Perhaps the greatest influence on farm commodity prices over the past quarter of a century has not been hungry people, or the impact of Mother Nature, but the meddling in the market of world governments.
The two key culprits have been the European Union, a group of countries with memories of war years starvation, large populations and small land bases who use government coffers to keep agricultural food production competitive in places where land values are skewed ridiculously high from non-farm factors, and the United States.
The U.S. has used farm subsidies to accomplish two things, achieving both quite effectively.
On the one hand the government has used the tools associated with the U.S. Farm Bill to keep farmers financially better off than their counterparts in many other countries relying simply on the market for their returns.
And at the same time the federal money has allowed the government to control production numbers to some extent and to buy market share in terms of world trade. The combination has ultimately made the Americans the price setters of more than the usual supply and demand economic factors.
In terms of accomplishing set goals, the U.S. Farm Bill might be the most successful thing the American government has developed in years.
It is interesting to note the Farm Bill is something American farmers seem to generally want extended for another five years. You couldn't say the same about any farm program government has created in Canada in decades. Most farmers have begged to see them scuttled, not extended.
As successful as the U.S. Farm Bill has been from an American perspective, it has been trade distorting, and that has been a negative for farmers in countries such as Canada. Federal governments here would have been severely challenged to match subsidies given smaller coffers, even had they had the political will to try, something they have not had.
Now the Farm Bill may be on its last days. There are economists who are suggesting the trillion dollar deficit in the United States will mean farm programming will be on the chopping block.
That would seem to be a legitimate concept to forecast except for two things that may be factors economists have a hard time fathoming.
To start with common sense might suggest cuts are a must in the face of a trillion dollar deficit, but that may fail to factor in American arrogance that they are above such things. Seriously, who is going to foreclose on the U.S. government with its tentacles woven through most of the world economy? The expected cuts may be more lip service than reality.
And then there is the fact agriculture spending is merely one per cent of the American federal budget. Cut in half, and rare is the instance government cuts programming of anything by 50 per cent would make such a small difference it wouldn't alter the deficit at all, so it is more likely they look to trim larger chunks of fat, if they are serious about the deficit.
Having a gutted Farm Bill would bring the farm commodity markets back under more traditional supply/demand forces, but it may not happen as quickly as some might expect.
