Today, the Federal Reserve Bank of St. Louis released its Agricultural Finance Monitor, which contained a summary of survey data on agricultural credit conditions for the eighth federal reserve district in the fourth quarter of 2015.

The Fed report stated that, “According to the latest survey of agricultural bankers in the Eighth Federal Reserve District, farm income continued to weaken in the fourth quarter of 2015 compared with the same period a year earlier. Proportionately more bankers expect further declines in farm income in the first quarter of 2016 relative to a year earlier. Similar to our previous survey, large majorities of bankers reported that household spending and farm expenditures on capital goods continued to decline in the fourth quarter and will likely continue to do so in the first quarter of 2016. Eighth District land values declined in the fourth quarter from a year earlier.”

More specifically with respect to farmland values, today’s report pointed out that, “Although the fourth-quarter decline (2.5 percent) was about equal to the previous quarter’s decline, it was the third decline in the past four quarters.”

On the issue of cash rents, the Fed stated that, “Cash rents for quality farmland fell by 9.5 percent in the fourth quarter of 2015 compared with a year earlier; this decline was the largest in the relatively short history of the survey. By contrast, cash rents for ranchland or pastureland rose by 8.6 percent in the fourth quarter after increasing by 2.5 percent in the third quarter. Bankers expect that cash rents for both quality farmland and ranchland or pastureland will decline in the first quarter of 2016, as indicated by their index values of 52 and 58, respectively.”

The Fed report also incldued this overview: “Farmland returns are defined as rents less expenses divided by the market value of the land. Although farmland returns are thus dependent on many factors, a little more than three-quarters (77 percent) of bankers reported that they expect returns in 2016 to be positive, but less than 5 percent. Thirteen percent expect returns greater than 5 percent but less than 10 percent, while 10 percent expect farmland returns to be negative in 2016.”

Meanwhile, the Federal Reserve Bank of Kansas City indicated today (“Farm Economy Tightens Further”) that, “Farmland values in the Tenth District dipped again in the fourth quarter. According to respondents of the Tenth District Survey of Agricultural Credit Conditions, values of nonirrigated and irrigated cropland decreased 4 percent and 2 percent, respectively, from a year ago (Chart 1). With the fourth quarter declines, irrigated cropland values have fallen modestly in four consecutive quarters, and the value of nonirrigated cropland generally followed the same trend through 2015.”

The KC Fed report noted that, “Survey respondents expected farmland values to fall further in the coming months.”

And on cash rents, the KC Fed indicated that, “Similar to farmland values, cash rents softened in the fourth quarter.”

On the broader issue of farm income, today’s report explained that, “Bankers expected farm income to remain subdued in the coming months.”

For more detail on the 2016 farm income forecast from USDA, just click here.

Jesse Newman reported today at The Wall Street Journal Online that, “Farmland values dropped across much of the Midwest in the fourth quarter, according to Federal Reserve reports on Thursday, a symptom of continued weakness in the agricultural sector fueled by several years of depressed crop prices.”

Today’s Journal article stated that, “The reports reflect a continuing downturn in the U.S. farm economy, which has been marked by listless crop prices and softer demand for agricultural land after prices for both shot higher for much of the past decade. The yearslong farmland boom was fueled by drought and growing demand for grain from ethanol producers and foreign importers.”

Yesterday, USDA’s Economic Research Service (ERS) updated its 2016 farm income forecast. The ERS farm income data estimates are released three times a year, including February, August, and November.

ERS explained that, “Farm sector profitability is forecast to decline for the third straight year. Net cash farm income is forecast at $90.9 billion, down about 2.5 percent from the 2015 forecast levels. Net farm income is forecast to be $54.8 billion in 2016, down 3 percent. If realized, 2016 net farm income would be the lowest since 2002 (in both real and nominal terms) and a drop of 56 percent from its recent high of $123.3 billion in 2013.”

