FarmPolicy

October 19, 2019

ERS- Farm Income; Food Prices- Security; and Climate Legislation

ERS- Farm Income

Yesterday, the U.S. Department of Agriculture’s Economic Research Service (ERS) released an updated Farm Sector Income Forecast for 2009.

In part, ERS indicated that, “Net farm income is forecast to be $54.0 billion in 2009, down $33.2 billion (38 percent) from the preliminary estimate of $87.2 billion for 2008. The 2009 forecast is $9 billion below the average of $63.2 billion in net farm income earned in the previous 10 years [related graph].”

“In 2009, crop prices [related graph] have continued to decline and prices for livestock animals and products have experienced sharp declines. With economic conditions deteriorating worldwide, demand for exports has tailed off, with few options available to expand marketing elsewhere. Sharply declining demand in 2009 has forced farmers to accept prices that are lower than were expected earlier in the year when production plans were made,” ERS said.

With respect to the animal sector, yesterday’s update stated that, “Cash receipts for livestock, dairy, and poultry are forecast to be $119 billion in 2009, down 15.7 percent from 2008, with declines in sales across all major livestock categories. The U.S. animal sector is projected to account for 41.9 percent of total agricultural cash receipts in 2009, down from 43.5 percent in 2008.

Soft consumer demand is expected to dramatically reduce milk prices for farmers in 2009. When coupled with reductions in the U.S. dairy herd, dairy cash receipts are projected to be down almost 34 percent from 2008 levels. While milk supplies are forecast to remain similar to last year, farm prices for milk are expected to decline significantly for much of the year. A slight price recovery is expected toward the end of 2009 as excess cows are liquidated. Weaker global demand for dairy products, a strengthening U.S. dollar, and drought recovery in Australia and New Zealand are expected to stifle export growth in the U.S. dairy sector in 2009.”

And in more detail on the hog sector, ERS noted that, “Hog producers’ cash receipts are expected to decrease 13 percent in 2009. The global recession has reduced both domestic and foreign demand, resulting in low pork and hog prices. Summer 2009 prices were lower due to weak demand, and second-quarter pork exports dropped 31 percent from second-quarter 2008 as Asian market demand weakened. For 2009, the USDA expects hog prices to average $40-$41 per cwt, almost 15 percent below 2008’s prices. Commercial pork production in 2009 is expected to be more than 2 percent below production in 2008, but the sharper decline in pork demand accounts for the projected decline in hog receipts.”

With respect to production expenses, yesterday’s forecast stated that, “Following an increase of $22.5 billion (8.4 percent) in 2008 to a record-high $290.0 billion, total production expenses are forecast to decrease $9.2 billion (3.2 percent) in 2009 to $280.8 billion, the second highest level ever [related graph]. This drop would be the first since 2002. Between 2002 and 2008, expenses rose $99 billion (52 percent). Given the magnitude of the increase in cost experienced in this 6-year period, the reduction projected for 2009 is welcomed, especially since gross income is slated to fall 10 percent in 2009. Despite the decrease, forecast expenses for 2009 would constitute the largest percentage of gross farm income, 84 percent, since 1984.”

On the issue of federal government payments, ERS explained that, “Direct government payments are expected to total $12.6 billion in 2009, a slight increase from $12.2 billion paid out in 2008 [related graph]. This level would be 20 percent below the 2004-08 average. Direct payments under the Direct and Countercyclical Program (DCP) are forecast at $5.15 billion for 2009. Direct payment rates are fixed in legislation and are not affected by the level of program crop prices.”

Countercyclical payments are forecast to increase from $712 million in 2008 to $1.23 billion in 2009. The drop in cotton prices in the latter half of 2008 is responsible for this projected increase. Since 2006, only upland cotton and peanuts received countercyclical payments, but only cotton is receiving countercyclical payments in 2009.

Marketing loan benefits—including loan deficiency payments, marketing loan gains, and certificate exchange gains—are projected at $906 million in 2009, up from $316 million in 2008. In 2009, upland cotton producers realized almost 95 percent of the total marketing loan benefits. The other crops receiving marketing loan benefits are wheat, barley, peanuts, wool, mohair and pelts. Although prices have declined from their peaks in 2008, marketing loan benefits are still not available to the remaining program crops at current price levels.”

ERS noted that, “Conservation programs include all conservation programs operated by USDA’s Farm Service Agency (FSA) and Natural Resources Conservation Service (NRCS) that provide direct payments to producers. Estimated conservation payments of $3.23 billion in 2009 reflect programs being brought up toward funding levels authorized by current legislation.”

Scott Kilman and Lauren Etter reported in today’s Wall Street Journal that, “The American farm, which has weathered the global recession better than most U.S. industries, is starting to succumb to the downturn.”

After citing some of the updated ERS farm sector statistics, the Journal writers explained that, “The slump isn’t affecting all farmers equally: Many are still reaping big profits while others are having a hard year. Farmers are accustomed to seeing their incomes swing widely, due to the vagaries of such things as Mother Nature and the oil market’s impact on the price of corn-derived ethanol fuel.

