Mountains of Corn and a Sea of Farm Subsidies
Mark Kegans for The New York Times
About 2.7 million bushels of corn is piled 60 feet high on the ground
beside full elevators at an agricultural cooperative in Ralston, Iowa. More Photos >
Nov. 4 - As Iowa finishes harvesting its second-largest corn crop in
history, Roger Fray is racing to cope with the most visible challenge
arising from the United States' ballooning farm subsidy program: the mega-corn pile.
more than 60 feet high and spreading a football field wide, the mound
of corn behind the headquarters of West Central Cooperative here
resembles a little yellow ski hill. "There is no engineering class that
teaches you how to cover a pile like this," Mr. Fray, the company's
executive vice president for grain marketing, said from the adjacent
road. "This is country creativity."
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Mark Kegans for The New York Times
Trucks wait to unload corn at elevators in Templeton, Iowa. The current
system encourages the production of more than the country can use. More Photos >
At 2.7 million bushels, the
giant pile illustrates the explosive growth in corn production by
American farmers in recent years, which this year is estimated to reach
a nationwide total of at least 10.9 billion bushels, second only to
last year's 11.8 billion bushels.
But this season's bumper crop
is too much of a good thing, underscoring what critics call a paradox
at the heart of the government farm subsidy program: America's
efficient farmers may be encouraged to produce far more than the
country can use, depressing prices and raising subsidy payments. In
other words, because the government wants to help America's farmers, it
essentially ends up paying them both when they produce too much and
when their crop prices are too low.
Indeed, this season's huge
volumes weigh heavily on farmers, who already have suffered a string of
misfortunes: a large overhang of grain from last year, coupled with
soaring energy costs and two Gulf Coast hurricanes that stymied
transportation, and a severe drought that distorted prices. Together,
these events have conspired to depress corn prices and potentially make
this the most expensive harvest ever for the federal government.
as the Bush administration tries to persuade member nations of the
World Trade Organization that it is serious about trimming agricultural
subsidies, federal spending on farm payments is closing in on the
record of $22.9 billion set in 2000, when the Asian financial crisis
caused American exports to fall and crop prices to sink, pushing the
Midwest farm belt into recession.
If export sales stay weak,
this year's subsidies could hit a new record. Just last week the United
States Agriculture Department raised its projection of payments to
farmers by $1.3 billion, to $22.7 billion. In 2004, the subsidies were
only $13.3 billion.
In response to pressure, the Bush
administration said last month that the United States was prepared to
cut its most trade-distorting farm subsidies by 60 percent over five
years. The world's poor nations, which tend to be heavily dependent on
agriculture, complain that American and European Union farm subsidies
spur growers to produce gluts that depress crop prices throughout the
The Agriculture Department's $1.3 billion revision comes
primarily from higher loan-deficiency payments, which are now estimated
to total $6.2 billion, said Keith Collins, the Agriculture Department's
chief economist. Such payments are meant to cushion the blow for
farmers who borrow money to raise crops but then have to sell them in
the market for less than the outstanding loan.
Most of that
money will flow to corn growers. Based on loan-deficiency rates that
have recently topped 50 cents a bushel, the government probably will
pay corn farmers about $4.5 billion this year in that subsidy category
alone, said Bob Young, the chief economist for the American Farm Bureau
For critics of the American subsidy system, the
record corn production highlights the tenuous assumptions underlying
the program. Farmers are encouraged to produce as much as they can with
the idea that greater exports will soak up the excess production. More
recently, there are high hopes for using corn to produce ethanol for
gasoline, but the infrastructure to produce large amounts of ethanol
will take time.
But the huge volumes in recent years have not
been matched by greater demand for American corn, and the woes created
by two big harvests, along with the stifling effect of Hurricane
Katrina on the transport of grains, have kept exports in check,
analysts and grain traders said.
"We are still in a condition
of grossly overproducing for what the market can pay, at least what the
market can pay that is acceptable to our corn producers," said Ken
Cook, president of the Environmental Working Group, an environmental
research group based in Washington that has been critical of farm
subsidies. "We can't make up the difference in the export market, and
the taxpayers are on the hook."
The government spent $41.9 billion on corn subsidies from 1995 to 2004, according to the Environmental Working Group.
far, current and future corn shipments of 550 million bushels are
running 11 percent behind last year's level of 640 million bushels in
early November, according to government figures. But lately foreign and
domestic buyers, sensing fire-sale conditions, have started to snap up
corn at historically cheap prices, said Steve Bruce, a grain trader
with Man Financial in Chicago. "We have reached the saturation point
where the grain elevator managers have said we just have to sell the
stuff," he said.
