When the Agriculture Committees and their staff begin working on a farm bill, like clockwork, experts from around the country, including us, put out information intended to help inform the process. Every farm bill cycle, we run across a report or research geared toward the next farm bill that, while what the authors did and said isn’t technically wrong, boy does it leave out something kind of important…hence the term “Silly Season.”
The article that caught our eye this time is titled “State Shares of US Commodity Program Payments: 2002–2021” by Zulauf, et al., written for farmdoc. The authors summarize their paper with the following:
“Payments are compared to the value of all field crop production. One would expect payments to be proportional to value of production. In general, commodity payments follow farm production, but exceptions exist. States whose share of commodity payments are higher (lower) than their share of field crop production tend to be in the South (Midwest).”
When looking at the share of commodity payments relative to the share of the value of crop production, the South does receive proportionally more payments than the Midwest. The implication is that Southern farmers are provided significantly more benefits than the value of their crops would imply is needed. The problem is the report leaves out one word that we think should have been included: ethanol.
The biofuels blending mandates contained in the Energy Policy Act of 2005 (EPA of 2005) and the Energy Independence and Security Act of 2007 (EISA of 2007) dramatically changed the value of corn production in the United States. See the SAT article from April 14, 2022, for more information on these two acts. Overnight, this effectively created a new demand for biofuels – and therefore corn – leading to a significant increase in price and the quantity of corn diverted to ethanol production (Figure 1). The blue line indicates the share of total corn supply going to industrial uses…namely ethanol. The red line indicates what happened to corn prices when the ethanol mandate took effect.
All corn producers have benefitted greatly from the ethanol mandate. While there are definitely spillover effects on some other crops resulting from ethanol policy, leaving out the effect of ethanol when discussing proportional shares of farm program payments is misleading. As Paul Harvey was fond of saying: “now you know…the rest of the story.”
Figure 1. Share of Total Corn Supply Utilized in Food, Alcohol and Industrial Use and Marketing Year Average Corn Prices, 1973 to 2022.
Outlaw, Joe, and David Anderson. “The Silly Season Has Begun… Must Be Farm Bill Time.” Southern Ag Today 3(21.4). May 25, 2023. Permalink