Thursday, August 31, 2006

USDA Does It Again (Updated)

As reported on AgWeb - Your Spot for Futures Trading, Commodities Info, Ag News, Successful Farming Tips & More, and many more media outlets serving agriculture:
"Agriculture Secretary Mike Johanns today announced during a visit to South Dakota $780 million in assistance to help farmers and ranchers manage drought and weather related production challenges. "
Sounds good, doesn't it? But the reality is less impressive, particularly in South Dakota. Upland cotton, peanuts, and grain sorghum aren't really big crops in that state, and the bulk of the $780 mill is in accelerated counter-cyclical payments for those crops. There's no explanation of why the crops were selected, but perhaps because the economists were reasonably comfortable that the payments would be earned. (The computation of the payment rate typically requires collecting national weighted average market prices for a year. So when I worked cotton payments weren't made until February of the next year.) [Updated note: According to this,
the 2002 Act changed the schedule, partial payments are made in October, then February, then after the end of the marketing year. There's nothing I've seen to specify whether USDA is just moving the October payment up by a month or more.] If I'm right, there's no intrinsic relationship between the drought and the payments, except the fact this is a year divisible by 2.

According to this site, the severest drought is in Wyoming, western South Dakota and western Nebraska, which are wheat areas, and in Texas and Oklahoma which do grow sorghum and cotton. It would be interesting to know if there was any consideration of advancing the payments just to producers in the disaster-affected counties. It would be do-able, if legal.

It's also interesting to note that Johanns has just cost the taxpayers X million dollars. Moving up the payments means the Treasury Department has to borrow the money earlier than it would have, and 5 percent interest on $700 mill starts to add up. (Relax, it's not "real money" according to Senator Dirksen's definition.)

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