The Reality of the ‘Bumper’ Crop
When it comes to economic conditions on the farm, the theme of Reuters, Bloomberg, and some other news outlets is to speak only of bumper crops and expected higher Farm Bill costs.
In the aggregate—though that is not how farmers repay their loans or obtain financing—U.S. farm income will not be up as one might expect based on these reports, but will instead be down—down by some $30 billion (23%)—from just one year ago, according to the Department of Agriculture. This is a function of dramatically lower prices for crops, and steadily higher costs for inputs like seed and fertilizer.
Yes, it is true that some producers in some states will make big yields this year. Some producers and crops may even set record yields. However, this is not true of all producers.
In fact, 35 percent of U.S. counties in 41 states are under a disaster declaration this year. This includes a large portion of the counties in Arizona, California, Colorado, Hawaii, Idaho, Kansas, Massachusetts, Minnesota, Nevada, New Hampshire, New Mexico, New York, Oklahoma, Oregon, Texas, Utah, Washington and a significant number of counties in Arkansas, the Carolinas, Nebraska, and Tennessee. A disaster declaration for a primary county requires that a crop suffered more than a 30 percent loss.
The claim by these same news outlets that there will be higher than expected Farm Bill costs is a matter of counting chicken littles before they hatch. These higher than expected costs are based on estimates, not actual costs and, by the way, so are the lower than expected costs that the news outlets left out of their stories.
If history is any guide, the commodity and crop insurance provisions of the 2014 Farm Bill will come in below CBO projections, just as was the case for the 2002 and 2008 Farm Bills. As a matter of fact, the 2002 provisions came in 11 percent under CBO estimates at the time of passage, and the 2008 Farm Bill came in 22 percent less than the 2002 bill, and 8 percent less than CBO projections. This is remarkable, and it left taxpayers $19 billion to the good. But beyond what we can glean from any past experience and any estimates for the future is what we can and do know here and now.
We know right now that in October of 2014, taxpayers saved roughly $5 billion due to the repeal of the Direct Payment. Spending and savings beyond this enters the realm of the speculative until the books are closed on the 2014 crop year, sometime after October 2015. The best assessment on the new law, however, will have to wait until sometime after the law expires, at the end of 2018, when we will know as a matter of fact, rather than speculation, whether the law comes in under or over estimates.
We also know that, by design, the 2014 Farm Bill should mitigate any greater than expected spending in farm policy caused by dramatically lower crop prices (corn prices are predicted 32.6 percent lower from 2013 to 2014) with savings in other areas like crop insurance.
What else we know right now is, because the Direct Payment did not go in 2014 and will not go out in 2015, or in any other year for that matter, and because crop prices are dramatically lower, there will be many farm families, even those who made a good crop, who will struggle to repay their loans this fall and as many will struggle to obtain financing next year, particularly those producers who had a poor or even no crop at all in recent years.
As has been demonstrated in every national economic downturn in recent memory, the farm economy still matters to our nation’s overall economic health and well-being. Yet, the economic pain being felt in the Heartland today is very real and this should be cause for great concern to everyone, if not out of empathy for other people faced with hard times, then at least out of an interest in continued economic recovery.
We at Farm Policy Facts hope that as readers sat down for their Thanksgiving meal, that they took a moment to say a prayer of thanks for the farmers and ranchers who work tirelessly and face tremendous risks to provide us with this bounty.