With corn spilling out everywhere, the
Agriculture Department predicted last month that American corn growers
would receive an average of $1.85 a bushel for their new corn, which
would be the lowest price since the late 1990's. The government is
expected to release new estimates for crop production and exports on
Storm damage and transportation bottlenecks sharply
raised costs this year for producers, so that Midwest farmers had a
tough time this fall finding buyers.
Hurricane Katrina in late
August damaged grain-exporting operations around New Orleans. Some 60
percent of corn and soybeans are normally exported through that city's
port. A shortage of river barges and damage to the ports created
domestic bottlenecks and added to internal freight costs, eating into
farmers' profits and briefly making American crops less competitive
than those of some foreign competitors. Barge rates have tripled in
Higher costs for gasoline and diesel also led
railways and trucking firms to increase their rates to haul the crops,
in some cases by four to six times the normal rates. The rail system,
in particular, was already strained coming into the harvest season, and
grain merchants have struggled at times to find available rail cars. In
Iowa, some grain elevators simply closed down when they got too full.
For farmers in recent weeks, the morning harvest call was to "call two
or three elevators and see which ones were open," Mr. Fray said.
be sure, the last two years of bumper harvests have shown how good
American farmers have gotten at producing corn. More drought-resistant
varieties, improved pesticides and more efficient farming practices
have all contributed to higher yields, farmers and grain managers said.
Nearly perfect growing conditions helped produce last year's record crop. But this year the biggest surprise came in Illinois,
which despite suffering its worst drought since 1988, still managed to
produce a large crop. The drought made many farmers hesitant to sell
their corn at depressed prices, decisions that worsened what became an
excessive surplus. "The big lesson this fall is don't believe the
farmers when they say they don't have a crop," said Jeff Hainline, a
commodities broker at Advance Trading in Bloomington, Ill.
incentives to produce flat-out have also helped make the large corn
harvests possible. Farmers are hardly shy about exploiting the
government safety net provided by guaranteed loan-deficiency payments.
"Everybody leans on the L.D.P.'s as much as they can," said Ash Kading,
a farmer in western Iowa who was harvesting his last few rows of corn
late last week. "It is like opening up the federal Treasury. There were
quite a few people this year that wish corn prices would go to zero
because they would have a bigger L.D.P."
While farmers and grain
merchants like Mr. Fray expect even more corn to be planted next year,
some traders believe that higher natural gas prices will cause farmers
to grow less corn - natural gas is used to make fertilizer, pesticides
and herbicides. "With higher energy costs you will see more wheat acres
and soybean acres," Mr. Bruce said.
This year grain piles are
everywhere across Iowa and parts of Illinois, the two biggest
corn-producing states. In Iowa, the amount of grain being stored on the
ground for lack of storage is averaging more than 19 percent, its
highest level in at least 25 years, Mr. Fray said, citing private
Lately the giant piles have become the butt of
jokes in farm country. They were spoofed in a fake picture, widely
e-mailed, that showed a skier airborne atop West Central's biggest
pile, with the caption that said "one thing you can do with a
3-million-bushel pile of harvested corn: Ski Iowa."
smiles when he recalls the fake picture. But he has hardly become
attached to his largest corn creation. West Central, which markets corn
for more than 8,000 farmers, is planning to dismantle the
2.7-million-bushel pile before year-end to avoid rains that could ruin
the corn, he said. Last year the company built a similar-size pile and
gambled on the weather, only to suffer the misfortune of repeated
late-season rains that badly damaged the quality of the corn, trimming
the cooperative's profit by 34 percent, to $4.8 million.
year, with corn bursting out of storage bins and lots of dry weather,
West Central put 13.4 million bushels on the ground in 11 piles; 12.8
million bushels were left outside last year. But with customers moaning
about a possible repeat of last year, the co-op tried to plan ahead
this time, spending $4.5 million to build additional storage and buy
giant tarps to cover some of the piles. As of last week, the co-op had
covered half of the corn.
The 2.7-million-bushel pile, however,
is too big to cover, since there are no walls to tie a tarp to. For
that one, the company can only pray for dry conditions while it tries
to find buyers for the corn. "So far," Mr. Fray said, "we have dodged a
Failing that, West Central could always build a ski lift on the hill.