House Ag Subcommittee Hears from Minor Crops
Rep. Rick Crawford (AR-R), Chairman of the House Agriculture Committee’s Subcommittee on General Farm Commodities and Risk Management, held a hearing to further examine the effectiveness of farm policy in advance of crafting the next farm bill Tuesday morning. Members of the committee heard from witnesses who shared the perspectives of the cotton, rice, peanut, canola, and sugar industries on the importance of both commodity policy and crop insurance. This hearing continues the committee’s hearing series to set the stage for the next farm bill.
“Under current conditions, the farm bill is being tested. With net farm income down for the fourth year in a row, it is critical we get farm policy right for farmers and ranchers. We must be mindful of the challenges all of our producers are facing when crafting the next farm bill,” said Subcommittee Chairman Crawford.
“Commodity prices and farm income are down, debts and cash rents are going up, loans are hard to come by and 2017 promises more of the same” stated Ranking Member Rick Nolan (MN-D). “It’s also clear that we need a farm safety net that works for all farmers – regardless of which commodities they produce. While we may not grow cotton or peanuts up North in Minnesota’s 8th District, we know that when one commodity operates under a policy that doesn’t work, the effects are felt in other crops and regions.”
“Between disasters caused by Mother Nature and the predatory trade practices of foreign governments, American farmers are often faced with challenges completely outside their control, which is exactly why sound farm policy is of critical importance. The struggles of the cotton industry provide a perfect example of why all commodities need adequate risk management tools, including both commodity policy and crop insurance, to help them weather the bad times that come their way.” said Agriculture Committee Chairman Mike Conaway (TX-R).
Ronnie Lee, Chairman of the National Cotton Council (NCC) and a cotton producer from Bronwood, GA said including cotton in Title I would enable cotton producers to access the risk management tools that provide protection during prolonged periods of depressed market conditions. His testimony revealed that farms and businesses directly involved in the production, distribution and processing of cotton employ more than 125,000 workers and produce direct business revenue of more than $21 billion. Accounting for the ripple effect through the broader U.S. economy, direct and indirect employment surpasses 280,000 workers with economic activity of nearly $100 billion.
Lee also added that while current cotton futures market prices have increased from year-ago levels, many producers continue to struggle with prices at levels not adequate to cover all production costs. USDA 2016 data shows that 19 percent of cotton farms are considered either highly or extremely highly leveraged.
Other panelists included: Blake Gerard, Chairman of USA Rice Farmers Board of Directors (Cape Giarardeau, MO); Tim McMillan, Southern Peanut Farmers Federation (Enigma, GA); Rob Rynning, President of U.S. Canola Association (Kennedy, MN) and Jack Roney, Director of Economics and Policy Analysis for the American Sugar Alliance (Arlington, VA).
Ag Producer Sentiment Slips in March
Producer sentiment toward the agricultural economy dropped to a rating of 124-points in March marking the second consecutive month of decline, according to the Purdue University/CME Group Ag Economy Barometer. The decrease is a 10-point drop from February’s reading of 134. The barometer is based on a monthly survey of 400 agricultural producers from across the United States.
“The barometer has been moderating in recent months after a large jump in sentiment that began in November 2016,” said Dr. Jim Mintert, director of Purdue’s Center for Commercial Agriculture and principal investigator for the barometer. “While sentiment has settled lower, it’s important to note that it is still higher than during all but the last two months of 2016.” The March 2016 reading was 85.
The barometer’s sub indices — the Index of Current Conditions and the Index of Future Expectations — offer insights into why producer sentiment settled at 124. The Index of Future Expectations, which measures producer sentiment 12 months out and beyond, fell to 126 in March, down from the February reading of 148. The Index of Current Conditions, however, increased from 105 in February to 120 in March.
“At 120 in March, the Index of Current Conditions exceeded recent highs and is at a level that we haven’t seen since late 2015,” Mintert said. “Producers’ reduced optimism about future economic conditions in agriculture are what drove this month’s barometer lower.” Producers’ optimism toward the overall U.S. economy continued to be strong in the March report, a trend that started in November 2016. In October, just 35 percent of respondents said they expected widespread good times in the U.S. economy over the next five years. By December, this number had jumped to 71 percent. It improved again in the March survey, increasing to 77 percent.
