Growers Reap Benefits Even in Good Years

Stephanie Walker Spiros, who helps run the sprawling family farm empire, acknowledged that the system has flaws. But she defends it as necessary to cushion other farmers who do not have access to sophisticated financial hedges, and to buttress the farm economy in bad years.

"It's a protection in years of depressed prices," she said.

But the payments for corn alone have grown, from $1 billion for the 1998 crop to $4.3 billion for last year's, even though the average price farmers received for a bushel has remained near or above the government floor for the past five years.

U.S. farmers can also make up for declining prices with higher yields. They now harvest 20 percent more corn from each acre than just a decade ago, and yields in the past three years were the highest ever, according to USDA statistics.

'Paper Corn'

Riding his combine through the heart of Illinois corn and soybean country early last October, Mackinaw farmer John Kuhfuss personified the business-savvy farmer who profits from the LDP.

Kuhfuss is a modest-size farmer by Illinois standards. He sharecrops 1,000 acres of corn and soybeans, splitting the revenue and the government payments with several landowners.

Still, he uses a financial adviser and a commodity broker to help hedge his farming risks with options and futures contracts at the Chicago Board of Trade and Chicago Mercantile Exchange. Farmers call that "paper corn."

It is a different world from that of the 1970s, when his father, the late William J. Kuhfuss, was president of the American Farm Bureau, the nation's largest farm group.

"When he started farming, he hitched a couple of horses to a wagon, hauled his corn to the nearest railroad siding and sold it for whatever the cash offer was -- and in the Depression it was cheaper to burn corn than sell it," Kuhfuss said.

He talked his father into his first contract on the corn futures market -- and he came out a winner.

Now the son uses the lingo of the trader as much as that of the farmer, throwing around terms such as "strike price," "puts" and "calls." He looks for opportunities to sell his crop more than a year before it is harvested.

"I'm perfectly willing to plan a year out," he said. "Sometimes there are opportunities there."

In spring 2005 he had seized such an opportunity and sold 30,000 bushels of corn to a local elevator for $2.25 a bushel. By October, with buyers offering only $1.70 a bushel, that decision looked smart.

With his price assured, Kuhfuss made another smart decision: "I LPDed all my corn at over 40 cents a bushel," he said.

He said he and his partners netted nearly $40,000 in LDP on their 500 acres of corn. They were not alone. On the days he received his checks, other Illinois corn farmers netted $36.5 million.

In Lincoln, Ill., not far from Kuhfuss's place, the farmer-owned Kruger grain elevator was at full-harvest tilt.

General manager Hugh Whelan was keeping a close eye on the LDP.

"The best thing for farmers now is for the market to go lower," he said. But then Whelan put on his taxpayer's hat:

"It's going to take a lot of dollars to pay that LDP."

Global Impact

Today, farm price supports, especially the LDP, are under serious attack.

Last year at the economic summit of the Group of Eight leading industrial nations in Gleneagles, Scotland, President Bush shocked U.S. farm organizations by proposing that certain farm subsidies by rich industrial nations be eliminated. That would mean the end, or drastic scaling back, of the LDP.

The main objection to the LDP is that it hurts world commodity prices by encouraging overproduction.

Farmers abroad lose because "the LDP causes us to grow more corn than we otherwise would," said Sumner, the University of California economist. He advised Brazil when it successfully argued to the World Trade Organization last year that the LDP and other U.S. subsidies depress world cotton prices.

Negotiations over a new world trade deal broke up in disarray Saturday after the United States and other countries deadlocked on the issue of reducing farm subsidies.

Lawmakers from Midwestern farm states -- most of which backed Bush in the past two presidential elections -- have vowed to defend the LDP.

Supporters say it has helped the U.S. trade balance and has encouraged the efficient marketing of grain. Moreover, they say, European and Asian nations subsidize their agriculture at even higher levels.

Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) has warned U.S. trade negotiators not to bow to foreign pressure unless they win major concessions for U.S. agriculture.

"We're not going to buy a pig in a poke," he said.

Researcher Alice Crites contributed to this report.