Lawmakers: 'Precarious' farm financial situation proves case for farm bill
WASHINGTON, June 2, 2015 – When commodity prices were
hitting record highs a couple of years ago, farm bill critics often made the
case that it was finally time to make deep spending cuts or eliminate farm
subsidies altogether.
Yet, several members of the House and Senate Agriculture
Committees had a frequent refrain: “You don’t write a farm bill for the good
times; you write a farm bill for the bad times that will invariably come.”
In many ways, that time seems to have arrived. Members of
the Agriculture Subcommittee
on General Farm Commodities and Risk Management devoted a hearing this
morning to documenting the changes taking place across a wide variety of
operations.
“Farm prices for many crops have dropped dramatically since
the farm bill debate. Inputs costs continue to rise. Mother Nature
continues to wreak havoc on some regions of the country. Foreign
competitors are sharply increasing their subsidies, tariffs, and non-tariff
trade barriers,” noted Subcommittee Chair Rick Crawford, R-Ark., in his opening
statement. “The EPA is pushing new and costly regulations. Some in this
country are standing in the way of critical tax relief, ranging from a permanent
section 179 and bonus depreciation to repeal of the death tax.”
In general, panelists agreed with Crawford and Ranking Member Tim Walz, D-Minn., that many sectors of agriculture are in a tough spot. Net farm income in 2015 is projected to be about 43 percent less than the record high $129 billion set in 2013.
New
programs under the Agricultural Act of 2014, the farm bill, are expected to
lead to a 15 percent increase ($1.6 billion) in government payments and fill
part of that slack. At $12.4 billion, 2015’s expected payments would be the
largest since 2010, USDA reported earlier this year.
Steve
Varett, who grows cotton, sorghum and wheat on farms east of Lubbock, Texas,
described the current financial health of the farm economy in one word:
Precarious.
“Lenders
in my part of the country tell
me that as much as 65 percent
of operating
loans from last year had
significant carryover into 2015 because producers simply could not pay off their
notes. Equipment dealers tell me that about half
of producers in our area had
to have their equipment notes
restructured. Bankers
pulled a rabbit out of the
hat in getting a great majority
of producers
in our part
of the country refinanced for
2015 in a time when it is very
difficult
to show a positive cash flow,” he noted.
Nathan
Kauffman,
assistant vice president, economist, and Omaha Branch
executive, Federal Reserve Bank of Kansas City, told the subcommittee that the farm
income drop is mainly due to lower prices of major U.S. row crops, combined
with “persistently high” production costs.
“For example, corn prices are currently about 50 percent less
than in 2013 and
soybean
prices have dropped
more than 30 percent over
the same time frame. Despite
the lower commodity prices,
input costs have remained relatively
high, causing profit margins to weaken notably
over
the past
two years,” he said,
adding that farmland prices have softened or declined in many areas.
But the farm
economic downturn is not consistent across all commodities or all regions and
many farmers have managed more conservatively than in the past.
Kevin
Paap, president of the Minnesota Farm Bureau Federation and a corn and soybean
producer in Blue Earth County, summed up the financial health of farm country
in two words: “It depends.”
He noted that
crop farmers faced steep price declines with high input costs while livestock
producers saw 2014 as one of the best years ever.” His home state – which
prides itself on being the nation’s top turkey producer- has been particularly
hard hit by avian influenza, which has resulted in the death of 8 million birds
and resulting and an estimated $113.6 million in losses.
“Financial stress
– it’s here, it’s real and it’s challenging for many,” emphasized Paap. He said
farmers are restructuring their debt to stretch out capital payments and more
producers are turning to USDA’s Farm Service Agency for loans.
Several witnesses
testified about how the economic downturn on the farm is starting to have a
ripple effect throughout other parts of rural America. Paul Combs, who farms in
Missouri’s southern Boot Hill region and operates 11 equipment dealerships in
Missouri and Arkansas, said his equipment sales are down 15 percent year over
year.
