Federal spending on farm subsidies may reach new levels this year with USDA's World Agricultural Supply and Demand Estimates outlook released Wednesday. Bearish harvest forecasts for corn, soybeans and cotton signal that crop prices will sink low enough for many farmers to receive significant sums of money from the government this year compared to last.
Although USDA won't update its subsidy programs forecast until November, "some federal officials believe the cost could approach or exceed the record of $22.9 billion set in 2000, when depressed crop prices pushed the Midwest farm belt into a recession," the Wall Street Journal reports.
USDA predicted in August that government payments to farmers would climb to 61% to $21.4 billion. In 2004, perfect growing conditions required the government to pay out only $13.3 billion to farmers. Those perfect growing conditions in 2004 also set the stage for a large surplus of 2004's crop, depressing U.S. prices of several crops this year.
Midwest farmers are having a hard time this fall finding buyers for new crops thanks to Hurricane Katrina port holdups. Basis levels are still down in many areas as a result of the damaged grain-exporting operations and slowed barge traffic.
USDA projects U.S. corn production to reach nearly 10.9 billion bushels, the second largest corn crop on record. Corn ending stocks are up 141 million bushels from last month and are 108 million higher than the previous year. As a result, corn's average price has dropped from $1.70- $2.10 per bushel in September to $1.65-$2.05 in October. This is the lowest corn price farmers will have seen since the late 1990s.
Soybean production is forecast at 2,967 million bushels, up 111 million bushels as higher yields more than offset this month's acreage reductions. Soybean ending stocks are projected at 260 million bushels, up 55 million from last month. U.S. season-average soybean prices for 2005/06 are projected at $5.00 to $5.80, compared with $5.15 to $6.05 last month.
Projected U.S. 2005/06 ending stocks of wheat are down 94 million bushels from last
month in part reflecting a 69-million-bushel drop in production. The projected 2005/06
price range is $3.20 to $3.60 per bushel, up 20 cents on each end from last month, compared with $3.40 for 2004/05.
The government raised its U.S. cotton production forecast by 2% from last month to 22.7 million 480-pound bales, which is 2% less than last year's record harvest.