Hearing Notes Several Holes in Farm Bill Safety Nets

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We’ve seen this accelerating financial constraint environment in farming before. And it clearly is upon us. Key question: How long will it last? While some say two to three more years, others say longer.

The House Ag Committee is again out in front on a topic, including this one. Kudos to them for the beginning of hearings on this important topic. The first was held this week, with several more ahead, as we noted in a previous column.

How is the 2014 Farm Bill working? Rep. Rick Crawford (R-Ark.), who led the first of six House Ag hearings on the farm economy, gave a mixed report card to the 2014 Farm Bill. He asked, “Can the existing safety net meet the growing challenges of a prolonged period of depressed prices?” Hopefully lobbyists for corn and soybeans groups will be asked to testify and answer that question. Why? Nationwide, 96% of soybean farms, 91% of corn farms, and 66% of wheat farms elected the Ag Risk Coverage (ARC) program, previously dubbed the shallow loss payment program. Over 90% of rice and peanut farms elected the Price Loss Coverage (PLC) program.

The problem with ARC was noted by Dr. Joe Outlaw of Texas A&M Univ.: ARC support tends to be front-loaded and with prices remaining low in projections for more than a few years out, the ARC benchmark declines significantly, resulting in producers receiving little support by the end of the period. Others during the farm bill debate asked if that was truly a safety-net.

Told you so. That was one of the messages the panel received from Roger Johnson, president of the National Farmers Union (NFU). During the long 2014 Farm Bill debate, NFU pushed the PLC at higher levels than the final outcome.

Johnson said ARC has had “a number of problems including sign-up glitches associated with administrative counties.” ARC county data or the lack of it has caused woes. He said NFU had “serious concerns over ARC,” noting that “price protection and weather protection should be separate, (but) with ARC there is a mixture of the two that have caused problems” from NFU’s perspective. He said NFU wanted a single program via PLC that “contained higher reference prices, with crop insurance serving as a backstop.”

Johnson said the PLC program is “simple to administer and understand” and has faced no substantial implementation issues. ARC complex. PLC not complex.

NFU has also heard from dairy producers with concerns over the Dairy Margin Protection Program (MPP). While this program was always intended to be a risk management tool in a sector that historically relied on direct payments, Johnson said it has nonetheless “fallen short of expectations.” Dairy farmers are experiencing an extended period of very low milk prices and “MPP has been unable to provide meaningful relief for farmers during this period of low prices and surplus production.” NFU, Johnson concluded, has “serious concerns that if this problem goes uncorrected, more dairy farms will go out of business. We hope this committee can begin to examine a reasonable dairy price setting mechanism that takes into account production costs and an incentives-based inventory management program. NFU would like to see the committee hold regional hearings to discuss dairy pricing and regional feed costs.”

No one had kind words for the cotton “safety” net program: the Stacked Income Protection Plan (STAX). You know, the program written by Brazil. NFU summed it up this way: “NFU believes that STAX is not sufficient to solve the current situation on its own. To start, STAX only covers roughly 29% of cotton acres. NFU, along with other allies including the National Cotton Council, are supportive of classifying cottonseed as an ‘other oilseed’ for the purposes of ARC and PLC. We recognize there has been a debate over current USDA authority and would urge USDA and Congress to find a meaningful path forward. We also hope Congress can work with the USDA to expand its authority to assist producers as well as USDA working within its existing authority to provide relief.”

Farmers polled on impacts of financial constraints. Dr. Outlaw told lawmakers that a poll of farmers in crop and livestock operations in 29 states noted the following:

• Obtaining financing is much harder.
• Putting off capital/machinery updates, reducing the number of hired laborers and amount of purchased inputs.
• Cash rents have come down a bit, but nowhere near the amount commodity prices and returns have fallen. Some landlords are unwilling to lower cash lease rates. Many farmers in the South and Southeast have share-lease, where some have been adjusted to give tenants a slightly larger share of crop.
• Farmers are concerned about the future, not only for themselves but for young farmers, who don’t usually have the equity in operations than do more established farmers.

Dr. Outlaw’s message to an Ag subcommittee panel:

• Low prices are well below cost of production for most representative farms, which means higher-cost farmers are in trouble.
• Current poor situation in farm country would be considerably worse if not for the safety net programs and federal crop insurance.
• Interest groups that call for changes that would negatively impact safety nets and crop insurance tools “clearly either have no idea how difficult the financial situation across agriculture is or they simply do not care.”

Bottom line: Cash-flow binds are growing, especially for those not owning their own farmland. Additional congressional hearings will detail other facets of the latest downturn in the business of agriculture.

NOTE: This column is copyrighted material; therefore reproduction or retransmission is prohibited under U.S. copyright laws.