With increasing public demand for clear air and clean water, many inside and outside Washington, D.C., have suggested that federal farm income support should be tied to enhanced conservation practices.

Regular readers of the Iowa Ag Review are no doubt familiar with the U.S. and World Agricultural Outlook, published by the Food and Agricultural Policy Research Institute (FAPRI), a CARD affiliate, in the spring of each year. The FAPRI outlook is a series of baseline projections for the U.S. agricultural sector and international commodity markets. Holger Matthey is the international oilseeds analyst at FAPRI. His work involves updating market projections and analyzing supply and demand relationships, agricultural trade policies, and interactions of major oilseed crops with grain and livestock markets.

For the fourth straight year, market prices for Midwest crops are low. Central Iowa soybean prices hover around $4.00 per bushel. Corn prices are around $1.80 per bushel, and wheat markets remain stuck at below $3.00 per bushel. What to do about these low prices has occupied a great deal of Congress’s time as it attempts to craft new farm legislation. Nearly all farm bill proposals would continue to provide farmers levels of support much higher than those offered by the market.

Several livestock and meat-related crises have given rise to increased worldwide consumer concern over meat safety and an increased desire for information about the meat products they purchase. During the past several years, a series of food safety and animal disease crises has occurred in the European Union (EU), including dioxin contamination of livestock feed, the announcement of the possible link between Bovine Spongiform Encephalophathy (BSE) and new-variant Cruetzfeldt-Jakob disease, and outbreaks of foot-and-mouth disease and classical swine fever. Many EU consumers have lost confidence in the safety of meat products (especially beef) and in the ability of regulatory agencies to protect the food supply. Not surprisingly, the European Union now leads most other countries in the development and mandatory implementation of traceability protocols for livestock and meat products.

Assuring that farmers have an adequate financial safety net is appealing to most people. But acceptance of this idea does not mean that the public sector needs to provide it. Other industries manage large financial risks without turning to government for help. So could farmers. A corn farmer can buy a “put” option on the Chicago Board of Trade (CBOT) December corn contract that gives the farmer the right to sell corn for $2.40 a bushel in December. This put option creates an effective floor price. The current market price for this price protection is about $0.18 per bushel. Should the farmer buy this protection? The answer depends on both how much price risk the farmer wants to bear and how much price protection is available free of charge from the public sector.