Agriculture Secretary Sonny Perdue drew a familiar picture of a fragile farm economy recently for lawmakers pondering the 2018 farm bill: income at half its 2013 level, high production costs, debt on the rise, and low commodity prices in the year ahead. “Conditions are testing the resilience of the American farmer,” said Perdue.
By those commonly used criteria, farmers are far worse off today than they were at the start of the decade. Yet four agricultural economists say that the situation is not so dire, and that the crop sector is, in fact, “closer to market normalcy than market stress.”
They reached that conclusion after comparing gross revenue per acre for nine major field crops to the total cost of production per acre. The ratios for 2015-16 crops, they found, were similar to the ratios for crops grown in 2003-06, before the commodity boom that propelled net farm income to a record $123.8 billion in 2013. “At the time, 2003-2006 was considered fairly normal and certainly not a period of farm stress,” wrote the economists at the farmdoc Daily blog.
“A key question worth watching in the current farm bill debate is whether society and Congress will increase farm safety net payments when farm returns from the market have declined relative to a period of farm prosperity but are roughly on par with the period preceding it,” wrote Carl Zulauf of Ohio State University and Gary Schnitkey, Jonathan Coppess, and Nick Paulson of the University of Illinois.
The 2007-13 boom was a once-in-a-lifetime streak of prosperous years for many farmers, akin to the 1970s ag export spree.
Leaders of the Senate and House Agriculture committees say they expect no additional funding when they write the 2018 farm bill, though they will benefit from a larger baseline for cotton and dairy than they expected a few months ago. Congress included cotton and dairy provisions in a disaster bill in early February. The 2014 farm bill was estimated to cost $100 billion annually when it was enacted but has actually cost less than that because of low food inflation. Three-fourths of farm bill expenditures go to the food stamp program.
Senate Agriculture chairman Pat Roberts has indicated his committee will begin drafting its farm bill in mid-April, after the Congressional Budget Office releases its 10-year budget baseline. In it, the CBO will project the cost of farm bill elements, such as crop subsidies, crop insurance, land stewardship, and food stamps.
Net farm income is forecast at $59.5 billion this year, the third year in a row it has been in the range of $60 billion. The precipitous plunge of income in 2014 and 2015 may be leveling off. If the forecast proves true, this year’s income would be the lowest since the $57.4 billion recorded in 2006, just before rising global demand for food, smaller than expected harvests worldwide, and the U.S. biofuel mandate ignited the commodity boom.
A resurgence in global crop production, along with rapidly growing stockpiles, drove the collapse of the commodity boom in 2013. At least one analyst has suggested that a “new ethanol” is needed to permanently increase global grain demand and bolster prices for the future. Otherwise, commodity prices, and farm income, can expect only a slow and modest improvement in the medium to long term.