Projected record production for both corn and soybeans in the U.S. this year has resulted in lower market prices for farmers. Subsequently, the U.S. Department of Agriculture recently noted in its Farm Sector Income Forecast, that both net cash income and net farm income are forecast to decline for the third consecutive year. For 2016, net farm income is forecast to decline by 11.5%, following a 12.9% reduction that occurred in 2015.
The Food & Agricultural Policy Research Institute at the University of Missouri indicated in a report last week that the 2016/17 marketing year average price of corn would only be $3.19 per bushel. The report added that, “Projected average soybean prices remain below $10.00 per bushel over the next five years.”
Some farm policy observers have pointed to other variables in the agricultural economy recently and noted that, “What’s been a bad-news narrative in agriculture has become a less-bad news narrative.” However, producers have expressed concern about the low price environment and the Federal Reserve Board indicated yesterday in its “Beige Book” report that, “Although agricultural loan delinquency rates remained low, bankers reported increased demand for farm loan extensions and weaker loan repayments rates. Additionally, [Kansas City] District bankers reported modest increases in the severity of agricultural loan repayment problems.”
Ken Anderson reported yesterday at Brownfield that, “U.S. Agriculture Secretary Tom Vilsack held a conference call with ag reporters” and during the question and answer portion of the call, “Vilsack was asked about the economic challenges being felt in many agriculture sectors and if there is anything the USDA can do to help address them.”
In part, Sec. Vilsack noted that, “I think any farmer understands the ups and downs of agricultural prices and I think its important to take a look at five year increments- what have prices done during the last five years?”
Sec. Vilsack observed that, “Over that five-year period we have seen a relatively strong foundation to the agricultural economy. We see continued low debt to equity ratios, notwithstanding the fact that the prices are a little low right now. I think farmers, foundationally, are in good shape to withstand the low commodity prices of today.”
And, despite a relatively strong dollar, the former Iowa Governor pointed to a recent uptick in agricultural exports as well as to investments in rural small business that have contributed to “off farm” employment opportunities for farm families.
Specially, Sec. Vilsack expounded on the fact that overall “farm household” income, which includes “off-farm” income, as well as “farm income,” is significantly above national averages. This is primarily due to the fact that “off farm” income in farm households remains strong. Sec. Vilsack noted that what is done in the policy area of rural development is important because it helps to strengthen “off farm” income opportunities.
Sec. Vilsack also noted that USDA has recently assisted the dairy sector by purchasing stockpiled cheese and also indicated that Farm Bill program payments will begin to be sent out in October; these payments will be higher than last year, and could total around $11 billion in additional assistance.
Meanwhile, Kansas farmer Doug Keesling indicated in an update this week that at The Hill Online that, “While commodity prices are largely subject to the laws of supply and demand, there is much we can do to improve farm economies—especially at the federal level.
“First off, there is just too much regulation affecting the daily activities—and pocketbooks—of America’s farmers. In case after case, farmers are forced to absorb the costs of a rising tide of regulations coming out of Washington.”
Beyond regulatory concerns, Mr. Keeling added that labor costs have been on the rise, “attributable in large part to minimum wage requirements;” and noted that, “We also need to create new policies that make it easier to export our agricultural products—whether to nearby Caribbean nations, or to countries on the other side of the world. One of the most expedient moves our government can make today to bolster our exports is to normalize trade with Cuba—a major market 90 miles off our coast that imports much of its food from countries thousands of miles away, all because of dated trade restrictions from nearly 60 years ago.”
With respect to a separate trade issue that could potentially help with U.S. agricultural exports, the Trans Pacific Partnership (TPP), Christi Parsons and Michael A. Memoli reported in yesterday’s Los Angeles Times that, “On a weeklong tour of China and Laos, President Obama is trying to reassure anxious foreign partners that even if he waits till after the election to make a big push for his sweeping Pacific Rim trade deal, U.S. politics won’t jeopardize its passage.”
Yesterday’s article indicated that, “Congressional allies on the issue insist Obama is right to tell trading partners that the fight can still be won.
“‘I would tell them that their presidential candidates’ rhetoric aside, that there is strong support from both Republicans and Democrats in Congress to resolving the outstanding issues in TPP and bringing it forward for consideration,’ House Ways and Means Committee Chairman Kevin Brady (R-Texas) said.”
Beyond forthcoming Farm Bill payments, increased opportunities in “off farm” income, potential changes to regulatory requirements, and changes in trade policy that could further boost exports, U.S. grain and soybean farmers may have to rely on cutting costs and waiting for the aggregate supply picture to change before prices and farm income improve.