For instance, sugar farmers are seeing the highest global prices in 28 years, in part because of harvest problems in India. But many dairy and hog farmers are barely holding on because of low prices and shrinking foreign demand.

“The sector’s expected profit decline is unusually steep, coming after two boom years. According to USDA calculations, its 2009 forecast is $9 billion below the 10-year average for farm profits.”

Today’s Journal article pointed out that, “Less than 1% of Americans are engaged directly in agriculture. Yet farmers have a big impact on the economy. They are big spenders, produce commodities that are ubiquitous in the economy, and use about half of the nation’s land. According to past calculations by the USDA, agriculture and food account for about 13% of U.S. gross domestic product.”

Kilman and Etter noted that, “Part of what had held the recession at bay in farm country earlier this year was that the prices of corn and soybeans, while down from last year’s levels, were still roughly twice as high as what had been normal early this decade and in the 1990s. But prices of these commodities have steadily retreated in recent weeks amid forecasts for bumper harvests this fall.

“U.S. corn farmers are projected to harvest about 12.8 billion bushels this fall, which would be the second-highest crop ever. Soybean farmers are expected to harvest a record 3.2 billion bushes. The price of corn and wheat is 41% lower than last year, while prices of hogs and nonfat dry milk are down one-third from 12 months ago.”

And on the issue of farmland values, the Journal article stated that, “The decline in commodity prices also has begun to depress the value of U.S. farmland for the first time in two decades [related graph].

“The Federal Reserve Bank of Chicago said in a report it issued Thursday that the price of good quality farmland in Iowa and Michigan was 5% lower on July 1 than it was on the same 2008 date.

Falling land prices are making it harder for farmers to borrow because land is their biggest source of collateral. ‘No question that specific industries are burning through working capital very quickly,’ said Bill York, chief executive of AgriBank FCB, St. Paul, Minn. ‘Pork and dairy are of particular concern.’”

Bloomberg writer Alan Bjerga reported yesterday that, “The price of corn, the biggest U.S. crop, has plunged 46 percent in the past year, hog farmers lost an estimated $4.5 billion since September 2007, and dairy herds are being culled because of a milk surplus. Profits have declined for grain processors including Cargill Inc. and makers of farm equipment such as Deere & Co. and Agco Corp.”

A Daily Radio News item from USDA yesterday (audio report) noted that, “Jim Johnson, USDA economist, saying this is going to be a very unusual year for farm income with much larger than expected declines.”

Food Prices- Security

A Dow Jones news article from yesterday (article posted at DTN, link requires subscription) reported that, “After two years of above-average food price inflation, the rate is expected to return to more normal rates next year.

“Corinne Alexander, an agricultural economist at Purdue University, expects 2010 food prices to increase between 2.5 percent and 3.5 percent, well under the record 5.5 percent that was set in 2008. The 10-year average for food-price inflation, from 1997 to 2006, is about 2.5 percent, she said in a release.”

James Lamont reported earlier this week at the Financial Times Online that, “India has launched countrywide raids on food commodities hoarders as the government appealed on Thursday to consumers not to panic about shortages inflicted by a poor monsoon.

“State authorities have conducted sweeping raids in the past days in Maharashtra, Madhya Pradesh and Gujarat in an attempt to release foodstuffs onto the market and cool surging prices.

A faltering agriculture sector, combined with the ravages of the global economic downturn, would lower India’s economic growth to about 6 per cent this year, Pranab Mukherjee, the finance minister, said on Thursday. Earlier official forecasts had estimated growth at 7 per cent.”

The FT article noted that, “Disappointing monsoon rains are threatening rural incomes. Agriculture accounts for 17 per cent of GDP and more than two thirds of India’s 1.2bn population is estimated to rely on the land for its livelihood.

“The rains are a quarter below normal this year and have inflicted damage on a range of crops, including rice, oil seed and sugar cane. The Reserve Bank of India has warned on Thursday that the fall in agricultural output could lead to inflationary pressure in the months ahead. Although the Wholesale Price Index has fallen steadily over the past year, food inflation has remained stubbornly high at about 10 per cent.”

Climate Legislation

A news release issued yesterday by the National Farmers Union stated that, “National Farmers Union President Roger Johnson today reiterated the organization’s call for Congress to approve climate change legislation rather than allow the Environmental Protection Agency (EPA) to regulate greenhouse gas emissions.

“‘As Congress nears the end of its August recess, lawmakers must return to Washington prepared to approve comprehensive energy and climate change legislation,’ Johnson said. ‘NFU believes a legislative solution is a far better solution to addressing climate change than a pure regulatory approach from EPA.’

“In the coming weeks, EPA is poised to determine greenhouse gases to be a threat to public health and thereby potentially trigger its regulatory authority under the Clean Air Act. The Obama Administration has been steadfast in calling upon Congress to address greenhouse gas emissions, rather than EPA.”

On the other hand, a NewsLine item posted yesterday at the American Farm Bureau Online included a quote from Bob Young, the Farm Bureau’s Chief Economist, who stated that, “The proponents of this [climate change] bill, when they talk about what the cost of the bill is going to be, tend to talk about what happens if everything happens just perfectly. If those things don’t come to pass, and there are lots of reasons why you think they might not come to pass, then the cost of this bill’s going to go up a lot, easily three times the cost.”

