As the U.S. economy recovers, the U.S. farm economy remains strong. That was backed up by updated farm income forecasts released by USDA earlier this week and in a pair of hearings this week by the House and Senate Ag Committees.
Most farmers are likely to reap strong profits this year and beyond as booming exports and a recovering global economy buoy demand for U.S. commodities, USDA Secretary Tom Vilsack told lawmakers during the hearings. However, Vilsack cautioned that the U.S. livestock and dairy sectors may be exceptions to the upswing in the farm economy, and they "bear watching" this year because they are being squeezed by soaring feed prices and rising energy costs.
In the Senate session, Vilsack was pressed by Sen. Mike Johanns (R-Neb.) about the potential that crop prices -- feed prices in particular -- could rise further if there is a crop problem this year. Vilsack noted USDA is currently predicting an increased in corn planted acreage for 2011 of 3% to 5%.
But Vilsack said it was "too early" to get concerned about the U.S. corn crop for 2011. "We had huge problems last year in a lot of areas of the country and we still had reasonable yields. We'll deal with that if it comes," Vilsack said. But he did not mention any specifics on what USDA could do should a problem arise.
While biofuels have been a target of many relative to rising corn prices in particular, Vilsack warned against cutting back biofuels incentives. He cited the severe downturn in the biodiesel industry that took place in 2010 as the $1 per gallon biodiesel incentive expired at the end of 2009 as a potential development should ethanol incentives be rolled back.
Specifically on dairy, Vilsack was asked by House Ag Committee Ranking Minority Member Collin Peterson (D-Minn.) Ranking member Collin Peterson (D-Minn.) on the National Milk Producers Federation’s (NMPF) Foundation for the Future farm program reform proposal for the dairy sector.
Vilsack said he is familiar with NMPF’s plan and noted there is general agreement within the industry that action is needed to reduce the severe volatility in the dairy industry. And, Vilsack agreed with Peterson's assessment that dairy may need to be addressed before the 2012 farm bill is finished. Regarding the dairy policy reform timeline, Vilsack told the Senate Agriculture Committee that he supports working on dairy issues this year, rather than waiting until the next farm bill, and that he thinks a consensus is building. He said his focus is on price stability and less volatility.
One area that has caused heartburn with some in agriculture is what some perceive as a focus at USDA on organic or smaller producers and little attention being paid to production agriculture -- those that produce the bulk of food and fiber in this country.
House Agriculture Committee Chairman Frank Lucas (R-Okla.) told Vilsack that he feels "a very subtle push from USDA hat seems to take for granted the 210,000 Americans that are producing 80% of our food. There seems to be a prioritization on a small subsection of producers in order to satisfy certain constituencies. I think all of the members of this Committee support marketing opportunities such as organic production, farmers markets, and local production but organic production and these other seeming priorities of the Department will not feed the nine billion souls that will inhabit the planet."
Lucas also asked Vilsack about a statement in the President's budget proposal for Fiscal Year (FY) 2012 relative to cutting direct payments. Specifically, Vilsack was asked to comment on the statement from the budget document which signaled direct payments distort production and drive up farmland values. Asked if he agreed with that statement, Vilsack said he believes that the farm safety net needs to provide assistance to producers who need it the most.
Vilsack further said that the proposed reduction in direct payments in the President's budget would only affect the top 2% of farmers and said the cut was meant to address budget deficit reduction. Vilsack told the Senate Agriculture Committee that direct payments can really benefit smaller farmers making less than $250,000 in production, and these farmers typically bring home very small percentages of income.