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Growing farm financial pressure being felt across countryside

Witnesses at House hearing spoke broadly about factors driving current market conditions and outlook going forward.

While high prices for many farm commodities led to tremendous growth in net farm income through 2013, many of those prices have spiraled downward over the past three years. On Thursday, the House Agriculture Committee’s subcommittee on general farm commodities and risk management held a hearing on the growing financial pressures faced by U.S. farmers and ranchers.

Witnesses spoke broadly about the factors that are driving current market conditions, the outlook going forward and the impact both are having and could continue to have on the nation’s farmers and ranchers.

Joe Outlaw, Texas A&M University professor and extension economist and co-director of the Agricultural & Food Policy Center, explained that several key themes are being heard in the countryside as net farm income has dropped 56% over the last three years.

He said, in general, more farms are projected to be in worse financial situation from now until 2020. Specifically, feed grain and oilseed farms, as well as wheat and cotton farms, are in the worse situation since the late 1990s.

Outlaw said producers in the South and Southeast are having the most difficult time. U.S. Department of Agriculture chief economist Robert Johansson noted that cotton farmers are experiencing significant stress. The dairy sector in the Northeast and Midwest is seeing harder times, too. Some additional declines in hog receipts and poultry in the middle part of the country is also evident.

Many of the witnesses testified about how obtaining financing is more difficult today, and lenders are uncertain about the future. Outlaw noted that many farmers have had to go from bank to bank to secure financing, enduring tougher rules and having to put up more collateral. He added that most feel the worst is still yet to come after this crop year and that the situation to obtain financing next year will be “next to impossible.”

American Farm Bureau Federation president Zippy Duvall told Congress that lower prices will affect income for all farmers and ranchers but will have an even greater impact on new and young farmers who have not built up equity, are renting a significant portion of their land or are paying off equipment. Duvall said the bright spot for young farmers is that they’re in tune with new technologies, which allows them to be efficient in what they do.

National Farmers Union (NFU) president Roger Johnson said the huge difference between now and during the last farm crisis of the 1980s is the interest rates. Then, the rates were approaching or exceeding 20%, and land values dropped by 50% in a period of a couple of years. “That spiraled out of control. We don’t have that interest rate environment, but things are ripe for going very fast in a negative direction, in my opinion,” Johnson said in response to questioning.

Safety net needed

Outlaw said the current poor situation on farms across the country would be considerably worse if not for the safety net provided by both Title I commodity policies and federal crop insurance.

“There are some in agriculture who say that commodity policies are more important than crop insurance, or vice versa. I believe they are equally important, especially during times of low prices,” he testified.

For example, lenders tend to view crop insurance as being more important because the insurance guarantee is “bankable,” meaning it is something on which they can base a loan. “On the other hand, producers see the commodity assistance as the only chance they have of coming close to breaking even in a low price environment,” he said.

Johnson said commodity programs are functioning as designed and assisting producers through challenging times, but he did acknowledge several programs that need thoughtful attention and others that would benefit from additional changes in the next farm bill. Specifically, he mentioned the Agricultural Risk Coverage program, Price Loss Coverage program, Dairy Margin Protection Program and Stacked Income Protection Plan.

As far as the dairy program goes, he said more than $73 million in premiums were collected from farmers, but USDA has paid out only $700,000. “This suggests to me that the balance that was struck wasn’t quite right, and we may need to rejigger what margins are,” Johnson told the House members.

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