“These results are consistent with producer responses to other questions about the U.S. economy,” said Dr. David Widmar, senior research associate for the Center for Commercial Agriculture and leader of the barometer’s research activities. “Two examples are that 59 percent of producers said that they expect the U.S. economy to expand and 78 percent expect the U.S. stock market to be higher or about the same over the next 12 months.”
Nationwide Winter Wheat Crop in Good Shape
With good early season moisture on many wheat fields along the coasts, the national Winter Wheat condition ratings average 51-percent good to excellent as of April 2, 2017.
The rating is the first of the year from the U.S. Department of Agriculture (USDA) and is 8-percentage points behind the average at the same time last year. The plains states have the most acreage in poor to very poor condition. 31-percent of the Colorado crop is in that category, while 20-percent of the Kansas crop is struggling. Both Texas and Oklahoma have 19-percent in the same shape.
At the same time, USDA reports that Florida (68%), Georgia (61%) and New Mexico (67%) are short to very-short in topsoil moisture conditions. For sob-soil conditions, the report identifies major shortages for Florida (65%) and Georgia (52%) again as well as Oklahoma (46%). The three I states of the Midwest (Illinois, Indiana and Iowa) all appear to be in a good position for corn and soybean planting this year.
Extreme Swings in Farm Profitability Mirror the 70’s
Dr. David Widmar has frequently written about the expansion and subsequent contraction of the U.S. farm income. While most of his previous work has focused on sector-level trends across the U.S. farm economy, he has anecdotally noted these trends likely vary at the local, state, and regional levels.
Widmar is a senior research associate for the Center for Commercial Agriculture in the Department of Agricultural Economics at Purdue University and says that “USDA provides state-level net farm income estimates. By considering each state’s average net farm income from a period before the boom-era (2000-2004) and comparing this to the average net farm income during the boom (2011-2013) we can evaluate the variations.
It’s quite surprising how much variation occurred remarks Widmar. “The largest increases in farm incomes occurred in the Northern Great Plains (Kansas, Nebraska, South Dakota, and North Dakota) and in the Corn Belt (Iowa, Illinois, Indiana, Minnesota, and Michigan). Comparing the averages for these two time periods, farm incomes in Minnesota (+188%), Kansas (+167%) and Nebraska (+156%) were up significantly. In the case of these states, farm incomes more than doubled over the time periods spanning 13 years. For example, net farm income in Nebraska went from an average of $2.5 billion (2000-2004) to $6.3 million (2011-2013).” Another way of considering the magnitude of these changes, he says is how a 156% increase – as an example – would affect $100. After a 156% increase, every $100 of income was equal to $256; a large increase in farm profits.
However, it’s very important to keep in mind that the ag economy boom wasn’t felt evenly across the U.S. In fact, some regions completely missed the farm economy expansion. “This was especially the case in the Southeast and Texas were net farm incomes across these two periods contracted. In Texas, for example, net farm incomes contracted 34%. That same hypothetical $100 in profits shrank to $66. In fact, 10 states had zero or negative farm income growth when comparing the two periods” according to Widmar.
Why did these variations occur? One large source of variations would be the mix and types of agriculture ventures happening within a state. Another consideration could be local conditions. Texas, as an example, had several years of drought that resulted in difficult management conditions, including cattle herd reductions during the 2011-2013 period. These conditions likely impacted state-level conditions.
Just as the net farm income varied during the boom varied, so has the contraction. Overall, significant contraction in net farm income occurred in the Northern Great Plains and Corn Belt. North Dakota saw net farm income contract 93%. In Illinois – where net farm income declined 101% – actually had a statewide losses, or negative net farm income. Since 1949, state-level net farm income in Illinois has turned negative only one other time, in 1983 during the height of the farm financial crisis.
As a reminder, he says, the data considers net farm income, not net cash income. Net cash income in Illinois was still positive in 2015.
One aspect of today’s farm economy boom that is similar to the 1970’s boom is geographic variation. Strong gains also occurred in the Northern Great Plains and Corn Belt states. Also similar, the boom of the era was not as strong in the Southeast during the 1970s. Just as the economic expansion varied, so has the economic slowdown. Most recently, net farm incomes in 2015 for North Dakota and Illinois were sharply lower – even turning negative in Illinois. Looking back at conditions during the 1970s and 1980s, Widmar says, these variations in boom/busts were also common.
Read the full-report here: http://ageconomists.com/2017/03/27/farm-income-boom-happened-didnt/