Today's update looks at recent news articles highlighting agricultural economic variables, as well as Farm Bill observations from lawmakers, and some of the ag related activities Members have held with constituents during the August recess. Today's overview also includes observations from Bloomberg writer Alan Bjerga on the link between these current economic conditions and policy perspectives lawmakers may take back with them to Washington, D.C. when the Farm Bill debate gets more focused this fall.
The House Agriculture Committee of the 115th Congress began laying the ground work for the next Farm Bill yesterday by holding a hearing to “review the economic challenges facing rural America.” Although the majority of federal agricultural appropriations are related to nutrition issues, yesterday’s hearing signaled that the rural and farm economy are priorities for the Committee and current economic conditions in the heartland “must be front and center” as the Farm Bill process begins.
In his opening statement, Committee Chairman Mike Conaway (R., Tex.) indicated that, “This is our first full Committee hearing of the 115th Congress. And, Chairman Emeritus Frank Lucas will kick off a series of subcommittee hearings on February 28. This is also the first Farm Bill hearing as we begin to develop the next Farm Bill. And it is timely.
“America’s farmers and ranchers are facing very difficult times right now.”
Chairman Conaway added that, “But, as the recent Wall Street Journal article stated, and as I have experienced as a CPA in West Texas, there is real potential here for a crisis in rural America.”
With respect to budget issues and the Farm Bill, the Chairman stated that, “Another context we need to take into account when writing the next Farm Bill is this Committee’s contribution to deficit reduction. I am hard pressed to admit it but the critics of the Farm Bill were absolutely right. We didn’t save taxpayers $23 billion. We saved them $100 billion. We saved more than four times what we promised under the last Farm Bill and we achieved these savings despite a very severe and sharp downturn in the farm economy.
Because we were asked during the last Farm Bill — when times were good — to cut twice before measuring once, in the upcoming Farm Bill debate we will measure our requirements first and then determine what kind of a budget we will need to meet these needs.
The Committee heard testimony yesterday from five agricultural economists.
USDA Chief Economist Robert Johansson indicated that, “Demand for USDA loans continues to match last year’s pace. However, as credit becomes tighter and producers cut back on costs, the number of new operating loans originating from commercial banks has begun to level off and even decline, although debt continues to increase in the first quarter of 2017 due to a slower rate of repayment. Interest rates, while low, are beginning to increase and credit availability is beginning to tighten.”
Dr. Johansson added that, “The backdrop to the 2017 outlook is similar to the last two years with general softening commodity prices, with narrowing producer margins, and a flat farm income picture.”
And Dr. Patrick Westhoff, the Director for the Food and Agricultural Research Institute at the University of Missouri noted yesterday that, “Since 2014, lower crop prices have reduced the per-acre value of crop sales. Although variable expense increases have slowed or even reversed for several commodities, net returns are far below 2009-2013 levels, and in some cases are about the same as they were between 2004 and 2008, when land and other fixed expenses were much lower. Looking farther ahead, the outlook shows fairly steady net returns over variable expenses during the 2019 to 2023 period that would be covered by the next farm bill.”
DTN Ag Policy Editor Chris Clayton reported yesterday that, “Rep. Collin Peterson, D-Minn., ranking member of the House Agriculture Committee, reiterated Conaway’s take of focusing on need over specific budget target. Peterson also said tremendous yield growth in and around his district have helped offset the low prices. ‘So we’re not seeing the kind of pressure I expected we would be seeing at this point, but if these crop prices stay where they are at, and we get an average crop or a below average crop, we’ve got big problems,’ Peterson said.
The DTN article noted that, “Despite complaints from farm-bill critics, [Joe Outlaw, an economist at the Agricultural and Food Policy Center at Texas A&M University] said farmers are going need more support if the current market conditions continue. ‘Not only are programs not too lucrative, but there is a growing need to provide additional funding as adverse economic conditions are expected to continue,’ Outlaw said.”
And a news release yesterday from University of Missouri Extension stated that, “U.S. dairy industry faced difficult economics in 2016 with dropping milk prices. However, many producers felt the government safety net in the 2014 farm bill did little to help.
“As work starts on the 2018 farm bill, the House Agriculture Committee heard shortcomings of the present act and challenges of a farmer-friendly version.”
Dr. Scott Brown, from the University of Missouri, testified at yesterday’s hearing. His testimony also focused on the dairy sector.
The news release indicated that, “Dairy farm cash receipts can be volatile. Changes pop up unpredictably. U.S. dairy receipts dropped from $49.3 in 2014 billion to $34.2 billion in 2016.
“Working safety nets in the past took large public spending. In more recent years, the government spent only $79 million. ‘Offsetting billion-dollar losses with $79 million will be a challenge,’ Brown said.
“He added government programs rarely offset low-market returns.”
Cotton Back in Title I
Meanwhile, beyond the economic landscape that was discussed at yesterday’s hearing, Ron Smith reported on Saturday at the Southwest Farm Press Online that, “Getting cotton back into Title 1 as a covered commodity will be the biggest change anticipated in the next farm bill, says Chairman of the House Agriculture Committee Mike Conaway, R-Texas.
“Conaway, speaking at the opening session of the National Cotton Council annual meeting Saturday in Dallas, Texas, said, ‘We have to get cotton back in Title 1, either as cottonseed or as lint. STAX did not work well for producers.'”
The article pointed out that, “Conaway does not dismiss the possibility of having cottonseed covered in the current farm program as an ‘other oilseed‘ a strategy attempted during the Obama Administration without success.”
In a related analysis, an update yesterday at the farmdoc daily blog (“U.S. Oilseeds: Production and Policy Comparison,” by Carl Zulauf, Jonathan Coppess, Nick Paulson, and Gary Schnitkey) noted that, “This article compares the various oilseeds included as program crops on several production and policy attributes. The objective is to put into perspective the on-going discussion about whether to designate cottonseed oil as a program crop.”
The Senate Ag Committee will hold a Farm Bill hearing on February 23rd in Manhattan, Kansas.