Farm Incomes Estimated to Drop 14%; High Input, Low Crop Prices Cited For Decline
During the Farm Bill debate, many agricultural leaders pointed out the fact that farm policy should be written for the bad times, not the good.
It appears that such challenging times might be here sooner rather than later, with the U.S. Department of Agriculture’s Economic Research Service (ERS) forecasting farm income to drop 14 percent in 2014.
The 2014 forecast would be the lowest since 2010. Lower cash receipts for crops like corn and soybeans, and, to a lesser degree, higher production expenses and the elimination of direct payments, have driven the expected drop in net farm income.
In terms of the taxpayer ledger, the elimination of direct payments under the 2014 Farm Bill will reduce farm policy expenses by roughly $5 billion this year, which is what many of the leaders on both sides of the aisle promised the public when the Farm Bill discussions began three years ago. But given what has happened to commodity prices this summer, this infusion will be sorely missed in the farm economy this fall.
So what is left of the safety net?
Crop insurance—which is purchased by producers and kicks in only when prices dip or Mother Nature strikes—was often referred to in the debates as the cornerstone of the 2014 Farm Bill.
Farmers currently spend about $4 billion a year on premiums, and the accumulation of those dollars over the years—38 billion since 2000—is used to help offset claims in disastrous years. Farmers must suffer a verifiable loss before they collect a dime from their crop insurance policies. During the 2012 drought alone, deductible losses shouldered by farmers, not taxpayers, totaled $13 billion.
As Chairwoman Stabnow described it, “Today, crop insurance is the foundation of this Farm Bill and the farm safety net… The farmer gets a bill, not a check with crop insurance … and they don’t get help unless they really need it.” This is all good, but with the declining commodity prices and cash flows, receiving another bill for a crop that has been steadily diminishing in value will hurt more than it has in recent years.
Not getting help unless you really need it is also the mantra of what remains of the Title 1 safety net found in the 2014 Farm Bill. Farmers have a choice, but in any case will only receive emergency assistance if revenues drop well below a running five year average or crop prices fall well below the cost of production.
So this is the new world. In lean years like 2014, having a backstop in place will not mean a profit, but hopefully it will provide the peace of mind to help our U.S. farmers continue to invest and spend and be the best in the world. That’s exactly what has been achieved in recent farm policy, and that is why lawmakers wrote this new Farm Bill.