U.S. Prepares to Pay Billions to Offset Falling Prices for Crops

As crop prices drop in anticipation of a record-breaking harvest this fall, the U.S. Agriculture Department is bracing to dole out large amounts to farmers to soften the sting of lower prices.

Government economists said Friday that payments to farmers could jump by $2 billion from earlier estimates, as prices drift below levels mandated by the farm bill and more producers take out government loans to offset low prices.

Total farm program outlays this fiscal year could hit $12 billion, a senior Agriculture Department economist said, up from an earlier projection of $10 billion.

Payments to corn farmers alone could jump about $550 million to more than $3 billion, the economist estimated.

But the projected $12 billion in payments is a far cry from the record level of $26 billion distributed by the government in 1986 for commodity programs. “A $12-billion level would not be an alarming level,” the economist said.

Corn and soybean prices have been sinking all summer as near-perfect weather has caused production estimates to rise steadily.

Soybean prices hit contract lows this week at the Chicago Board of Trade in anticipation of a record crop. At about $5.30 a bushel for November futures, they were down almost a whopping 25% from peak levels hit June 19.

Corn prices have also taken a tumble as traders have reacted to huge crop estimates--as high as 10.1 billion bushels--by private forecasters. December corn contracts are selling for about $2.15 a bushel, down more than 20% from the peak in June.

The government releases new crop production estimates Wednesday, and analysts expect even higher corn and soybean crop projections. But how much further the higher estimates would drag prices down may be limited.

“Corn prices are at their low point,” a government analyst said. “The market has pretty well figured out the size of the crop by now, so I wouldn’t anticipate too much more downward pressure even if we revise the crop up sharply.”

But, he said, “There appears to be come continued weakness on soybeans.”