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January 2013, Volume 19, Number 1
US: Land, Ethanol, Policy
Farmland prices in the Midwestern corn belt continued to increase by more than 10 percent in 2012, marking the seventh year of rapidly rising prices. Federal Reserve Bank surveys suggest that farm land prices are on track to double in less than a decade. Iowa farmland prices averaged $6,700 an acre in 2012, up from $3,900 in 2008.
During the 1970s and early 1980s, Midwestern farmers assumed debt to buy farm land, which was rapidly rising in price. When crop prices and land values fell, many farmers went bankrupt. USDA projected that net farm income would be $122 billion in 2012, the highest real net farm income since 1973.
Ethanol. US law requires that 13 billion gallons of ethanol be blended with gasoline in 2012, meaning that five million bushels of corn or almost half of the shrunken 11 billion bushel crop was diverted to fuel. Meat and poultry producers joined with agricultural economists and international aid agencies to request that the Environmental Protection Agency 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.
The EPA in November 2012 refused to suspend the ethanol mandate, saying that "Congressional requirements" that the ethanol mandate "severely harm" the economy "have not been met." Livestock producers, restaurants and environmental groups complained and vowed to try to get Congress to change the ethanol mandate, which was enacted in 2007. If the EPA had determined that the ethanol mandate caused harm and suspended it, the supply of corn to feed livestock would increase, lowering feed costs by up to 20 percent, since almost half of US corn is used to feed livestock in the US and abroad.
Farmers in Guatemala and other Central American countries also feel the effects of the ethanol mandate. The poor have corn-based diets based on tortillas, and the price of corn has increased because of the diversion of land to sugar cane and African palm to produce biofuels. However, the plantations that grow cane and palm for biofuel are no longer interested in renting land to small farmers, who now have long-term contracts to supply biofuel companies.
Dairy. Dean Foods is the largest US bottler of milk, selling under labels that include Garelick Farms and Land O Lakes. A suit by dairy farmers against Dean and Dairy Farmers of America cooperative alleges a conspiracy that made DFA the exclusive supplier of milk to Dean that hastened the consolidation of the dairy and milk-bottling industries. The DFA often provided the funds for Dean to expand.
Dairy farmers in the southeast and northeast allege that Dean and DFA conspired to reduce milk prices, making them vulnerable to rising feed costs that forced many dairies out of business. Dean settled the lawsuits with the farmers without admitting guilt; the suits against DFA are pending. Gregg Engles, the outgoing CEO of Dean Foods, received over $150 million in pay over the past decade as Dean's stock price fell; Forbes included Engles in a list of Worst Bosses for the Buck in 2011.
Policy. US farm bills set policy and prices for the next three or four years; the 2008 Farm Bill expired September 30, 2012, but was extended for nine months as part of the fiscal cliff negotiations. In the absence of a new farm bill, many farm commodities are entitled to support under the provisions of a 1949 farm bill, which could double some prices, including the price of dairy products.
Both the House and Senate versions of the farm bill for the next four or five years would reduce government spending, but the House bill cuts spending on food aid more than the Senate bill.