The Agricultural Economy and the Next Farm Bill

Bloomberg writer Alan Bjerga reported yesterday that, “Farmers got good news from the government this week — and not just in the form of cheese. Two USDA reports showed increasing exports and less-than-expected decreases in this year’s farm net-income.

“That’s good for profits. It further complicates the trillion-dollar farm-bill debate due after the 2016 elections.”

Mr. Bjerga explained that, “Farm bills, which largely pay for food stamps but politically are fought over subsidy checks that mainly go to growers of corn, soybeans, wheat and other commodity crops, invariably are written to reflect current economic conditions in agriculture.

“The 2014 version of the law allowed Congress to create programs that spent less during the record-profit era that spawned them, but more when harder times returned. When farmer profits appear to be falling to less than half their annual peaks, efforts to make farm programs more generous gain support — and advocates have numbers to back them up.

“But higher profits weaken that argument. Sure, $71.5 billion in profits are still down 42 percent from the 2013 record, the USDA said earlier this week, but that total would have been considered healthy before the boom, which is now widely seen as an anomaly. And despite the lack of a Trans-Pacific Partnership trade deal, exports are up, and the U.S. agricultural trade surplus is back on the rise.”

The Bloomberg update added that, “What’s been a bad-news narrative in agriculture has become a less-bad news narrative. That doesn’t mean farm programs won’t be changed — they always are — but which direction the spending will go is less certain.”

And recall also this week, that a ten-year baseline update from the Food & Agricultural Policy Research Institute at the University of Missouri indicated that the 2016/17 marketing year average price of corn would only be $3.19 per bushel.  The report added that, “Projected average soybean prices remain below $10.00 per bushel over the next five years.”

At least one farmer noted recently in The Wall Street Journal that: “We cannot withstand $4 a bushel corn;” and, a recent DTN article pointed out that, “University of Illinois economist Gary Schnitkey agrees most cash renters need closer to $4 corn to break even. But if corn prices average only $3.50 per bushel next season — with no farm program payments on the horizon — even many high-yielding 200-bushel Illinois farms could lose $65 an acre on $245 cash rent, Schnitkey estimates.”

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