Steven Mufson and Jennifer Agiesta reported in today’s Washington Post that, “Most Americans approve of the way President Obama is handling energy issues and support efforts by him and Democrats in Congress to overhaul energy policy — including the controversial cap-and-trade approach to limiting greenhouse gas emissions, according to a Washington Post-ABC News poll.

Even as public support has slipped for Obama’s health-care proposals, support for ambitious changes in energy policy has been steady. Although the issue of health care arouses more intense feelings than energy policy does, those who do feel strongly about energy and climate policy tend to tilt toward the administration’s position and a broad majority of people echo Democratic lawmakers’ views on the benefits of proposed changes.

Nearly six in 10 of those polled support the proposed changes to U.S. energy policy being developed by Congress and the administration. Fifty-five percent of Americans approve of the way Obama is handling the issue, compared with 30 percent who do not. A narrower majority, 52 to 43 percent, back a cap-and-trade system; that margin is unchanged since June. A cap-and-trade system would set a ceiling for the nation’s greenhouse gas emissions, and it would allow firms to buy and sell emissions permits.”

The Post writers added that, “Majorities of those surveyed say changes in energy policy would address global warming and not raise energy costs. Although many proponents of a cap-and-trade bill say it could spur job creation in the renewable-energy sector and foes say it would drive jobs overseas, a plurality of Americans — more than four out of 10 — think that the legislation would have no effect on employment in their states. Fewer than one in five say that the reform efforts would lead to job losses; more than twice as many see added jobs.

“GOP criticism of the House energy and climate bill appears to have primarily influenced Republicans themselves. Among Republicans, support for cap-and-trade legislation has dipped from 45 percent to 37 percent since a poll taken in June.”

Meanwhile, Matthew Murray reported yesterday at Roll Call Online that, “The National Association of Manufacturers has begun targeting Senators in seven states on cap-and-trade legislation that awaits the Senate when it returns in less than two weeks.

“The trade group on Thursday announced a multimillion dollar television, radio and Internet advertising buy in Indiana, Michigan, Missouri, Nebraska, North Dakota, Ohio and Virginia. Each of those states is represented by one, or in some cases two, Senators who are viewed as swing votes on the climate change bill.

“One of the likely targets, Sen. Claire McCaskill (D-Mo.), has acknowledged she has some reservations about the legislation.”

In an opinion item regarding climate legislation, Joseph C. Farrell argued yesterday at Roll Call Online that, “The House recently passed a controversial bill that seeks to establish an emissions trading structure referred to as cap-and-trade. It passed by a very slim margin, mostly along party lines, and was opposed by 44 Democrats. If the bill manages to pass a vote in the Senate and is signed by President Barack Obama, it would impose strict limits on the carbon-based energy used by American businesses.

“In a state like Virginia, where 81.1 percent of our energy is carbon-based, this means businesses will be forced to take on enormous costs from the government or from traders even if most of the initial allowances are granted. A state-by-state study released by the National Association of Manufacturers this week showed Virginia losing between 41,400 and 56,400 jobs over the next two decades if this legislation is passed.

Cap-and-trade will effectively become one of the biggest tax increases in U.S. history. Even if allowances are granted for emissions permits to help offset the costs, those allowances will likely be temporary and not address the underlying deficiencies in the legislation.”

From an international perspective, Reuters news reported yesterday that, “Chinese legislators said on Thursday that their country will ‘strive to control greenhouse gas emissions’ and consider new laws to fight climate change, while warning against using the issue to raise trade barriers.

“The positions were laid out in a resolution passed by the Standing Committee of the National People’s Congress, or parliament, adding to a flurry of statements on climate change from China, the world’s biggest emitter of human-caused greenhouse gases.

“‘We must strengthen energy-saving and emissions reduction, striving to control emissions of greenhouse gases,’ said the resolution, urging more support for wind, solar and other forms of clean energy.”

Yesterday’s Reuters article added that, “China will ‘draft laws and regulations based on practical circumstances to provide more vigorous legal backing for fighting climate change,’ said the resolution, which was issued to journalists.

“But it also warned wealthy nations not to use the issue of climate change to impose any form of trade protection.”

Lastly today, Bloomberg writer Mathew Carr reported yesterday that, “The costs of adapting to climate change as a result of global warming are likely to be triple ‘rushed’ UN estimates from 2007, a group of 11 scientists said today.

“Costs may be $300 billion a year by 2030, compared with about $100 billion suggested by the United Nations Framework Convention on Climate Change, according to Martin Parry, a professor at the Grantham Institute for Climate Change at Imperial College London. Parry is the lead author of a report on adaptation costs published today by the International Institute for Environment and Development, a London think tank.

“The UNFCCC rushed its estimates partly because published data on potential costs from key industries was not easily available, Parry said at a press conference in London. There needs to be more work to include possible costs in the ecosystems, energy, manufacturing, retailing and tourism, the report said. A call and an e-mail to UNFCCC press officers were not immediately answered.”

Keith Good

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