A news release yesterday from the House Agriculture Committee indicated that, “Today, Rep. Glenn ‘GT’ Thompson (R-PA), Chairman of the House Agriculture Committee’s Subcommittee on Conservation and Forestry, held a hearing to highlight the impacts of environmental regulation and voluntary conservation solutions. This is the fifth hearing in the Focus on the Farm Economy series [note that a summary of the first four hearings can be found here, here, here and here], where each of the six subcommittees are tasked with examining the growing pressure in rural America from the perspective of the subcommittee. Members heard from two panels of witnesses, including farmers and ranchers who are utilizing voluntary, incentive-based programs to protect and preserve our natural resources, while also maintaining profitable production on their land.

“‘Today, we are once again reminded that locally-led, voluntary conservation practices work. Through assistance and incentive-based programs provided in the Farm Bill, our nation’s farmers and ranchers are voluntarily reducing soil erosion, increasing wetlands, improving water quality, and preserving farmland and wildlife habitats. However, some government agencies continue to implement over burdensome regulatory requirements, which create financial obstacles for our producers. It is important we continue to support common-sense legislation and voluntary practices that enable farmers and ranchers to continue preserving the health and vitality of our natural resources,’ said Subcommittee Chairman Thompson.”

Reuters writer P.J. Huffstutter reported today that, “Leading U.S. agricultural lenders, including some commercial banks and the Farm Credit System (FCS), could be impacted by the souring farm economy, in part because growth in their loan portfolios in recent years has been heavily rooted in farmland appreciation, a report released on Tuesday by Fitch Ratings said.

“But while such institutions could see the quality of some of their assets deteriorate, the relative strength of the current Farm Credit System and a less volatile interest rate should ease any adverse impact on lenders, Bain Rumohr, director of Fitch Ratings, told Reuters.”

The article explained that, “While there are some parallels between this farm downturn and the agricultural crisis of the 1980s, the differences are significant enough that the result on the U.S. lending sector should be more benign, the report said.

“As a result, Fitch doesn’t expect the sector’s worsening conditions to affect the ratings of FCS or the individual banks in the system.”

Ms. Huffstutter added that, “Economic erosion continued to squeeze Midwest farmers’ capital expenditures and pressure farmland values and cash rents in the first quarter of 2016, according to quarterly reports on the agricultural economy released last week by the Federal Reserve Banks in St. Louis, Kansas City and Chicago. Repayment rates for non-real estate farm loans also continued to sour.”

AP writer John Seewer reported recently that, “Farmers who run pumpkin patches, corn mazes and petting zoos say they can’t always stop an aggressive goat from chomping down on a visitor’s hand or prevent someone from stumbling in a field.

“That’s why Ohio lawmakers have signed off on legislation shielding farmers with agritourism businesses from being sued when accidents happen.

“Supporters of the measure expected to become law once it’s signed by the governor say it’s an acknowledgement that running a business that brings people onto a working farm poses risks not found in most places.”

The AP article indicated that, “The number of U.S. farms reporting income from agritourism grew by about 40 percent from 2007 to 2012, according to the latest Census of Agriculture.

“About half of all states now put limits on liability for agritourism operations, with most being added within the last few years, according to information compiled by the National Agricultural Law Center.”

Mr. Seewer pointed out that, “Ohio’s proposal, like others in most states, does not protect farmers from all lawsuits — only inherent risks such as horse kicking or biting a visitor. A farmer who’s aware of a potentially dangerous situation, such as a dilapidated barn that injures someone, could still face trouble.

“Ohio Farm Bureau Federation lobbyist Brandon Kern said the hope is giving farmers some liability protection will make it easier to get insurance and keep those costs down.”

Wall Street Journal writer Jesse Newman reported last week that, “Real farmland values in parts of the Midwest fell at their fastest clip in almost 30 years during the first quarter, according to a regional Federal Reserve report on Thursday.

“Falling crop prices have weighed on land values from Kansas to Indiana over the past two years as farm income declined and investors who had piled into the asset at the start of the decade retrenched.

“Three regional Federal Reserve banks all reported year-over-year declines in farmland values in their districts and said the drops would continue, though their forecasts were based on surveys taken before the recent rally in corn and soybean prices.”

Ms. Newman explained that, “The St. Louis Fed region that includes parts of the U.S. agricultural heartland in Illinois, Indiana and Missouri reported the steepest decline, with the average price of ‘quality’ farmland falling 6.4% in the quarter, the biggest decline since its survey began in 2012 [see related graph below].

“The Chicago Fed said prices for similar land in its district fell 4% from a year ago, the seventh successive quarterly decline. Adjusted for inflation, prices in an area that includes parts of Illinois, Indiana, Iowa, Michigan and Wisconsin fell 5%, the biggest quarterly drop since 1987.

