Farm income is up nationally, and grain prices are high. The economy is down, and Congress is in a cutting mood. So expect the folks in Washington to try to take a sharp knife to federal farm subsidies, which totaled more than $15 billion nationally and nearly $1 billion in Kansas in 2010.
Farmers and agriculture groups are grimacing. Farm subsidy opponents are grinning.
The direct-payment program is expected to be the main target. Most farmers are resigned to losing at least some of that, but they're also dead set on retaining another possible target, the federal 59 percent subsidy for crop insurance.
Based on the past four years, ag economists' best guess is that direct-payment cuts would drop Kansas farmers' average annual income about $8,000, to $110,000.
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"If you accept the fact there's going to be some cuts — and most people probably do — you couldn't have a better time for it," said Kevin Dhuyvetter, an ag economy professor at Kansas State University. "We've gone through four pretty doggone good years in a row."
Nationally, net farm income is expected to be up nearly 20 percent to $94.7 billion in 2011, according to the U.S. Department of Agriculture. Corn hit a record high of a shade under $8 a bushel in June; wheat and soybeans approached the record highs set in 2008. Wheat was going for $7.93 a bushel at the Garden Plain Co-op on Friday.
While this year's severe drought will take a bite out of farm incomes in Kansas, Oklahoma and Texas, the farm bill is all about the big picture and what's happening across the country.
"It all boils down to it's been a pretty good time to be a crop producer," Dhuyvetter said. "The last thing you would want is to have to take cuts when we just had three years of losing money."
That doesn't make the pill easier to swallow for the Kansas farmer who has just watched his corn and soybean crops burn up, but Congress is intent on spending reductions.
Not even one of the few congressional coalitions that cross party lines — politicians from major agriculture states — is expected to be able to protect its turf.
Wichita will get a front-row seat to some of that discussion Thursday at a field hearing on the 2012 farm bill at the Hilton Wichita Airport.
Sens. Pat Roberts and Debbie Stabenow will lead the hearing. Roberts, R-Kan., is the ranking member on the Senate Committee on Agriculture, Nutrition and Forestry, which Stabenow, D-Mich., chairs. In 2010, Kansas ranked fifth nationally with $931 million in total farm subsidies, including crop insurance.
How much are subsidies?
The farm bill — which is rewritten every four years or so — isn't all about farms.
About 83 percent of the $288 billion bill in 2008 went to fund nutrition programs, such as Women, Infants and Children and school lunches, said Terry Holdren, the Kansas Farm Bureau's national director of government relations.
The remaining 17 percent — just under $49 billion —promotes agriculture through more than 30 programs, Holdren said. That includes about $20 billion for the Conservation Reserve Program, which has shifted away from soil enhancement to wildlife over the years.
Farm subsidies date from the 1930s, when about 25 percent of the country's population lived on farms. Today, less than 2 percent live on farms, according to the American Farm Bureau.
That has a lot of city folks trying to understand why the farmers need subsidies.
When Sedgwick County farmer Mark Bergkamp visits family who live in the city and on the East or West coasts, he said, "The first thing out of their mouth is, 'Oh, farm subsidies. Why do you need that?' They say it half-jokingly."
Cuts in those subsidies appear to be aimed at direct payments, which generally send the same amount of money to farmers each year regardless of the market conditions or whether anything is produced.
Those payments are made on eligible commodities — most grains, plus cotton, peanuts and some others — and follow a formula based on a farm's number of acres and yields established in the early 1980s.
If direct payments were eliminated, the federal government would save about $5 billion annually.
"In terms of the scope of the problem," said Holdren, referring to the nation's $14.5 trillion deficit, "we're talking peanuts."
Troy Dumler, a Kansas State ag economist based in Garden City, said Kansas farmers average $15 per acre on direct payments — or about $15,000 annually for a 1,000-acre farm.
The high-end proposal for cutting direct payments has been 50 percent, and even that included reallocating some of the money to other farm programs. But assuming it remained at 50 percent, Dumler calculated that it would create less than a 10 percent drop in a Kansas farmer's income — or to about $110,000 based on the average farm income over the past four years.
"That's not to say some farms wouldn't suffer from it," Dumler said. "Some of the smaller farms, those that don't have as good a performance, could be hurt."
Direct payments' impact
Direct payments first popped up in the 1996 farm bill, when the farm economy was booming.
Roberts led the charge for a "Freedom to Farm" farm bill that was intended to disconnect farms from the federal government, which had been dictating to farmers what to plant and how much. The direct payments were to help bridge the gap during the transition.
But in the late 1990s, the farm economy wilted, so Congress added other subsidies to supplement direct payments and prop up farms.
Now, more than a decade later, the farm economy is strong again. The marketplace probably has wiped out the need for any more price-support programs, ag economic analysts say.
But direct payments are also on the chopping block. This is where the argument starts to heat up.
Critics say the program is obsolete and wasteful. Supporters say the payments help the country compete globally and maintain a steady food supply.
Even farmers stand on different sides.
Bergkamp estimates 10 percent of his 3,000-acre farm's net income comes from direct payments during good years, but it jumps to 33 percent during a tough year.
But he would like to see direct payments stopped to enhance farming's image.
"I know, it seems crazy I'm willing to give up a third of my income," said Bergkamp, 31. "But outsiders looking in see direct payments as welfare.
"It's a black mark for agriculture. Direct payments create more harm than good. Perception is important."
Kent Winter, 56, who farms 1,400 acres in Sedgwick County, said his direct payments have ranged from 10 percent to 66 percent of his farm's net income. He said direct payments help maintain smaller family farms.
