Prices for corn and soybeans slid to 10-year lows the first week of May amid trade tensions with China. If past is prologue, China will respond to increased U.S. tariffs on Chinese imports with reciprocal tariff hikes of their own on imports of U.S. soybeans, in particular.
This expectation, combined with already low export demand and high U.S. stocks of feed grains, is leading some analysts to conclude that U.S. farmers need to produce 10 million fewer acres of soybeans for prices to recover.
Fat chance of that happening.
Since the Richard Nixon era, export growth has replaced supply control as the primary means of supporting corn, soybean and wheat prices. Begun in the 1970s when prices soared in response to unexpected grain purchases by Russia, the export-driven policy approach, buttressed with direct payments, subsidized crop insurance, etc., has reigned supreme ever since.
Before the ‘70s, the U.S. government supported farm prices by managing supply. Farmers would reduce planted acreage by 5 or 10 percent to support prices at target levels. And, since that seldom was enough, the government invented food aid to take additional supplies off the market.
On May 10, President Trump tried to reassure farmers that his administration would move to support farm prices by purchasing large quantities of grain to distribute abroad — to “starving, poor countries” — as food aid. This approach, which harkens back to the 1950s, today is viewed as deplorable by students of economic development. “Dumping” surplus commodities on poor regions disrupts local food markets and, in the long run, creates dependency. It also violates international trade rules. But it may take some pressure off international prices.
Perhaps the next idea to surface will be to reinstate supply controls — take enough land out of production to remove the “market overhang” that keeps prices in the doldrums. It’s a core policy of the National Farmers Union. If acreage is not simply idled, but put to conserving uses, as with the Soil Bank of the Eisenhower era, public support could be substantial.
Free-market advocates, including multinational grain companies, used to deplore supply management for surrendering world markets to competing countries such as Argentina and Brazil. But gung-ho export enthusiasm may not agree with today’s protectionist trade climate. Managing U.S. supply through acreage controls seems like a better match.