Farmers Union Study Backs Grain Reserves


by Chris Clayton, DTN Ag Policy Editor

LAVISTA, Neb. (DTN) — The National Farmers Union released a study Monday stating farmers would have gotten higher prices and taxpayers would have saved billions of dollars in farm payments if the country had a market-driven grain reserve program.

At its annual meeting in the Omaha metro area, National Farmers Union leaders rolled out the second phase of a study examining a voluntary reserve program. NFU is advocating for a voluntary grain-storage program that would pay farmers a fee for storing grain, raise marketing-loan rates for key commodities and keep the grain in storage until a certain trigger price is released. NFU calls the program the “Market-Driven Inventory System.”

Given the swift time schedule Senate and House Agriculture Committee leaders are pushing for the farm bill, it may already be too late to consider such a concept. NFU President Roger Johnson said an NFU leader would testify about the reserve concept at a risk management hearing next week in the Senate.

“We think this debate needs to occur and in particular we think we need to have a debate about what happens if market prices collapse,” Johnson said.

Johnson added, “You get back to $3 corn and there’s going to be a lot of screaming in farm country.”

Johnson said NFU leaders would be talking to allies in Congress about finding sponsors to champion the market-driven reserve concept.

The study, conducted by the University of Tennessee’s Agricultural Policy Center, found that had such a program been in place, it would have reduced farm-program payments by $96 billion over a 12-year period from 1998 to 2010. Along with that, farmers would have gotten higher overall prices for their commodities over that timeframe.

Johnson said such a reserve program would help deal with the market volatility and risk of price collapses that now face farmers.

“We want a responsible program that is not going to cost a lot of money, that’s going to be more affordable than what we have seen out there right now,” Johnson said. “We want a system that is going to be market driven, that is going to be totally voluntary and is going to involve farmer inventories.”

The NFU study looked at grain reserves of 3 billion bushels for corn, 800 million bushels for wheat and 400 million bushels for soybeans. Johnson acknowledged those figures were largely arbitrary but needed to reflect how the program would work.

The focus of the reserve would be a recourse loan, as well as caps on the inventory in those reserves that also would release commodities such as corn, wheat and soybeans once the price rose 60{962fe9be9a8a5c386944bfa41f48d98b010325707b70b1fa6182bcabd27c5d7f} higher than the loan rate. For instance, a $3.50-per-bushel loan rate for corn would lead to selling the corn at a $5.60 price.

The loan rates were set at a median range of the cost of production. Johnson said that was to ensure the loan rate was not so high that the loan rate itself guarantees a profit.

Grain under the MDIS must stay in that inventory and cannot be redeemed by paying off the loan until that release price of 60{962fe9be9a8a5c386944bfa41f48d98b010325707b70b1fa6182bcabd27c5d7f} above the loan rate is released.

The key to the program is that it would reduce price shocks. If the MDIS concept had been in effect from 2010-2011, corn would not have seen a dramatic price dip below $3 a bushel because the reserve would have stabilized the decline closer to the $4-per-bushel mark. Further, the price peaks would not occur because prices would remain below $6 a bushel as well.

Johnson said the reserve would help livestock producers, ethanol produces and taxpayers. The program would cost less than traditional farm programs as well.

The full study can be found at


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Posted with DTN Permission by Haylie Shipp


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