Yesterday’s update indicated that, “Nearly all major animal specialties—including dairy, meat animals, and poultry/eggs— are forecast to have lower receipts, as are vegetables/melons and feed crops,” and added that, “Direct government farm program payments are projected to rise $3.3 billion (31.4 percent) to $13.9 billion in 2016 in response to the expected price environment.”

Meanwhile, “Farm asset values are forecast to decline by 1.6 percent in 2016, and farm debt is forecast to increase by 2.3 percent.”

ERS also noted that, “Most farm households earn all of their income from off-farm sources—median off-farm income is forecast to increase 4.1 percent to $75,354 in 2016.”

With respect to production expenses, in a broader analysis, ERS stated yesterday that, “In 2016, the drop in expenses [$3.8-billion (1 percent)]is expected to alleviate, but not completely offset, the drop in cash receipts, and ultimately lead to tighter margins.”

More specifically with respect to cash rents, the income report indicated that, “Net rent expense—the amount paid to rent land, adjusted for the landlord’s share of government payments and insurance indemnities and net of any expenses paid by the landlords—is forecast to increase by 2.9 percent to $21 billion in 2016. As in recent years, the majority of net rent expense is forecast to be paid to nonoperator landlords as opposed to landlords who are also operators.”

With respect to the projected 31.4% increase in farm program payments, ERS noted that, “The new Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC) programs, introduced in the 2014 Farm Bill, are expected to account for almost two-thirds of direct payments to farm operations.”

In a separate look at some financial variables, ERS also noted yesterday that, “Farm real estate values have increased rapidly in recent years as high crop prices and low interest rates led to strong demand for farmland and buildings. With a third straight year of lower commodity prices and income forecast in 2016, farm real estate values are expected to decline modestly.”

Wall Street Journal writer Jesse Newman reported yesterday that, “Farm incomes are declining because prices for corn, soybeans and wheat have fallen sharply after three straight years of bumper U.S. crops and rising output elsewhere in the world. Overseas demand for some U.S. crops also has cooled, in part because of the strong dollar.”

Bloomberg writers Alan Bjerga and Jeff Wilson reported yesterday that, “The 2013 boom spurred farmers to boost crop and livestock production, triggering a cycle for surpluses in major agricultural commodities at the same time, David Anderson, a livestock economist at Texas A&M University in College Station, said in a telephone interview. Farmland values have dropped from all-time highs.”

Des Moines Register writer Christopher Doering reported yesterday that, “Still, Agriculture Secretary Tom Vilsack said the drop ‘is an improvement from the double digit declines seen in 2014 and 2015. It reflects a more competitive trade environment, softening projection for global demand and a continuation of the dip in agricultural commodity prices.’”

Meanwhile, the World Agricultural Outlook Board released its monthly World Agricultural Supply and Demand Estimates (WASDE) report yesterday, which stated that, “The projected range for the corn season-average farm price is narrowed 5 cents on both ends to $3.35 to $3.85 per bushel.”

Regarding soybean prices, the WASDE report stated that, “The 2015/16 season-average soybean price range projection is unchanged at $8.05 to $9.55 per bushel.”

In a separate Wall Street Journal article from yesterday, Jesse Newman explained that, “Grain prices fell to multiweek lows Tuesday after federal forecasters raised their outlook for U.S. stockpiles amid sluggish overseas demand.

“Corn futures reached a more-than three-week low, while wheat dropped to the lowest level in more than two months.”

And recall that earlier this month, the Food and Agriculture Organization of the United Nations (FAO) indicated that, “The FAO Food Price Index fell in January, slipping 1.9 percent below its level in the last month of 2015, as prices of all the commodities it tracks fell, sugar in particular.”

The FAO report pointed out that, “The main factors underlying the lingering decline in basic food commodity prices are the generally ample agricultural supply conditions, a slowing global economy, and the strengthening of the US dollar.

“This month, FAO also raised its forecast for worldwide cereal stocks in 2016, as a result of lowering its projected consumption and raising 2015 production prospects.”

