January 27, 2020

Agricultural Economy- Budget Issues; Trade; Biotech; and, Biofuels

Agricultural Economy- Budget Issues

A paper released yesterday by the Federal Reserve Bank of Chicago (“Farm Income’s Impact on the Midwest Economy,” by David Oppedahl) indicated that, “During the first four years following the Great Recession (which ended in mid- 2009), farmers and ranchers generated the highest levels of real agricultural income since 1973 (see figure 1), which contrasted sharply with the uneven fortunes of the broader economy over this span. Yet, since mid-2013, the incomes of crop producers have decreased, while those of livestock producers have increased, as crop (and feed) prices have fallen dramatically, mostly as a result of record or near-record harvests. Hence, risk management remains as critical as ever, as crop producers contend with a downturn in farm income following several years of prosperity. Experts from academia, policy institutions, banking, and the farming industry gathered at the 2014 conference to examine these and other farm income trends, plus their interplay with the regional economy.”

Yesterday’s paper added that, “Government payments (both direct subsidies and crop insurance indemnities) have remained an important part of the farm sector’s income, even as market-derived farm income has risen in recent years. The number of acres covered by crop insurance has grown significantly, and so have the liabilities of the crop insurance program, which is subsidized and overseen by the USDA. The substantial payouts during recent droughts (especially the one in 2012) underscore the importance and value of crop insurance. Agricultural producers are paying premiums for coverage that has generally increased over time. The total value of crop insurance premiums has tended to exceed the total value of indemnities since the mid-2000s, with 2012 being an exception. Much of the farm safety net is legislated through the Agricultural Act of 2014, [Joe Glauber] said. Although nutrition programs have been allocated 80% of this farm bill’s $489 billion in funding, farm commodity, crop insurance, and conservation programs were projected to receive 5%, 8%, and 6% of the funding, respectively, over the 2014–18 period. These programs offer an array of choices for managing various risks faced by agricultural producers (including those related to adverse weather conditions and sudden drops in prices for their goods below certain predetermined levels). The current farm bill’s approach relies upon insurance as the primary means by which to protect against agricultural risks and to support farm incomes.”

With this background in mind, Chris Clayton and Todd Neeley reported yesterday at DTN that, “The White House budget proposal for 2016 seeks to cut crop insurance under the argument that such cuts are needed to offset higher projected direct farm-program subsidies.”