American farmers are about to get a plump subsidy from the U.S. government despite near-record grain prices.The money will come from the new Farm Bill which U.S. President Bill Clinton was expected to sign at press time. Under the legislation, the U.S. will attempt to modify a heavily interventionist farm policy that has tied crop deficiency payouts to market prices, and eventually leave farmers susceptible to the market.
For the next seven years U.S. farmers will have a gradually-declining subsidy system as the government attempts to wean farmers off subsidies.
"They're [farmers] are going to be pretty flush" with money, says George McCaw, provincial government policy analyst assigned to track the Farm Bill's impact on Ontario farmers. The new legislation ends acreage controls and deficiency payments, replacing them with government payments until 2002. See Table One.
This year U.S. corn producers will be paid US$0.27 per bushel. In 1997, corn payments will peak at US$0.52 per bushel and gradually decline to US$0.28 per bushel. U.S. wheat producers will get US$0.92 per bushel this year, and pocket US$0.46 cents in 2002.
McCaw has compared how much government support U.S. and Ontario producers will receive during the 1997-98 crop year. A model farm business, using Kent county yields for a producer harvesting 300 acres of corn, 200 acres of soybeans and 150 acres of wheat, would receive about C$28,000 from the U.S. government regardless of market prices, McCaw says. The same producer would get C$24,000 in 1998.
Under Ontario support programs, linked to grain and oilseed prices, if prices remain strong through 1997, an Ontario farmer, using the Kent county model, would receive about $10,000 in matching government Net Income Stabilization Account (NISA) contributions and no money from the Gross Revenue Insurance Plan (GRIP).
If grain prices plummet, however, Ontario producers would be in better shape than their U.S. counterparts. McCaw says if 1997-98 prices fall to $120 per tonne for wheat, $2.80 per bushel for corn and $7 for soybeans, an Ontario producer would collect about $30,000 in payouts compared to the U.S. producer's $28,000.
"If grain and oilseed prices remain strong, the U.S. program will provide more support," McCaw says. "If grain and oilseed prices plummet over the next couple of years, the Ontario programs would provide more protection."
McCaw says Ontario producers will get more than U.S. producers only in the case of a "very significant price decline". That would require back-to-back bumper crops in the U.S. and a higher Canadian dollar, he says.
But will U.S. politicians be willing to cut farmers loose in 2002 as planned? Ridgetown agricultural college economist Brian Doidge thinks politicians will have second thoughts. "There will be a lot of people crying and you will continue to see farm bills," he told provincial corn growers at their recent annual meeting.
The U.S. government set ambitious goals when the Farm Bill debate hit full speed two years ago, but a plan to shave spending by 20 per cent has been whittled down to a US$2 billion savings, and the government may not even save that, McCaw says. The seven-year deal is worth US$47 billion.
Despite promises to scale back the Export Enhancement Program (EEP), the foreign market subsidy still has some teeth left in it. The U.S. expects to spend only US$350 million on export subsidies this year due to low domestic supplies, but the program cap remains high - up to US$478 million will be available in 2002. "The EEP hammer is still in the back pocket," McCaw says.
The Farm Bill will not have a huge impact on planting decisions for 1996. "A lot of decisions have already been made," he says. "The market is already pushing farmers toward corn."
Doidge says the future of grain prices will become more volatile and traditional price relationships will mean little. "Long-term price relationships such as 2.5 to 1 for soybeans to corn are out the window. It doesn't hold any water any more. The hog-corn ratio of 17 to 1 is gone. It's a new world. "It's going to be a more market-responsive agriculture. Higher prices are going to be needed to attract supply where commodities are in tight supply. But if you guess wrong you're going to see lower prices where supply exceeds demand because there won't be any support from government.
"My guess is you'll see more soybeans in the U.S., and therefore more corn in Ontario," and more market and acreage volatility, Doidge says.
Fred Brandenburg, secretary-manager of the Ontario Soybean Growers Marketing Board, says U.S. soy production has been out-paced by corn in the U.S. because soybeans did not have a target price the government would guarantee should the market come up short. He doesn't expect to see U.S. producers shift immediately to soybeans, but there will be more soybeans over the long term.
"For this year, if farmers are looking at the cash price, there'll likely be more corn," Brandenburg says.
