January 27, 2017
Joe Outlaw expects cotton to be a covered commodity in the next farm program. “We have to do something about cotton,” the Texas A&M AgriLife Extension economist at College Station said at the recent Red River Crops Conference at Childress, Texas.
The insurance option created in the Agriculture Act of 2014 — the Stacked Income Protection Plan (STAX) — has not been an effective safety net, he says. “STAX would work pretty well with cotton prices at 75 cents to 80 cents, but not at current prices.”
Cottonseed will be included as a Title 1 covered commodity, he says. He expects some blowback from the World Trade Organization with cottonseed covered, but says the WTO agreement to settle the Brazil dispute indicated the U.S. would not support lint.
Putting cotton back into the commodity title will reduce payments for peanuts, as generic acreage will go back into cotton base. “Peanuts will get a sizeable payment from the farm program,” Outlaw says. “The price has dropped significantly.”
He expects debate on the next farm bill to begin soon, with some indication that preliminary talks will begin in 2017. “Now is not too early to start talking about a 2018 farm bill. We started the last one in 2010, and if we start now we will be lucky to get a bill done in 2018 — and we need to do that.”
MORE UNITY NEEDED
Outlaw says he hopes ag organizations present a more unified front in the next farm bill debate than they did for the last one.
“We saw a lot of squabbling, and no widespread coalition of farm interests. Our current environment is not good. Farm level economics are bad, and no one saw that coming when they debated the 2014 farm bill. Nobody knows what’s going to happen now.”
The thinking during the last farm bill debate, he says, was that prices were strong and would stay that way. “Some wondered if we even needed a safety net. But we know that agriculture is cyclical. Now, we ask what will price improvement come from — competitors, drought?”
Recalling that corn prices at the time of the last farm bill were running from $4.50 to $5, a range that was expected to last for the life of the farm bill, Outlaw says projections now show prices holding at around $3.50 for several years out. “That’s below the cost of production, and the only way farmers can come out ahead is by making big crops. They can’t depend on that every year, even though West Texas cotton farmers did it in 2016.”
Farm crop income dropped by $20 billion in 2014 and 2015, he notes, and the farm program safety net made up only $10 billion of those losses in payments to farmers. “Farmers can’t make up those losses, but some legislators in Washington only want to cut spending.”
PAYMENTS GOING AWAY
With the 2014 farm program at its midway point, Outlaw notes that the Agricultural Risk Coverage (ARC) program offered participants payments early. “I hope they held onto [the payments], because ARC payments are going away. Some ARC participants are asking Congress to pass a farm bill early to help them out, but they knew the potential for losses at the outset.”
If farmers had used the decision tool to select a safety net program, he says, they would have determined that the Price Loss Coverage (PLC) program was better for wheat.
He’s also concerned about budgets. The 2002 farm bill had about $142 billion to work with. In 2016, that number has shrunk to one-third of that. The 2014 program has worked reasonably well, he says, “considering the money available. Programs helped farmers when prices were low, but those payments made no one whole. It’s not perfect, but overall, I’d give the Agriculture Act of 2014 a solid B.”
The program was not strong enough to keep every farm solvent, Outlaw says. “We’ve lost a lot of farmers recently. Some bankers will not approve operating loans this year because they want their clients to have some equity left to live on for the rest of their lives.” In the next farm bill, he says, “We won’t have enough money to keep every farmer in business.”
Planted acres versus base acres may be an issue in the coming debate, he notes, but he expects base acre payments to remain in place. A planted acre program would eliminate some questionable practices. “I travel all over the country, and I see some people not breaking the law, but taking advantages of loopholes.”
Nutrition programs will remain in the farm bill, he says. “It’s hard to get 218 House members to vote for a farm bill without the nutrition program, which gets a lot of money, but does not take any money away from agriculture commodity programs.”
The farm bill is an easy target for budget cutters, he says, because farmers make up a small portion of the electorate. “The farm bill represents one-fourth of 1 percent of the $3 trillion U.S. government budget.” Yet, it remains a favorite target of budget cutters.
He says he is “trying to be optimistic about the new administration. We do see some red flags about trade, especially with regard to China. I’m also trying to be optimistic that we will negotiate better trade agreements and that we will sell more agricultural products. Agriculture is important to U.S. trade — it’s the only segment that has shown a positive trade balance. I hope President Trump makes NAFTA better for agriculture.”
VITAL FOR AG ECONOMY
Figures show how vital exports are to the agricultural economy, Outlaw says. Commodity export percentages are: wheat, 49 percent; corn, 15 percent; grain sorghum, 52 percent; soybeans, 50 percent, rice, 52 percent; and cotton, 73 percent.
“That’s what we need to export just to get the estimated crummy prices available. Exports are important. If something happens to exports, those prices will go even lower. I will stay positive for as long as I can stay, but trade is crucial for agriculture.”
Farmers need to understand farm program policy, Outlaw says, because it helps them manage risk. “When things go bad, the safety net helps farmers stay in business.”
While farmers can do nothing about prices and commodity payments, he says, they can manage risks. “Crop insurance decisions are critical.” The Texas A&M Agriculture and Food Policy Center has a decision aid tool to help. It’s available at https://decisionaid.afpc.tamu.edu/
Even with a transition of power and new secretaries, under secretaries, and administrators in charge of key agencies and departments, much will remain the same, Outlaw says. “Career people are still there — the ones who do the work.”
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