“Declines in the Kansas City Fed’s district, which includes Kansas and Nebraska, were less pronounced, but the bank said prices for nonirrigated cropland fell 4% in the quarter [see related graph below].”

The Journal article added that, “The drop in land values has been accompanied by deteriorating credit conditions, with more loans taken out to cover farm operations even as repayment rates fell on existing debt.”

Christopher Doering reported in Saturday’s Des Moines Register that, “Iowa was among the hardest hit states. Farmland prices as of April 1 dropped 5 percent compared with a year earlier, bringing the string of year-over-year declines in Iowa’s farmland to 10 quarters. During the first three months of 2016, land prices in Iowa declined 1 percent.

“The decline is forecast to continue. David Oppedahl, senior business economist at the Chicago Fed, said nearly two-thirds of the 200 agricultural bankers surveyed expect values to drop in the second quarter, with the rest predicting them to remain stable.”

Cash Rents

With respect to cash rents (see additional background here and here), the St. Louis Fed noted that, “Table 2 indicates that cash rents for quality farmland and ranchland or pastureland also fell in the first quarter of 2016 compared with a year earlier. After falling by 9.5 percent in the fourth quarter of 2015, cash rents on quality farmland fell by an additional 7.5 percent in the first quarter (relative to a year earlier).”

The Chicago District noted that, “In 2016, the index of inflation-adjusted farmland cash rental rates was down more than the index of inflation- adjusted agricultural land values (see chart 2). Indeed, 2016’s real cash rental rates were 13 percent below their level in 1981, whereas real farmland values were still 38 percent above their 1981 level. Given the decrease in cash rental rates was larger than that in farmland values, the spread between their respective indexes widened for the seventh year in a row. This widening gap reflected relatively stronger demand to own farmland than to lease it, as land values did not fall as much as the earnings potential of farmland (represented by cash rental rates). Greater uncertainty about the profitability of crop production likely held down bids by farmers to rent farmland on a cash basis; there were reports of some farms coming up for lease again this year after initial rental arrangements fell through. Not surprisingly, the declines in crop prices of recent years seemed to lower farmers’ expectations for turning a profit on leased acres in 2016.”

And the Kansas City Fed stated that, “Although most costs associated with agricultural production have held firm, cash rents declined for all farmland types. After remaining positive through most of 2015, ranchland cash rents dropped in the first quarter, declining 10 percent from a year earlier (Chart 9).”

A news release this week from Iowa GOP Senator Chuck Grassley stated that, “[Sen. Grassley] has introduced legislation to ban packer ownership of livestock after seeing continued consolidation within the livestock industry.

“‘An effective and efficient marketplace is one where packers that control all harvest capacity of the industry do not also own a majority of the animals to be processed,’ Grassley said. ‘The fact of the matter is that the market continues to become less competitive. It’s time to see if ending packer ownership of livestock will reverse that trend.’

“Over the last several years, we’ve seen large companies joining forces to create new business giants in every sector of the economy, including agriculture. Tyson has purchased Hillshire Brands and JBS purchased Cargill pork. Smithfield, by far the largest pork producer in the world, was sold to the Chinese. And, in the beef industry, packing plants have closed in West Texas and Denison, Iowa which further concentrated power in that industry.”

Associated Press writer Cathy Bussewitz reported earlier this week that, “On a farm tucked under a lush Hawaii mountainside, Sean Anderson tends passion fruit, kale and salad greens — using only what nature provides.

“He creates his own compost and fertilizers and doesn’t use chemicals. But he’s not certified as an organic farmer because the cost is too high.”

The AP article pointed out that, “That could change after Hawaii became the first state to pass legislation providing tax breaks to farmers to offset the cost of getting certified as organic by the U.S. Department of Agriculture. Gov. David Ige has not yet decided whether he will sign it into law, a spokeswoman said.”

Ms. Bussewitz added that, “A federal program offers organic farmers help covering up to 75 percent of certification costs, for maximum of $750. A bill in the Minnesota Legislature would provide grants of up to $750 to farmers in financial need for organic certification costs. It will be part of negotiations as lawmakers weigh how to spend a budget surplus.

“In Hawaii, the legislation would give farmers up to $50,000 in tax credits for qualifying expenses, which include application fees, inspection costs and equipment or supplies needed to produce organic products. The state would be able to give $2 million in tax breaks per year.

“The cost of getting certified varies widely, ranging from a few hundred to several thousand dollars, according to the USDA. Anderson estimates it would cost him $1,000 to $1,500 per year to get and maintain certification for his 3-acre farm, he said.”