What is in this article?:
- NFU/University of Tennessee Agricultural Policy Analysis Center study looks at farmer owned reserves (FORs).
- Group urges Congress to consider FORs as agriculture legislation is crafted.
- Farmers would have benefited from price signals that more accurately reflect the supply/demand situation at a given time, than when futures prices reflect herd-following speculative behavior on the part of some market participants.
- Livestock producers and industrial users such as biofuels producers are vulnerable to rapidly increasing prices. Farmer-owned reserve policies would have provided livestock producers and industrial users with security in the availability of feed supplies and the range of prices they can expect.
“With FORs, livestock owners wouldn’t have seen the collapse in feed prices we saw between 1996 and 1998. But when they bought their cattle they had already figured those prices into their financial calculations, so they could cover those feed costs. When they encountered low feed prices they made more money and expanded their production.
“In the mid-2000s, cattlemen expected corn prices in the low $2 range, which was profitable. Suddenly, the price began rising up to $7 in the spot market for corn. That meant feed costs shot up and cattle and poultry operations were in trouble.
“With FORs, there’s a supply so that if something like ethanol enters the picture there’s something to moderate the situation. There doesn’t have to be a ramp-up of corn production in just a year. That ramp up can happen in a longer time period and the reserves can fill the gap. There would just be a more stable supply.”
- For the entire 13-year period, the value of production under the baseline policies was $413 billion while with farmer-owned reserves it would have been $446 billion – a difference of $2.6 billion a year.
- Over the entire study period, corn prices would have averaged $0.26 higher, wheat prices would have been $0.48 higher, and soybean prices would have averaged $1.09 per bushel more under farmer-owned reserves than they actually were.
“Because the prices were extremely low in the early years, there was significant price gain for corn, wheat and soybeans. In the study’s early years, we had extremely low prices that were back-filled with LDPs and emergency payments.
“More recently, the top was taken off. That meant from 1997 on, farmers received slightly lower prices than they had historically. However, the prices were still above the cost of production.
“In some sense, in exchange for protecting risk on the low side, farmers give up some higher prices. It would moderate both ends and by doing so, cattle feeders do better. Those who are in both row-crops and livestock end up taking it out of one pocket and putting it in the other.”