With respect to some potential general implications of this outlook for the ag economy, see this update from earlier this month, “Agricultural Outlook: Concerns Persist for Farmers and Ag Lenders in 2016.”

The New York Times published an interesting story on cover crops on the front page of the Business Section in Sunday’s paper (“A Revolution with Deep Roots in the Past.”)

The article explained that cover crops are “fields of noncash crops like hairy vetch and cereal rye that act on soil like a nourishing facial after the harvest.”

Sunday’s article added that, “The practice of seeding fields [with cover crops] between harvests not only keeps topsoil in place, it also adds carbon to the soil and helps the beneficial microbes, fungus, bacteria and worms in it thrive.

“These properties have led philanthropies like the Howard G. Buffett Foundation and the Samuel Roberts Noble Foundation to underwrite research on cover crops, while Monsanto, together with the Walton Family Foundation, recently put up the money to support the Soil Health Partnership, a five-year project of the National Corn Growers Association to identify, test and measure the impact of cover cropping and other practices to improve soil health.”

Although cover cropping practices are currently used by a small number of farmers, the use of cover crops is growing. A 2014 survey regarding cover crop issues noted that, from 2010 to 2013, cover crop acreage among survey respondents increased by 30 percent per year.

The survey also contained this interesting graphic on cover crop acreage.

And, the survey pointed out that yields generally improved when cover crops were used: “For the second year in a row, a national survey of farmers has documented a yield boost from the use of cover crops in corn and soybeans, as well as a wide variety of other benefits.”

Sunday’s New York Times article explained that, “The federal government is mulling ways to persuade farmers to adopt cover cropping. There is a small subsidy system; Rulon Enterprises [a family farm located in Arcadia, Indiana], for instance, gets $40,000 to help offset the cost of cover crops and support other conservation practices.”

In the future, lawmakers may provide increased attention to cover crop issues with public policy proposals that give producers additional incentives to use these crops. Examples could include increased cost share programs to help defer farmers cost for seed, or crop insurance incentives, like premium discounts, for enhanced organic matter in soil.

In fact, the President’s recently proposed budget for Fiscal Year 2017 indicated that, “Crop Insurance and Resiliency. The Budget includes proposals for USDA’s crop insurance program that would incentivize farmers to choose production practices that minimize climate-change impacts, discourage farming on environmentally sensitive lands and highly-erodable soils, and enhance resiliency in the future through soil protection. These include reducing the farmers’ subsidy by 10 percentage points for harvest price revenue coverage and reforming coverage for prevented planting.”

The U.S. Department of Agriculture’s Natural Resources Conservation Service (NRCS) has provided a helpful online tool for Illinois farmers to “assess the economics and focus on new costs and benefits” of cover crops and help them evaluate the use of cover crops on their specific operation. The NRCS tool is available here.

Yesterday, a House Agriculture Subcommittee explored issues associated with the direct marketing of specialty crops; a brief overview of that hearing is available here.

Today, the House Agriculture Subcommittee on Nutrition took a more specific look at federal programs that are aimed at increasing low-income families’ purchasing power for fruits and vegetables.

The topics of these back-to-back hearings illustrate that lawmakers are paying acute attention to the emerging sector of specialty agriculture and that some policy ideas can serve multiple goals simultaneously: The direct marketing of specialty crops, tied with federal incentives to consume them, can serve a dual public interest aim of reducing hunger and improving nutrition for low income households, while adding support to local farmers.

Nutrition Subcommittee Chairwoman Jackie Walorski (D., Ind.) explained at today’s hearing that, “[T]he 2014 Farm Bill established the Food Insecurity Nutrition Incentive , or FINI, a $100 million grant program to fund projects across the country to further test incentive strategies to encourage healthier eating among SNAP [Supplemental Nutrition Assistance Program, i.e. food stamps] recipients.”

More specifically, Dr. Oran B. Hesterman noted today that, “Our experience implementing healthy food incentives has shown that matching SNAP benefits with incentives for locally and regionally grown fruits and vegetables is a cost-effective way to simultaneously reduce hunger, improve dietary health, and stimulate local food economies in a way that can create new job opportunities.”