By ROBERT IRWIN
For Seaway Valley Farmers Energy Co-operative directors it now looks like a case of damn the government and full speed ahead.Seaway's recent share offering fell short of Agriculture Minister Noble Villeneuve's March 31 deadline. Without immediate and creative political manoeuvring, the co-operative could lose its much-publicized $3-million provincial grant. Nevertheless, bulldozers continue site preparation in Cornwall's industrial park for Seaway's planned $40-million ethanol plant. "Let's go ahead and do it ourselves," says Seaway president Bud Atkins.
A year ago the co-op launched a successful share drive which brought total equity to more than $5 million. They hoped their recent sales campaign, bolstered by a $30,000 newspaper and television campaign, would generate the $7 million needed to qualify for government money.
"We're definitely over the $1 million," estimates Seaway treasurer Richard Fraser, a dairyman who also cash crops corn and soybeans near the Ottawa suburb of Nepean. He says investors were turned off in the latest campaign, which began two months ago, by high corn prices.
"The one thing they [investors] don't fit into the equation is that protein supplement is a lot higher in price and gasoline is 10 cents higher than it was when our business plan was prepared," explains Fraser. Higher protein prices mean more revenue from sales of dried distillers grains, a by-product of the ethanol manufacturing process.
Seaway's fate has as much to do with politics as corn prices. When he was in opposition, MPP Villeneuve, a strong ethanol proponent, was on hand for Seaway's first meeting in founding director Francis Chretien's kitchen.
The group became a favourite of NDP Agriculture Minister Elmer Buchanan and received several grants including the elusive $3-million commitment. Ironically, the first political setback came when Villeneuve was elected. The $3-million commitment was swept away for the first time with the demise of the JobsOntario Program.
"The problem then from Noble's standpoint was to make a Conservative project out of something that had started as an NDP project. That's sometimes hard to swing," says Fraser. When Villeneuve resurrected the $3 million earlier this year, it came with strings attached. Observers had predicted Seaway wouldn't sell enough shares by the March 31 deadline specified in the government contract they had to sign.
Atkins maintained that corporate partners are on standby to pick up any shortfall. At press time, he couldn't identify any investor publicly but maintained a soon-to-be-made proposal would satisfy Villeneuve. "We think we've got it [$3 million] but we're not sure and I don't want to say something that's not accurate," he told Farm & Country in a telephone interview.
Villeneuve spokesman Pierre Leduc says the deadline was critical because the $3 million, taken from crop insurance funds, was earmarked in the current budget which terminated with the government's March 31, 1996, fiscal year end. He didn't rule out further negotiations or grants. However, he pointed out, "the funds would have to come out of next year's budget and that's, unfortunately, very unlikely."
Eggsports aren't priority
Despite turmoil in the broiler business, (See cover story), egg producers are looking at their industry with a great deal of satisfaction. Unlike their broiler cousins, so far they have managed to retain their cost of production. They've also fought and apparently won the cholesterol battle with a six-year-long public relations war. Still, the province's surplus production has gone up.During the same period, Canada's egg producers have avoided the high-profile confrontations experienced by their counterparts at the Canadian Chicken Marketing Agency, partly because of their national agency, the Canadian Egg Marketing Agency's (CEMA) tradition of not airing dirty linen in public.
CEMA vice-president Laurent Souligny believes eggs have been more stable because provincial boards haven't knuckled under to processors as some chicken boards have. Still, despite two years of intensive negotiating to create a new memorandum of understanding, governing the agency's next five years, CEMA members still haven't signed it.
A draft was presented at CEMA's recent Ottawa annual meeting. Souligny says there was agreement among all provinces, so signing is just a formality which will happen soon.
Unlike the chicken producers, the national egg agency has no immediate export plans. "In Ontario we haven't really looked at it and in Manitoba they stopped because they lost money two years ago," explains Souligny. He maintains the US$64-million American Export Enhancement fund gives U.S. producers the edge in foreign markets. Canadian producers have no such assistance.
Marcel Leroux, a St. Isidore-area producer, owns 10,000 layers as well as some pullet quota. He closed a swine operation when prices collapsed in the early 1980s.
He looks forward to at least 15 more years of stable egg prices but he isn't planning any expansion or major improvements at least until the NAFTA dispute is settled. Even then, he says the Cost of Production (COP) formula and careful attention to management keeps his family comfortable.
Unlike other egg producers who sold out in the past few years, he is unfazed by American sabre rattling and NAFTA challenges. "Like in pork, they'll always be knocking at the door for something."
Egg quota sells for about $50 per bird. Souligny predicts it won't go higher. Building costs average about $20 per bird. Ontario's 540 regulated egg producers garnered $177 million at the farm gate in 1995. - DS, RI