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October 2012 Volume 18 Number 4
US: Drought, Farm Bill, ARMS
Drought. July 2012 was the hottest month on record in the US. A third of the 3,100 US counties in 29 states had too little rain in summer 2012, reducing corn and soybean crops, sparking wildfires and prompting the sale of cattle that became too expensive to feed; over half of pasture and land on which hay was grown was rated as in poor condition. As a result of early cattle sales, USDA forecast that beef production would fall from 26 billion pounds in 2011 to 25 billion pounds in 2012, and further in future years until herds are rebuilt.<< back
Over 85 percent of the US corn and soybean crops are grown in drought-affected areas, and a third of these crops were rated poor to very poor in July 2012. The price of corn rose to over $8 a bushel in July 2012, and the price of soybeans topped $17 a bushel. By October 2012, corn prices were about $7.75 a bushel and soybean prices $15.50 a bushel.
Almost half of US corn is fed to livestock, and analysts estimate that a 50 percent increase in corn prices is associated with a one percent increase in food prices.
The US grows about 40 percent of the world's corn and soybeans and 20 percent of the world's wheat. The US exports more corn, soybeans and wheat than any other country. Rising prices may increase food prices abroad, and could fuel protests in some developing countries.
Despite the drought, net farm income is expected to be $122 billion in 2012, the highest since 1973. During the last major drought in 1988, prices for corn and soybeans did not rise as they have in 2012.
Ethanol. US law requires that 13 billion gallons of ethanol be blended with gasoline in 2012, which will require almost five million bushels of corn, or 45 percent of the shrunken 11 billion bushel crop. The Environmental Protection Agency could determine that the ethanol mandate was causing harm and suspend it, which would add to the supply of corn used to feed livestock (almost half of US corn is used to feed livestock in the US and abroad).
Meat and poultry producers joined with agricultural economists and international aid agencies to call for EPA to suspend the ethanol mandate in order to lower corn and soybean prices. Iowa is the largest corn-producing state, and farmers there, many of whom own ethanol refineries, asked the EPA to maintain the ethanol mandate. The US corn ethanol industry exists because of the mandate and tax breaks.
Farm Bill. There were calls to quickly enact the pending Food, Farm and Jobs Act because of the drought. The new farm bill has been held up because of disagreement over federal food assistance, which costs $80 billion a year. The House version would reduce federal food assistance by $16 billion and the Senate version by $4.5 billion, and Congress adjourned without resolving these differences.
It is not clear exactly how the farm bill would be changed because of the drought. Over 80 percent of corn and soybeans are insured, ensuring farmers some income even if yields are minimal. In 2011, farmers received $11 billion in crop insurance payments.
ARMS. USDA's Farm Production Expenditures survey found that a quarter of US farms reported expenditures for labor in 2011. Labor accounted for $26.8 billion or 8.4 percent of farm expenditures in 2011, down from $27.3 billion or 9.4 percent in 2010.
California had labor expenditures of $7.6 billion or a quarter of total expenditures in 2011, down from $8 billion in 2010; followed by Texas with labor expenditures of $1.7 billion; Florida with $1.7 billion in 2011; and Washington with $1.4 billion.
Farms with sales of $1 million or more reported $16 billion in labor expenditures, or 60 percent of US farm labor expenditures.
Total production expenditures were $319 billion in 2011, including 17 percent for feed; 12 percent for farm services; nine percent for livestock purchases; and eight percent for labor. Crop farms incurred expenditures of $170 billion, and livestock farms $148 billion; crop farms reported $17.4 billion in labor expenditures, compared with $9.4 billion for livestock farms.