Incentive programs help low-income families purchase more fruits & vegetables while supporting local farmers and the community.

— House Ag Committee (@HouseAgNews) February 3, 2016

A current SNAP recipient, who uses a portion of her federal benefits at a farmers’ market testified today that, “Knowing that a certain allotment of my monthly benefits can be used at the [farmers’] market and will be matched, definitely affects my shopping habits, especially during the summer months when markets are readily accessible and produce is abundant.”

And as remnants from the Great Recession persist, many households are still using SNAP to supplement their nutritional needs; Bloomberg news reported today that, “About 45.4 million Americans, roughly one-seventh of the population, received nutrition aid last October, the most recent month of data. Unemployment was 5 percent that month.”

Beyond the use of SNAP benefits at farmers’ markets, Subcommittee Chairman Jim McGovern (D., Mass.) pointed out today that, “And we ought to be thinking about how we can expand these incentive programs even more. During our Subcommittee hearing a few weeks ago, we heard about the growing problem of hunger among veterans and military families. Why not create a Veterans Farmers Market Nutrition Program? Veterans could get vouchers at their local VA clinic to purchase fresh fruit and veggies. And why not encourage VA clinics to hold farmers markets at their facilities? These kinds of incentive programs are not only good for consumers but they’re good for the farmers who grow the food.”

As hunger and nutritionally related health issues persist in the U.S., it seems likely that federal programs involving specialty crop consumption will garner increased attention in the next Farm Bill debate.

Today, the U.S. House Agriculture Subcommittee on Biotechnology, Horticulture and Research examined opportunities and challenges faced by farmers who directly market their agricultural products to consumers.

Unlike many farmers who produce widely traded fungible crops like corn and soybeans, specialty crop growers who operate organic farms or focus on the production of agricultural products that are less widely traded in established markets, often sell their products directly to end users. Examples of these direct marketing outlets may include sales at local farmers markets, direct sales to restaurants, or sales to grocery stores.

Subcommittee Chairman Rodney Davis (R., Il.) indicated at today’s hearing that, “Entrepreneurial efforts of individual producers certainly drive success in direct marketing ventures. Nevertheless, as producers seek to develop new marketing channels for their products, it is important for the subcommittee to get their perspective on the opportunities they see, the challenges they encounter, and what programs can help facilitate further development of these alternative marketing channels.”

And Subcommittee ranking member Suzan DelBene (D., Wash.) stated at today’s hearing that, “The consumers I talk to are increasingly interested in a food system where sales occur at the shortest possible distance from field to fork…[T]his trend has opened up new markets for food raised by producers who take pride in not only growing a quality product but also telling a compelling story. Urban and rural residents are learning that they like to have direct connections to farmers and farm life.”

Kurt Tonnemaker, a farmer from Washington state, provided additional perspective at today’s hearing: “At a farmers market, we stand face to face with the person who will eat our fruit. We are personally responsible for that fruit. For farmers markets, the imperativeness of customer satisfaction relegates, to marginal importance, all other concerns in fruit production and marketing.”

Another producer testified to the future concerns that businesses might face when directly marketing their agricultural products: “Many questions remain about how [the Food Safety Modernization Act (FSMA)] will be implemented and the affiliated costs to farmers and state agencies. Mid-sized farms marketing through direct and intermediated channels and those seeking to scale up to do so will likely need to implement new practices and add to existing farm infrastructure. Funding to support training for these farms in FSMA requirements will be essential.”

As demand for specialty and organic crops continues to grow, entrepreneurial opportunities in the agricultural sector will likely increase. Congress may enlarge policy focus on ways to provide assistance, or remove barriers, to producers who seek to develop additional business activity in this sector.

And unlike more traditional grain and soybean production, which is focused in the more rural areas of the Midwest, because of its smaller scale, and the increasing consumer popularity of organic and locally grown farm produce, lawmakers from more urban areas will likely have a keen interest in these issues as well.