"This country has developed a process where very safe, nutritious foods are delivered to the dinner table," he said. "What we've done in the past is working.
"Do we want to have just corporate farms or import food from China?"
Winter said he would like to see direct payments be more closely regulated so they would go to farms that need them the most.
That's also one of the aims of the Center for Rural Affairs, a group based in Lyons, Neb., that promotes rural communities.
The USDA has a direct payment cap of $40,000 for each person — or $80,000 per married couple — engaged in the farming operation. But Chuck Hassebrook, the center's executive director, said the cap has so many loopholes that a farming operation could receive unlimited federal money.
To meet the USDA's definition of an "actively engaged participant," he said, a person only has to take part in making decisions important to the farm's profitability.
"They can be defined as a little as one conference call during the year on whether to plant crops," Hassebrook said.
Each additional investor means another $40,000 — or $80,000 if the investor is married, he said.
To close that loophole, Hassebrook wants to see a cap of $40,000 per couple that ratchets down as much as 50 percent when prices are high.
To be considered an active participant under the proposal, a person would have to put in either 1,000 hours of labor on the farm each year or at least half the labor and management hours for a person's share of the farm, he said. The latter would allow a person who only farms on the side in a small operation to collect direct payments.
The Farm Service Agency's committee in each county — made up of farmers — would regulate it, he said.
"Probably wouldn't be completely accurate," Hassebrook said, "but it would be better than what we've got now."
The Environmental Working Group, a Washington organization that wants subsidy dollars spent on conservation programs, is convinced farmers can get along without subsidies.
It says that 62 percent of all U.S. farms didn't take subsidy payments in 2010. The group also says 10 percent of the farms get 74 percent of the federal money for all subsidy programs. For Kansas, it says 32 percent of farmers don't collect subsidies.
"Farm income is one of the bright spots in the economy right now," said David DeGennaro, legislative analyst for the organization. "This is a good opportunity to readjust the programs with the 21st-century marketplaces."
With the increasing demand for U.S. grains overseas and ethanol production calling for more corn, DeGennaro said, "It doesn't seem like there's a risk to falling back into a low-price scenario."
Holdren, of Kansas Farm Bureau, disagreed. He noted that "we had to eat our words" when the farm market sank in the late 1990s.
Direct payments are "food security payments, essentially," he said.
Holdren said they also help make it easier for young people who don't inherit a farm to get into the business, an important factor with the average age of the nation's farmers approaching 60.
Alan Suderman, a Wichita-based commodity market analyst with Farm Futures, expects grain prices to fall over the next few years. Russia, he said, is pouring billions of dollars into infrastructure and technology for grain production.
"They want to be the breadbasket of the world," he said.
USDA figures show the United States has had 24 percent of the world market share for wheat over the last decade. By the end of the next decade, Russia will be at 33 percent and the U.S. at 16 percent, the USDA says.
Suderman said Brazil is focused on becoming the world's largest soybean producer and exporter by expanding into millions of available acres.
"Yes, we have to cut somewhere," Suderman said. "We just have to be smart about it."
Costs such as fuel and equipment wouldn't come down as quickly as grain prices, he said.
Competition globally would be affected by stopping direct payments, Suderman said.
He said Europe heavily subsidizes its grain production.
"If we had no subsidy, we'd have less bargaining power with Europe," he said. "Right now, we can say, 'We'll give up our subsidy if you give up yours.' That couldn't happen if we gave up the bargaining chip."
Crop insurance concerns
Crop insurance accounted for about a third of all farm subsidies in Kansas and the U.S. in 2010. Most farmers carry policies that pay 65 to 70 percent of the grain's price.
Without it, farmers say they wouldn't be able to rotate in some crops, such as higher-risk corn and soybeans. They would have to play it safe and raise mostly wheat.
"Rotation really helps production," Winter said. "It breaks the weed and insect cycles that exist when you just have one crop."
The federal government's 59 percent support of crop insurance premiums in Kansas amounted to more than $328 million in 2010.
Critics of crop insurance say it should fall more in line with other products, such as for cars and homes, for which policyholders don't receive federal dollars.
Over the last four years, Congress has made two $6 billion cuts to crop insurance subsidies, although that money was taken from payments that went to agencies and helped pay commissions. That move was made to cut the percentage of commissions when they were already inflated by high grain prices.
Mike Pompeo, the congressman from Wichita, sees a "rethinking" about direct payments and thinks Congress will move more toward boosting such programs as crop insurance.
On Thursday, Kansans get to tell senators what they're willing to accept.
Meanwhile, the farmer sits back and wonders what the future holds.
"It's uncharted waters," Winter said. "I do feel uneasy about where the family farms end up when the dust settles on these things.
"There are things beyond the farmer's control taking place."
If you go
2012 Farm Bill Field Hearing
What: "Looking Ahead: Kansas and the 2012 Farm Bill." Led by Sens. Pat Roberts, R-Kan., and Debbie Stabenow, D-Mich. Witnesses will include Gov. Sam Brownback, Kansas State University president Kirk Schulz, Kansas Farm Bureau president Steve Baccus, heads of state crop associations, and leaders of lending agencies.
Where: 9 a.m. to noon Thursday
When: Hilton Wichita Airport, 2098 Airport Road, Wichita
Who may attend: Open to the public
Testimony: Written testimony can be submitted at the hearing or be sent to the committee by Sept. 1. Either e-mail it to aghearing @ag.senate.gov or mail it to U.S. Senate Committee on Agriculture, Nutrition and Forestry, 328A Russell Senate Office Building, Washington, DC, 20510.