Peoria, Illinois; Wellman and Des Moines, Iowa
Department of Plant Agriculture

Day 3

The US Farm Bill, Iowa Swine Production, and Farm Cooperatives

By Alex Sanders, Kyle Church, Margaret Pendleton, Ashley Snodden

The Midwest Tour group's main goals today were to touch on agriculture and food policy in the United States in addition to Illinois and Iowa crop and livestock production. Just like the previous day, we were really exposed to the dichotomy between large scale institutions and policy that helps to govern agriculture and the individual entities that actually bring food from field to fork. More specifically, one of the themes for today was the nationwide US Farm Bill. At the other end of the spectrum was the theme of grassroots cooperatives, which was demonstrated through a private Iowa swine and beef production facility. For the latter facility, the social, economic, environmental, and production facets were the key learning points.

To begin the day, Kevin Brooks from BK Solutions was invited to speak to us in our Peoria, Illinois hotel about the US Farm Bill. This is a major government document in the US that outlines food and agriculture spending over a given period (usually five years). It was first instigated during the 1930s in response to natural disasters and the Great Depression. Rather than starting right into the fine details of the Farm Bill, Brooks first touched on the current and projected market situation for US corn and soybeans. 

Current and Projected Markets for US Corn and Soybeans
In the case of corn, we learned that the current crop is projected to produce the third highest yield ever. Furthermore, the amount of corn that will be saved and rolled into next year, or the carryover stocks, is projected to be the second highest ever. Such high projected carryover stocks are due to heavy yields (high supply) as well as stagnant demand. Brooks mentioned that corn use for ethanol is plateauing, exports are fairly stable, corn for food and industrial use is only keeping up with population growth, and corn for feed use is rebounding but will never again reach the levels once seen. For the latter point, we were told that the demand for organic and grass-fed beef has reduced the current grain-based livestock industry and its demand for corn. This industry saw the natural and organic movement as a fad rather than a trend, and suffered as a result. An important measure of the market given by Brooks was the stocks to use ratio, which is the carryover stocks as a percentage of the total amount used over a marketing year. Brooks provided that a ratio over 12 % is a warning sign for lower prices to come. Recent and projected ratios have been well over this cutoff. Thus, between higher supply and stagnant demand, in addition to this indicator, there will likely be heavy downward pressure on corn prices. Brooks did not have as much time to discuss soybean market projections in the United States. Essentially, soybean carryover stocks and yields are at record levels. Despite this, soybean use for crushing and exports have also been high. With this information, Brooks predicted that soybean prices will remain stagnant to slightly lower in the future.

Such market trends are quite interesting to discuss, but their effect on the people that run the industry is what is really important. Brooks provided that approximately one third of Illinois farmers are doing well financially. Another third is getting by, but is not entirely stable. The final third is in serious financial trouble. If American farmers continue to produce heavy corn crops in the next few years and maintain or increase carryover stocks, the resulting enduring price decrease may severely affect their ability to continue conducting business in the next few years. This is particularly true for growers in the bottom third and even the middle third for financial situation in Illinois.

A final note that Brooks made about markets dealt with unpredictable events that could affect the market place. Tensions between the US and North Korea as well as rising social tensions within the United States were some examples mentioned that could wreak havoc on multiple markets, including for commodities. On a more positive note, the fact that the US is monetizing its debt has reduced the value of the US dollar relative to other currencies. We learned that this could help to increase exports of US commodities and increase US commodity values. While farmers can see total acreage predictions and other estimated factors relating to commodity production that will affect price, they have much less ability to determine when the events mentioned above will happen and what their effect will be on the marketplace.

Brooks giving his insights into the US Farm Bill in Peoria, Illinois
Above: Brooks giving his insights into the US Farm Bill in Peoria, Illinois.

The US Farm Bill
The conversation on current market conditions and possible future trends for corn and soy in the States led nicely into the details of the US Farm Bill. This is mostly because there are subsidy programs funded through the bill that support farmers in case of lower commodity prices and farm revenue. Before the current Farm Bill, farmers received direct payments (ex. $0.28/bushel of corn) whether or not they incurred a loss on their crop. The current bill which came into effect in 2014 is stricter on when payments are issued. Brooks described three payment options for which growers could sign up. The price loss coverage (PLC) support protects for lower prices by making up the difference between the national average marketing year price (which is essentially the actual price of the commodity) and a set reference or target price. For example, if the price of corn is at 3.30 and the target price is 3.70, the grower will be paid 0.40 per bushel. Another version of the support payment is agriculture risk coverage (ARC), which is based on yield and price risk within revenue. The two options in this category are more complex in how payments are calculated. However, the ARC county option is based on average county yields whereas the ARC individual option is based on a grower’s average revenue from all covered commodities. Brooks was of the opinion that these programs are too complex in the way they are structured and this makes it difficult for growers to decide on the right program for them. Despite some of the frustrations with the Farm Bill, growers still see the Farm Bill as an asset when payments are made to reduce risks that are outside of their control.

