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Farm bill and flooding: economist Daryll Ray

After the first round of producer organization-sponsored farm bill meetings, Mid-South farmers still have plenty of questions about the new legislation. That isn’t the sponsors’ fault — too often the new bill is confusing.

In the few days since it passed, even agricultural economists haven’t been able to fully understand the bill’s implications. However, Daryll Ray, well-known agriculture economist with the University of Tennessee, is willing to offer some initial impressions.

Ray says farmers especially need to study the ACRE program. He also spoke on the Midwest floods and the potential fallout. Among his comments:

On the ACRE program…

“Someone needs to check on the ACRE program and how it will truly impact the highest-yielding producers. If I’m reading the farm bill correctly, it appears the producer revenue calculation must be less than the state’s average.

“If true, that could mean the farmers with the highest yields in a state could end up, essentially, being frozen out of government payments. I say that only as a hypothesis because I haven’t done — nor seen anyone else’s — number-crunching on this. But just reading the bill certainly raises that question.

“In some ways, you can anticipate how a farmer will do with the ACRE program if his average yield is exactly in line with his home state’s. But if it’s much higher, I don’t think that farmer will be very happy.”

On the new disaster program…

“This will sure do a much better job of targeting the payments. Rather than make blanket payments, it will take into account the revenue received on the individual farm, including insurance indemnities and everything else. Then, those figures will be compared to a standard.

“That will do a much better job of getting funds to people who really have experienced a disaster.”

On the Midwest flooding…

“It’s a bit early to make specific comments on what the level of production declines might be. USDA is set to do a special acreage survey that will help.

“Whatever that survey shows we are very, very concerned about crop and livestock losses due to flooding. That’s largely due to where prices and supplies were when the flooding began. Before the flooding, prices were already elevated tremendously along with extremely low stock levels.

“Any reduction in output that occurs will be magnified in terms of price even more than it would otherwise.

“The flooded land is obviously a massive worry but we must also worry about the rest of the Midwest corn and soybean land. “Undoubtedly, there has been nitrogen leaching and other things to consider. And who knows what the weather will bring for the rest of the summer.

“The situation is very precarious. The price for corn is already around $6. If the expected reduction in the Midwest crop plays out — and I’m not predicting this, but it could happen — corn could be at $8 to $12 pretty easily. That would be devastating to the livestock sector.”

On increasing food prices…

“Everyone is talking about food prices. There are several things that need to be kept in mind. The farm ingredient component must be kept separate from everything else.

“So far, the ‘everything else’ has been the major concern. On the farm ingredient side, there’s definitely been an impact. But that’s been on farm commodities that don’t have that much farm ingredient values in them yet. Those would include cereals and bread — yes, they have farm ingredients but don’t make up a very large share of the total cost.

“But that will change. We’re already seeing that in the price of eggs. And Tyson and other poultry companies are saying they’ll reduce poultry production. Now, there will be a forced reduction of output for the hog sector and, eventually, in the beef sector as people get out of the business or culling their herd. That will lead to higher livestock prices and allow livestock producers to better cover increased feed costs.

“The full extent of that hasn’t happened yet. The U.S. consumer will be unhappy when it does.”

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