May 2, 2022
As the war shifts to and intensifies in Ukraine’s eastern front, the Biden administration is calling on Congress to provide additional resources to Ukraine. Included in the $33 billion supplemental request, the administration is seeking $500 million in food production assistance for U.S. farmers to incentivize additional production to offset potential shortfalls from Ukraine’s crop.
According to a White House fact sheet, through higher loan rates and crop insurance incentives, the legislative proposal to Congress would provide greater access to credit and lower risk for farmers growing soybeans and other commodities while lowering costs for American consumers. The request includes boosting some commodity loan rates for two years, extending the loan term to 12 months for 2022, and providing a $10 per acre incentive paid through crop insurance premiums to a soybean crop planted after a winter wheat crop in 2023.
USDA estimates the incentives would help U.S. farmers make up for up to 50% of the wheat typically exported by Ukrainian farmers. However, Chandler Goule, CEO of the National Association of Wheat Growers, questions how the likely small geographical area could make up that shortfall.
Only producers in Kentucky, Ohio, Alabama and sometimes Michigan double crop wheat after soybeans, and potentially in wet years in eastern Kansas or Nebraska. It’s unlikely any of these states can provide booming yields after a double crop, even if every acre in those four states was to double crop with wheat, Goule says. Also, if growers didn’t plant a fast-maturing soybean, it’s unlikely they’ll be able to get a winter wheat crop in this year.
Joseph Glauber, International Food Policy Research Institute senior research fellow, says the proposal to increase crop insurance subsidies for double-cropped soybeans is perplexing. “The window for double-cropped soybeans is pretty small. Wait too long and you could have major yield losses,” Glauber says. “I would hate for a program like this to screw up the actuarials on soybeans. Moreover, there is no guarantee that an increase in double-cropped soybean area will mean that winter wheat area will increase.”
Back in 2012-13, farmers planted almost 8 million acres of double-cropped soybeans, Glauber explains. “Prices are high enough to encourage additional plantings -- you shouldn’t mess with the crop insurance program to encourage crop production.”
Glauber’s colleague at IFPR, David Laborde, adds that market signals are strong enough without these policies to encourage additional planting. The adverse effects of such measure may outweigh some of the benefits. This could potentially create tensions with other exporting countries and could even deter some production expansion in other places.
“The world does not need more concentration of production,” Laborde warns.
Pat Westhoff, director of the Food and Agricultural Policy Research Institute at the University of Missouri, says higher loan rates and a crop insurance boost for double crop wheat and soybeans will both encourage increased production. “If there is a producer on the edge between deciding whether or not to double crop or whether or not to plant that last acre, these changes might make a difference,” Westhoff says. “However, it seems unlikely that these incentives will be nearly as important as the incentives caused by high crop prices — and the disincentives caused by high input prices.”
Glauber adds that although the outlays of increasing loan rates will be small because of current prices, if they fall, the outlays could be very large. “If prices were to fall, you don’t want producers making their planting decisions based on marketing loan rates,” Glauber says. “Moreover, if history is any guide, once loan rates are raised, there will be significant pressure to keep them there.”
Support that can help
Laborde also notes removing some of these measures will be a “political nightmare” moving forward. “It is incredibly risky to put in place support when market prices are high because the pressure to not remove them when prices will decrease will be strong,” he adds.
“We appreciate their out-of-the box thinking, but if they would have consulted us six to eight weeks ago, we could have helped them,” Goule adds. “We would like to see wheat production encouraged throughout the nation and incentivize both spring and winter wheat growers.”
As this proposal is refined through the Congressional process, NAWG looks forward to working with lawmakers to achieve the administration’s goal to “provide incentive payments through crop insurance to increase wheat production by encouraging US farmers to double-crop wheat.”
Overall, the National Sorghum Producers and the National Association of Wheat Growers believe the proposal is too narrow. The proposal could, however, be a means of strengthening incentives for all producers and crops through a bipartisan, bicameral process.
Goule also says 68% of the current winter wheat crop is in D2-D4 drought conditions creating a scenario where wheat producers are already worried about low yields and overall production. Despite future prices that have increased, wheat producers are faced with extremely low margins as input costs skyrocket.
Wheat has always had a thinner margin than corn and soybeans, so if the government could step in to help improve those margins in the wheat industry it could be beneficial as the Ukrainian crisis continues, Goule says. Commodity groups are still working out how help with input costs could offer assistance, while still being WTO compliant.
While National Sorghum Producers was disappointed sorghum was not in included in the administration’s initial plan as there are significant double crop sorghum acres behind wheat in the Sorghum Belt, they recognize it is only a first step in formulating a strategic response to the global food crisis.
“We look forward to working with the Biden administration and Congressional leaders as they fine-tune their aid approach in a way that takes into account all staple food crops, including sorghum. With sorghum’s unique ability to be grown with less inputs, including water, our nation’s sorghum producers can play a key role in the administration’s goal to sustainably add stability to the world food supply,” NSP says.
The American Soybean Association was also tepid in its support for the proposal. ASA says it looks forward to the public release of more detailed information from USDA. Proposed changes will not be effective immediately as Congress will review the proposed legislative changes and determine next steps.
The suggested proposal also requests Congress appropriate $1.6 billion for U.S. Agency for International Development to help with global food insecurity and provide an additional $100 million for Food for Progress and $20 million for the Bill Emerson Humanitarian Trust, which will allow the United States to better respond to the evolving food crisis.
This complements the $670 million in food assistance that was announced April 28, which uses the Bill Emerson Humanitarian Trust and funds from the Commodity Credit Corporation to help cover transportation costs to deliver this critical aid.
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