Aside from support programs, Brooks displayed how 80 % of the funds going through the Farm Bill actually go to food stamp and school food programs. The approximately $500 billion spent on the bill is already a small portion of the approximately $4 trillion total US budget. Therefore, there is relatively little money that is actually spent on conservation, commodities, crop insurance, and other programs. The current Farm Bill actually slashed quite a bit of funds for conservation and this has been an issue for environmental projects in Illinois and other areas. Environmental issues in Illinois specifically have also been aggravated by the fact that 80 % of the land is rented and many of the landlords do not actually live in Illinois. Farmers therefore have little incentive to maintain nutrient levels and invest to protect land and environmental quality. This is an issue because it decreases the productivity of the land while also creating costs for citizens outside the farming community. On this note, we thanked Kevin Brooks for coming in to talk to us on the Farm Bill, market trends, and Illinois agriculture in general.

Whetstine Brothers’ Hog Farm

After our time in Peoria, Illinois, we travelled to Wellman, Iowa, where we visited the Whetstine brothers’ hog farm. The farm is operated by brothers Ed and Larry, along with Larry's son, Clint.  Each manages a separate operation on the farm to enhance efficiency. Ed, who is fully retired, runs the nursery, Larry runs the finishing operation and Clint manages the 100 head of cattle and crop production. The farm produces 12,000 pigs/year and consists of 1400 acres, with 60 acres rented, which is used for pasture and crop production. The typical crop rotation on the farm is two years of corn followed by a year of soybeans, which provides enough feed for the pigs and additional income from the soybeans that are sold. Clint also expressed an interest in experimenting with new crops to use as a cover crop in the fall. He found that a cover crop of oats and oilseed radish was successful through the improvement of soil quality and as additional feed for cattle. With the success of this experiment and current low commodity prices, Clint believes that one might as well try new crops due to the potential benefits they can provide.

Above: Touring one of the Whetstine brothers’ finishing barns, which are supplied by piglets from the cooperative’s farrowing barn.

Clint spent some time describing some environmental points about their farm. Grass waterways were seen in their relatively hilly fields. These have been very successful in preventing erosion and the associated loss of nutrients. Clint also described how a grower must not exceed a certain number of animal units for the land that they own. This prevents there being too much manure to apply to the land in an environmentally safe manner. For the swine operation, the nursery barn manure is emptied twice a year whereas the finishing barns are emptied annually. The cattle manure is mainly applied to the pastures and hay ground and is emptied monthly. The fact that most of the swine manure can be stored for a whole year means that most of the manure of it can be applied in the spring to optimize nutrient supply to the crop and prevent nutrient loss via erosion, leaching, denitrification, and volatization. Thus, nutrients (and money) stay on the farm and external costs to the environment and other citizens are minimized.

The ability to grow corn on corn in Iowa has contributed to the success of hog production in the State. The Whetstine Farm is unique in its production since they own the pigs from farrow until they are sold, whereas 90% of hog farms in Iowa are produced under contract.

The Whetstine brothers finish cattle in this barn
Above: In addition to their swine operation, the Whetstine brothers finish cattle in this barn with some being supplied from their 100 cow herd.

Farming Cooperatives

During the late 1990's, many hog farmers in the area needed new/improved facilities for the expanding market but it was too expensive for individual farms to pay on their own. As a result, the group got together to form a cooperative consisting of 13 members, each owning at least one share at $120,000. A manager was then hired and construction began on the new farrowing facility. The barn is managed by 6 full time employees who are the only people that enter the barns to ensure the health of the sows and piglets is not compromised. In the beginning, the facility housed 2500 sows with weaning at 14-16 days but was reduced to 2300 sows and weaning a week later. This resulted in higher production due to fewer mortalities. The coop consists of a President, Vice President, Treasurer and Secretary who are elected, through a majority during the Annual Meeting and are generally re-elected every year. During the initial establishment of the co-op, members met once a month to discuss issues and solve problems, but has since changed to every other month. Ed said that the cooperative has worked well because the members get along and generally come to decisions easily. Decisions within the co-op are made on a majority vote basis.

With Ed fully retired and Larry nearing retirement, succession planning is one of the recent challenges they need to tackle. So far, they have determined that Clint will have to buy Larry’s shares when money allows and part of the land will be inherited. He may also be able to lease Ed’s land. The challenge arises since part of the business is tied up in the Corporation along with personal assets owned by each person.

Final Remarks
The tours today clearly demonstrated to us the importance of the US Farm Bill, farm cooperatives, and Iowa swine production. We were also fortunate enough to learn about the current situation for commodity markets in the US and some information on crop production in Illinois and Iowa. Farmers like the Whetstine brothers take environmental conservation on their farm seriously by applying nutrients at the right rate and right time as well as by preventing erosion of topsoil. However, there is less incentive for growers to take measures like these on rented land, and this has social, economic, and environmental consequences. The Whetstine brothers have banded together with other local growers who were having issues maintaining efficient swine production facilities and found that the cooperative system worked to centralize farrowing and keep costs down. The economics of US corn and soybean production were discussed. Corn prices are projected to move down while soybean price will remain relatively stagnant. Such economic issues will have social consequences for growers in Illinois and other areas who are already financially unstable. Despite the frustrations that growers frequently have with the US Farm Bill, it still has payment programs that can mitigate price, yield, and revenue risk. Ultimately, we were able to see how growers mitigate risk on their operations by using both external support programs like those provided by the US Farm Bill and more local, creative, and specific solutions such as cooperatives.