Myth Busters Part 1 – Commodity Prices and the Farm Bill

April 16, 2008

President John Adams once said, “Facts are stubborn things.”  Opponents of farm policy obviously didn’t get the memo.

During this farm bill, a handful of special interest groups and big city papers have continued to regurgitate numerous myths about farm programs even though the numbers prove these arguments to be blatantly false.

Over the next couple of weeks, Farm Policy Facts will debunk some of the biggest whoppers.

Myth: Farmers will rake in big bucks with higher commodity prices; they don’t need a farm bill.

The Truth: History has shown that prices fall as fast as they rise.  And, commodity programs in the farm bill are structured to react with wild price swings—policies kick in when prices are low and producers receive less support when prices are higher.

That’s why farm policies are referred to as a safety net; they keep producers from falling off the cliff when prices suddenly and inevitably plummet.  Yet, the policies have limited impact on tax payers when prices are on an upswing.  For example, farm program expenses are projected to be far less because of current price levels.

Farm policies were created primarily to add a level of stability for producers who are directly tied to commodity markets notorious for their roller-coaster characteristics.  Without such stability, fewer farmers would farm and even fewer lenders would provide the operating loans necessary to cash-flow today’s farming operations.

Interestingly, the last time there was a crop price situation similar to today was just before the farm crisis of the 1980s.  Farmers back then lacked the farm safety net and crop insurance options we have today, and bankruptcies and foreclosures became commonplace.  The result was an economic situation in rural America that weighed down the entire country’s economy.

Economists are warning that a similar crash could be right around the corner.

It is also important to keep in mind that prices are only one side of the equation.  Producers’ input costs have been rising along with commodity prices.  If not for farm policies, farming would be a money-losing proposition for some growers—even with higher crop prices.

According to an April 14 Wall Street Journal article, “In the American Midwest, land prices have jumped, along with the cost of energy and chemicals. The price of diammonium phosphate, a common fertilizer, is about $1,200 a ton in the U.S., up from about $450 a ton a year ago.”

When you take the time to learn the facts, it becomes pretty clear that many critics of farm policy are just that—professional critics who will never be happy and will always second-guess.  Keep in mind, these are the same people who just a couple years earlier complained about prices being too low.

I guess President Dwight D. Eisenhower had it right when he said, “Farming looks mighty easy when your plow is a pencil, and you’re a thousand miles from the corn field.”