How One Agriculture Subsidy Skews Markets
April 1, 1999
Soybean prices have dropped 25 percent since a year ago. Yet soybean farmers intend to plant a record 73.1 million acres this spring -- 1 percent more than last year -- which will likely depress prices further. That doesn't sound like rational thinking, but in the world of government subsidies it is.
- World markets are already swamped by a bumper South American soybean crop and good weather in the American Midwest this summer could easily produce 5 percent more soybeans than last year.
- Some grain traders think the price of U.S. soybeans could decline to under $4 a bushel -- the lowest level since the 1980s farm crisis.
- At that price many farmers would do no better than break even.
- But thanks to the so-called marketing loan program operated by the U.S. Department of Agriculture, growers can count on reaping a price this fall of about $5.26 per bushel.
Some economists are projecting that federal loans on the 1999 soybean crop could cost the government and taxpayers some $4 billion. The name of the program is a misnomer, because most farmers won't pay off the so-called loans in cash. They'll simply surrender their crop as collateral.
Experts report that farmers are making plans to cut production of crops that do not get special treatment from the government and concentrate on those that do.
Source: Scott Kilman, "Subsidy Boosts Soybean Planting Despite Prices," Wall Street Journal, April 1, 1999
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