Record government subsidies boost income for Iowa, U.S. farmers. The worry: What about next year?
Mid-Iowa Cooperative's Mike Kinley sees a $275 million soybean processing plant under construction in eastern Iowa as a way for farmers to get more money for the crops they grow.
"It's critical that we add value to our commodities, and that we do it locally," said Kinley, Mid-Iowa's CEO, adding that the soybean crushing plant being built near Shell Rock — in which the cooperative is a leading investor — is expected to create about 60 good-paying jobs.
Boosting farm income is crucial, even though a new U.S. Department of Agriculture report this week forecasts that U.S. farmers will end the year with the highest net income since 2013.
The strong numbers are mostly due to a record amount of government subsidies, which are estimated to be more than double payments in 2019.
Representing about 39% of the $119.6 billion in farm income, the payments were designed to offset losses from trade wars, the coronavirus pandemic, drought and other natural disasters. It's doubtful that level of direct government payments can continue next year, experts say.
Improved prices and demand will help replace some of the expected decline in farm subsidies in 2021, said Chad Hart, an Iowa State University agricultural economist.
"We are seeing better prices out there, and that will lead to more market-driven income next year," Hart said. "But that recovery is not enough to offset the expected decline in government support."
The federal government "has less flexibility" to provide that level of support for farmers or other Americans, in general, Hart said. Congressional leaders are discussing a new round of coronavirus assistance, potentially half of the $2 trillion package approved earlier this year, but "you can only go to that well so many times," Hart said.
He said Iowa and U.S. farmers are in a "much better position" ending the year than six months ago, when the global pandemic idled meatpacking plants as workers became ill with COVID-19, pushing producers to destroy pigs and other livestock that backed up on farms. Supply disruptions that included shifting demand drove down prices for corn, soybeans, cattle and pigs.
But while most markets have recovered, the new year brings many unknowns: Will the drought that hit the Midwest and other growing regions linger? Will China continue its buying spree?
President-elect Joe Biden, who takes office Jan. 20, told the New York Times this week that he will not immediately lift tariffs on China, or act on an agreement designed to significantly boost that country's purchases of U.S. goods. Biden said he will work with European and Asian allies so "we can adopt a coherent strategy" on China.
Kinley said international trade is important for the Shell Rock project, which eventually will deliver the area's soybean meal and oil to Asian countries that need it to feed livestock.
Global demand for pork and other proteins is forecast to climb over the next five years, he said.
"I think there's the potential for some trade relationships to be mended," Kinley said, and "we can tap into markets and demand in a fair way."
Iowa farmers benefited most
In all, $46.5 billion in government subsidies mostly tied to losses from the public health emergency helped drive 2020 farm income an expected 41% higher than last year, the new USDA report said.
It's the largest percentage of subsidies since 2001, the report said. So far this year, Iowa farmers have been the largest recipient of coronavirus payments, at $1 billion, USDA data show.
When adjusted for inflation, farm income this year would be at its highest level since 2013, which set a record after a widespread drought drove corn and soybean prices to new highs in 2012.
While the economic picture for Iowa and U.S. farmers has improved, Hart said, "it's not necessarily a solid and true indication of a complete recovery," given the government support.
Randy Miller, who farms south of Des Moines in Warren County, said the government payments made a big difference to his operation this year, especially before corn, soybean and other farm prices began to rally this fall.
Government payments "were the difference between profit and losses," before supplies tightened and prices climbed, said Miller, who raises corn, soybeans, cattle and pigs near Lacona in southern Iowa.
Even though Miller had pre-sold much of this year's corn and soybean harvest, he was able to tap into some of this fall's higher prices, thanks to strong yields.
Miller's farm was south of the path of the hurricane-force derecho that swept across the central third of the state in August and the drought that encompassed a large portion of west-central Iowa this summer.
Tom Vilsack, former U.S. Agriculture secretary and a former Iowa governor, said he doesn't think any farmer "wants or expects" this year's record government subsidies to continue.
Subsidies have climbed over the past three years as the U.S. under the Trump administration has battled with Mexico, Canada, China and other countries over trade. President Donald Trump forged a new trade pact with U.S. neighbors Mexico and Canada and reached the first phase of an agreement with China, which called for that country to buy about $200 billion in additional U.S. goods and services in 2020 and 2021.
Vilsack, who as Agriculture secretary served in the Obama administration with Biden, said he expects the former vice president's administration to focus on implementing the trade agreement with Mexico and Canada, and to work with allies to leverage trade reforms with China.
"The hope is that markets stabilize and become stronger ... and that farmers can generate income the right way — from selling more products at a fair price," said Vilsack, CEO of the U.S. Dairy Export Council.
Watching Biden on biofuels
Miller said he's unsure what the new year will bring for farmers, especially given concerns around the coronavirus. Americans have hunkered down to reduce the spread of COVID-19 — cutting visits to restaurants and bars, working and learning at home and reducing travel for work and play.
It's impacted demand for everything from milk served in school cafeterias, to pork chops and steaks served in restaurants, to gasoline and ethanol purchased by motorists.
How quickly coronavirus vaccines, potentially beginning to reach Americans this month, can be widely distributed "will have impact on the global economy and on our economy," Vilsack said. "And that has an impact on what people purchase and how much they purchase."
Miller hopes that China will continue buying U.S. corn, soybeans, pork and other farm goods. But, Vilsack said China is about 25% behind its Phase One promise for agriculture purchases so far this year.
"For all the pain, aggravation and irritation, we've basically gotten back to where we were" before the trade dispute began, said Vilsack, a Democrat who campaigned for Biden.
Hart, the ISU economist, said China could set a record for U.S. agriculture purchases this year, even if it fails to meet the Phase One goal. "Sales are up dramatically, but not quite to the level that Phase One promised," he said.
Iowans also will be watching the Biden administration's approach to biofuels, an issue over which farmers split with Trump as his administration handed out dozens of waivers to oil refineries, exempting them from blending billions of gallons of ethanol and biodiesel into the nation's gasoline supply.
Kinley, the Mid-Iowa Cooperative CEO, said the Biden administration's approach to biofuels could have a big impact on farm income, especially in Iowa, which produces the most ethanol and biodiesel in the nation.
About half of Iowa's corn supply is used to make ethanol and dry distillers grain, a high-protein byproduct that's fed to livestock. "If gasoline demand falls by 10%, that would erase 500 million bushels of corn demand," Kinley said.
"That's a big deal. And that's a bigger concern than what the government will do with subsidies," he said.
Donnelle Eller covers agriculture, the environment and energy for the Register. Reach her at firstname.lastname@example.org or 515-284-8457.