Earlier this month, the Congressional Research Service (CRS) released a report titled, "Farm Safety-Net Payments Under the 2014 Farm Bill: Comparison by Program Crop," which stated in part that, "Through the first three years of the 2014 farm bill (2014 through 2016), USDA has spent over $38 billion on commodity-specific farm program outlays. Annually, commodity-specific outlays are estimated at $12.7 billion per year, including $7.5 billion for CCC [Commodity Credit Corporation] programs and $5.2 billion in FCIC [Federal Crop Insurance Corporation] crop insurance premium subsidies." Today's update focuses on several highlights of the CRS report.
On Tuesday, the House Ag Committee’s Subcommittee on General Farm Commodities and Risk Management held a hearing to explore farm policy issues in advance of the next Farm Bill. And yesterday, the full Ag Committee hosted a hearing to review the Farm Credit System. Today’s update takes a closer look at some of the issues raised at these two hearings.
Subcommittee Examines Farm Policy- “Tweaks” Suggested, But Could Cost Money
General Farm Commodities and Risk Management Subcommittee Chairman Rick Crawford (R., Ark.) pointed out on Tuesday that, “When we wrote the legislation that would eventually become the 2014 Farm Bill, farmers were experiencing record prices, net farm income was at all-time highs…[and]…four years later, net farm income has fallen 50 percent [and] commodity prices are in the tank across the board.”
We are on the verge of a real crisis in rural America.
Rep. Crawford added that, “The current situation in the countryside provides a textbook example for why we have farm bills in the first place. The farm bill is not meant to provide help when times are good. Rather, the farm bill helps producers survive the bad times so they can farm another year, raise their families, and one day pass their homestead on to the next generation.”
Texas farmer Wesley Spurlock, President of the National Corn Growers Association (NCGA), explained to the Subcommittee that, “Corn farmers face a lot of uncertainty right now about how changes to our trade policy will impact our market access. U.S. corn counts Mexico and Japan as its top two export markets. The North American Free Trade Agreement has been a huge success for the corn industry—26 percent of U.S. corn exports go to Canada and Mexico.”
More specifically to the economic environment corn farmers are operating in, Mr. Spurlock noted that, “With crop revenue decreasing, net incomes on grain farms are, of course, falling. As one example, Illinois Farm Business Farm Management (FBFM), a record-keeping service with about 25 percent of the acres farmed in Illinois enrolled in its services, estimates that net farm income declined to an average of $500 in 2015. The $500 per farm average in 2015 was the lowest farm income since FBFM began keeping records.”
With respect to Title I programs, Mr. Spurlock stated that, “Obviously, ARC-CO [Agriculture Risk Coverage- County] payments have helped to reduce the net income declines sustained during 2014 and 2015. On Illinois farms, for example, net income was $500 per farm in 2015. Without commodity title payments, 2015 incomes would have been more than $30,000 lower, resulting in an average net income that was negative.
“Reflecting low producer enrollment and the relationship between the market year price and corn’s reference price of $3.70 per bushel, the Price Loss Coverage Program did not make large payments to corn base acres in either 2014 or 2015. PLC payments averaged $0 per base acre in 2014 and $8.07 per base acre in 2015. For most corn farmers, PLC did not reduce their exposure to lower incomes in 2014 and 2015.”
Mr. Spurlock added that:
As critical as commodity programs are to the farm safety net, federal crop insurance is consistently ranked by NCGA members as the most important risk management tool provided by USDA.
Illinois farmer Ron Moore, the President of the American Soybean Association (ASA) stated on Tuesday that, “ASA’s recommendations for the 2018 Farm Bill begin with the need to maintain the current crop insurance program as the core risk management tool for producers of soybeans and other crops.”
“Regarding Title 1, we encourage the Committee to improve and build upon current programs under the 2014 Act rather than to develop new ones. We believe offering producers a choice between a price-based PLC program and a revenue-based ARC program appropriately reflects differences between crops and regions, and that another choice should be offered on a one-time, crop-by-crop, and farm-by-farm basis.”
And the President of the National Association of Wheat Growers (NAWG), Kansas farmer David Schemm indicated that, “The 2014 Farm Bill rightly included a producer choice between revenue protection and price protection as part of the process of replacing the previous direct payments program. NAWG supports maintaining a producer choice between revenue and price protection as part of the next Farm Bill.”
Gary Crawford of USDA Radio provided an excellent one minute audio recap of Tuesday’s hearing which is available here, “Farm Leaders Suggest ‘Tweaks’ to Farm Bill Safety Net Programs.”
DTN Political correspondent Jerry Hagstrom pointed out on Wednesday that, “The complication for Congress in making these tweaks is that each commodity wants a slightly different fix, and all would cost more money.”
The DTN article added that, “Rep. Rick Crawford, R-Ark., the chairman of the subcommittee, noted at the end of the hearing that the general consensus of the panel had been to make tweaks to the programs.
‘”We are not going to achieve perfection,’ Crawford said.”
House Ag Committee Reviews The Farm Credit System
Yesterday, the full Ag Committee held a hearing to review the Farm Credit System. Chairman Mike Conaway (R., Tex.) stated that, “I believe that the Farm Credit System is fundamentally safe and sound and in a position to endure the challenges that it will inevitably face. Along with commercial and community banks, and USDA loan programs, I am confident that the Farm Credit System will play a pivotal role in meeting the credit needs of rural America for years to come.”
Dallas P. Tonsager, the Chairman and CEO of the Farm Credit Administration, noted yesterday that, “Crop and livestock sales and cash production expenses are expected to stay flat this year. At the same time, government payments, which rose 20 percent in 2016, are expected to fall 4 percent.
“As a result of the growing stress in the farm economy, many farmers and ranchers are now having difficulty covering their costs, and this is beginning to reduce the quality of agricultural loans.
While farm lenders, including the Farm Service Agency, continue to report that overall loan quality remains good, many loan performance indicators are now weaker.
He added that, “Federal Reserve Bank surveys of commercial bankers in the fourth quarter of 2016 also suggest a worsening credit climate. According to the surveys, repayment rates on agricultural production loans have declined, and the number of renewals and extensions has increased.”
Mr. Tonsager also explained that, “The condition of the farm economy also depends in part on interest rate policy. Currently, interest rates on farm loans remain historically low, but an improving economy and labor market is prompting the Federal Reserve to make incremental interest rate increases. The average interest rate on all System loans held nearly steady at about 4 percent during 2016.”
“Despite conditions in the farm economy, the [Farm Credit System] remains fundamentally safe and sound and is well positioned to manage this downturn. The depth and duration of market weakness is unknown, but it will continue to present challenges for the System until markets rebound,” Mr. Tonsager noted.
The House Ag Committee continues hearings next week: On Tuesday morning the Subcommittee on General Farm Commodities and Risk Management takes another look at commodity policy, and on Tuesday afternoon the Subcommittee on Commodity Exchanges, Energy, and Credit will examine credit programs. On Wednesday, the full Committee will hold a hearing titled, “Agriculture and Tax Reform: Opportunities for Rural America.”