farm income for 2014 was $16,500, Craven said, so producers will welcome the payments. "For somebody getting a salary, that's equivalent to what your gross paycheck would be for a year," he said.
This year the yields are much better, Craven said, but grain prices are still very low and in many cases below the cost of production. "The margins are still very tight for producers, and this year's crop is not going to be a windfall by any means," he said.
Babcock said the $4 billion price tag for 2014 payments is not much different from the typical $4 billion to $5 billion annually that the direct-payments system distributed nationally in previous years.
Some economists have defended the new system and said it complements private crop insurance that also helps farmers manage risk through subsidized premiums. But Babcock said crop payments and crop insurance are two parallel systems that are duplicative and costly. "With overhead costs for both of them and both of them generating payments, it's kind of a fantasyland," he said.
Mark Schultz, policy director for the Minnesota nonprofit Land Stewardship Project said the real reform that's needed is not in complicated safety-net programs but in policies that increase land and water conservation and encourage crop diversity.
"We need policies to stop the degradation of our water and our soil from the current maximum commodity industrial model," he said.
However, Tom Haag, a corn and soybean farmer southwest of St. Cloud near Eden Valley, said the new safety-net system is an improvement that's fairer than the previous system.
Many counties and states are not receiving payments this year because they don't need them, Haag said, and that may also happen in Minnesota in a year or two if crops are abundant and prices rise. And when payments are triggered and received in a county, he said, they are only a small fraction of the costs of farming, which include high prices for seed, fertilizer and land rent.
For example, payments in Minnesota counties may be $20 or $50 or $70 an acre, Haag said, while it can cost farmers in his area of Meeker County $600 to $700 to plant an acre of corn, depending on land rent costs. If prices are $3 to $3.50 per bushel, he said, farmers with below-average yields will come up short in their income and budgets.
"For a lot of the younger farmers that don't have a lot of equity built into the system yet, this safety net is what's helping them balance their operating loans coming from the bank," Haag said.
Anna Boroff, public policy director for the Minnesota Corn Growers Association, said the new system is a major reform because "it doesn't pay in good years" and it targets payments "down to the county level, and only where they're needed." Boroff said not all years and not all crops will be the same, but the intent is clear. "Farm-bill programs like this protect our food supply system down at the end of the chain to make sure that consumers have a consistent food supply," she said.
Tom Meersman • 612-673-7388