The administration's proposed budget also contains big cuts in federal subsidies to the crop insurance industry, which makes crop insurance more affordable to farmers. In addition, the budget proposes reductions in farm program benefits that are going to the largest farms in Iowa and the rest of the nation.

The cuts in subsidies to crop insurers and large farms alone would total about $10.2 billion over 10 years, enough to fund a proposed increase of about the same amount in spending on school lunches and other child nutrition programs. Last year Congress refused to approve a farm subsidy cut that the Obama administration directly said would save federal money--that could instead be used to help boost child nutrition. Farmers protested that such a proposal unfairly pitted them against hungry children.

In proposed budget, direct payments to farmers would be cut

This time, USDA Secretary Tom Vilsack flatly denied that these latest farm budget reduction proposals were related to feeding hungry children. Instead, he said, the subsidy cuts to farmers and the crop insurance industry are needed to shrink the federal budget deficit, estimated at $1.6 trillion for the current year. This would help farmers by holding down interest rates, says Vilsack. "We have to be aware of the deficit issue because of the long-term impact it is going to have on farmers and ranchers if we don't get the federal deficit and federal spending under control," he emphasizes.

Iowa Secretary of Agriculture Bill Northey says the cut in subsidies to large farms would impact many family farmers in Iowa. Farming is a high cost, capital intensive business, so putting limits based on total sales does not effectively target big, corporate farmers. Instead, it would hit many Iowa family farmers.

Obama's proposed budget for 2011 proposes phasing out fixed annual payments to grain and cotton farmers with sales of more than $500,000 a year.

Farmers could get no more than $30,000 a year in fixed payments

Northey issued this statement as a press release after Obama released his proposed federal budget: "Given the record setting federal deficits we've seen in the last few years, the President's desire to begin trying to reign in federal spending is understandable," says Northey. "But, if the president's proposal is enacted, it would impact many family farmers in Iowa. Farming is high cost, capital intensive business, so putting limits based on total sales does not effectively target big, corporate farmers--it would hit many Iowa family farmers."

Northey adds, "It is still very early in the federal budgeting process for fiscal 2011. But I think it is important that we also remember that food programs, such as WIC, the School Lunch Program and SNAP are the majority of the USDA budget and project to continue to grow.  A recent analysis shows them to be 79% of USDA's budget over the next 10 years.  So, cutting 20% of the budget while 80% of it continues to grow is no way to balance a budget."

Current limit for these USDA payments to farmers is $40,000 year

Under the president's proposed budget, grain and cotton farmers in the U.S. could receive no more than $30,000 a year in a type of payment they are guaranteed every year regardless of fluctuations in market prices. The current limit is $40,000 per year.

About 1,400 Iowa farmers now get more than $30,000 a year in such payments, according to data compiled by the Environmental Working Group, a research and advocacy organization. Those farmers represent about 1.4% of the 101,000 recipients of those subsidies in Iowa. Nationwide, about 2% of current recipients would be affected. Iowa farmers collectively receive about $500 million a year in fixed payments, 10% of the total fixed payments distributed by USDA nationwide.

The president also wants to restrict those subsidies to farmers with no more than $500,000 in farm income and $250,000 in nonfarm income. The current caps are $750,000 and $500,000, respectively.

The $30,000 cap on fixed USDA payments to farmers would have the largest effect on Iowa farms because the bigger farms have structured their ownership to keep members within the legal limits, says Chad Hart, an Iowa State University Extension farm economist.

Crop insurance companies would see $8 billion cut over 10 years

Crop insurance firms and agents who sell their policies would see a cut of $8 billion over 10 years under a proposal USDA has been circulating to Congress and this is included in Obama's budget. The 15 insurance firms, four of which are based in Iowa, have protested that the cuts are excessive and will damage the federal crop insurance program. A crop industry trade group recently offered to take a cut of just $500 million over five years.

Companies and agents are paid for overhead costs and the companies also get to keep most of the profit from policies when the premiums the firms take in exceed the amount of money they pay out for crop losses.

Conservation groups don't like proposed program reductions

Conservation groups are also unhappy with Obama's budget proposals to scale back increases in programs that help pay the costs of installing anti-pollution measures on farms, or otherwise reward farmers for using improved environmental practices.

USDA's EQIP program, for example, helps livestock farms pay for installing manure controls and other improvements. It would grow slightly to $1.2 billion in 2011, but it had been set at $380 million more than that amount under the 2008 Farm Bill. The Conservation Stewardship Program, which pays farmers to install and use practices that conserve soil and water quality, would be trimmed by 769,000 acres in this new budget.

Iowa Sen. Tom Harkin, D-Iowa, got the CSP enacted in the 2002 Farm Bill and got it beefed up in the 2008 Farm Bill, says Obama's proposed cuts in agricultural conservation "would be damaging to rural America."

Iowa Sen. Charles Grassley, R-Iowa, has pushed hard for cuts in payments to large farms. Grassley says Obama's proposals don't go far enough on payment limitation because they would not cap subsidies that are linked to fluctuation in crop prices. However, U.S. Senate Ag Committee Chairwoman Blanche Lincoln, D-Ark., is a staunch defender of farm subsidies. She says Obama's plan for the budget "places a disproportionate burden on the backs of farmers and rural communities."