Government farm program payments are forecast to total $22.7 billion in 2005 — 27% of U.S. farmers' net cash income, according to the USDA.

Farmers in many Great Plains and Mid-South states rely even more heavily on such payments.

For example, payments to North Dakota farmers averaged 52% of net cash income from 1990 to 2003, the most recent year for state-level data.

Subsidies play a relatively minor role in states with small crop production sectors relative to livestock. Payments to Kentucky farmers averaged just 10% of net cash income over the period.

The relative significance of government payments in generating net cash income is notable, since this is farmers' primary source for making mortgage debt payments. Lower farm payments translate to lower net cash income, impacting not only the cash rental rates farmers are willing to pay, but their capacity to compete in land sales.

Cropland values sans subsidies

Economists Terry Kastens and Kevin Dhuyvetter at Kansas State University recently examined how far cropland values might fall if government payments were eliminated. They found that farm tracts in the Great Plains, Arkansas, Louisiana and Mississippi would likely suffer the steepest declines.

Perhaps less obvious is their observation that some states, such as Alabama — whose agricultural economy is dominated by subsidy-rich crops — would suffer a smaller decline in land values than less subsidy-dependent states, such as Kansas. That's because agriculture is less important to Alabama land values than to Kansas, the researchers say. Non-agricultural factors, such as demand from recreational land buyers and suburban sprawl, are pushing up Alabama land prices. These factors will help hold up land values if farm payments are cut, Kastens notes.

Of course, no one predicts an outright end — or even sharp cut — in government farm payments anytime soon. But ballooning costs from the Iraq war, hurricane relief and the threat of an avian flu epidemic have brought efforts to cut agriculture spending to the forefront.

Congress is reconciling legislation to cut up to $3.7 billion from agricultural programs over the next five years. The proposals would cut commodity payments 1% to 2.5%.

Subsidy payments are almost certain to be further scaled down in the 2007 Farm Bill as policymakers seek to expand market access in international trade agreements.

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