Category: Policy

Recent articles in Southern Ag Today have detailed the financial stress that Southern crop producers are having to endure, although the problems are not unique to the South.  In economics, we talk about the “cost price squeeze” that is created by declining commodity prices and high input costs.  Our work at the Agricultural and Food Policy Center (AFPC) at Texas A&M University – with roughly 575 individual producers from across the country that work with us on 90-plus crop, livestock, and dairy representative farms – has given us a good feel for the relative costs of production and profitability across the country.  Those 575 producers are some of the very best from all regions and commodity types.  They also know that working with us provides them a voice in the policy world they would not otherwise have.  Because of this, I often get calls and emails letting me know when pressure is mounting.  In the last three months, there has been a steady stream of calls and emails saying that this is the worst year they have ever had and getting financing for next year has been incredibly difficult.

I have heard from some that if it wasn’t for their lender including an estimated payment from the FARM Act, they would not have been refinanced…which is troublesome to say the least.  Why?  Neither the FARM Act nor any other disaster/economic aid has been moved forward by Congress.  Others have commented that they are having to sell land to pay off carryover debt to get their 2025 financing.  All are saying that without pledging their land as collateral, operating loans for next year would not be happening.  Some might say this is business as usual but consider this: the 2025 crop year is projected to be worse than 2024 by the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri, USDA, and our own recent projections for our representative farms. 

Without getting into doomsday scenarios, I just ask the reader to consider the question that I keep getting asked: why should we continue to risk our financial health and continue to see our net worth evaporate when Congress can’t get their act together enough to pass much needed disaster/economic assistance that will help in the short-term or a new farm bill for the longer term?  My answer to that question is one of hope more than fact, but I am very hopeful that Congress will act decisively and soon.

I’m writing this somewhere over the Atlantic Ocean as I travel home from England.  I was there for the last several days at the invitation of the British Embassy in Washington, D.C., along with several U.S. agricultural officials, including Congressional staff and a handful of state secretaries, directors, and commissioners. The purpose was to learn about the agricultural industry in one of the most beautiful and storied countries on the planet, but it also provided a good opportunity to compare with current events unfolding at home. Not surprisingly, farmers and ranchers in both countries face a lot of the same challenges: enduring erratic weather; striking the right balance between conserving resources and growing food; and navigating unpredictable politics, just to name a few.

With respect to the latter, both countries have recently gone through elections. This past summer in the general election in the U.K., the opposition Labour Party led by Keir Starmer – now Prime Minister – defeated the governing Conservative Party. The new government recently introduced a new inheritance tax proposal. While there are far more details (and nuance) than I have space to discuss today, the proposed changes will impose an inheritance tax of 20% on business and agricultural assets beyond £1 million (roughly $1.26 million at today’s exchange rates) beginning in April 2026. Much like in the United States, growth in land values and equipment costs have resulted in a situation where farms have significant net worth – at least on paper – but little liquidity.  In other words, producers have little ability to pay huge tax burdens when an operation is passed along to an heir. Proponents of the proposal will argue that any transfers to individuals more than seven years before death will continue to fall outside the scope of the new inheritance tax. However, producers will counter that death doesn’t respect the timeframes set by the government, and they will argue that the proposal stands to destroy the heritage their families have built – to say nothing of the eventual impact on food security. On Tuesday of this week, British farmers and ranchers descended on London to protest the new government’s proposal.

While England is a long way from the United States, it’s not all that different from here. Throughout our own election season this Fall – and as part of the debate about how to pay for the now-defunct Build Back Better Act – a number of proposals were discussed to significantly change the taxation of unrealized capital gains and estate taxes in the United States. In June 2021, at the request of Rep. GT Thompson (R-PA) and Sen. John Boozman (R-AR), our team at the Agricultural and Food Policy Center (AFPC) authored a report that estimated the impact of two of these proposals, the Sensible Taxation and Equity Promotion Act and the For the 99.5 Percent Act. At the time, our analysis showed that a generational transfer under the two bills would impact 92 of AFPC’s 94 representative farms (increasing the average tax liability by $726,000 per farm) and 41 of 94 representative farms (increasing the average tax liability of $2.2 million per farm), respectively.

While our election results this Fall very likely mean that agricultural producers in the United States won’t face a near-term change in the treatment of unrealized capital gains and estate taxes, the events unfolding “across the pond” are a very clear reminder that elections have consequences…and that policies (well-intentioned or not) often have unintended consequences.

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Fischer, Bart L. “What a Difference an Election Can Make.” Southern Ag Today 4(47.4). November 21, 2024. Permalink

Tuesday’s election will bring a significant change to the leadership in Washington D.C., with Republicans taking over leadership of the Senate and former President Trump being re-elected President.  As of late Wednesday evening, it appears Republicans will remain in control of the House of Representatives, albeit with a very small majority.  Leadership elections over the next couple of months will determine if Chairman Thompson (PA) and Ranking Member Scott (GA) will continue to lead the House Committee on Agriculture.  Of the 29 Republican members currently on the committee, only 10 were around to vote on the 2018 Farm Bill (green represents they voted for the 2018 Farm Bill).  Eight of 25 Democrat members were around to vote on the 2018 Farm Bill.  So, only 18 of 54 members of the committee were around to experience the process and vote for the last farm bill.  Most of the current Republican and Democrat members were re-elected on Tuesday with the exceptions of Republican Marc Molinaro (NY) and Democrats Abigail Spanberger (VA) and Elissa Slotkin (MI) who both left to seek other offices. 

There is more experience on the Senate Committee on Agriculture, Nutrition and Forestry as 8 of 12 Democrats and 8 of 11 Republicans were around to work on the 2018 Farm Bill, although Senator Grassley (IA) voted against the bill (indicated in red).  After Tuesday’s election, it is presumed that Senator Boozman (AR) will become Chairman, and the Democrats will select a new ranking member as Chairwoman Stabenow is set to retire at the end of the year. In terms of departures, Senator Braun (IN) is leaving to become the Governor of Indiana, and Senator Brown (OH) was defeated.

What does this mean going forward for the next farm bill?  While the House and Senate differ in terms of experience, there should be plenty of motivated and experienced leaders in both the House and Senate to push the farm bill through whether it be before the end of the year or shortly into next year.  After all, the need for a better safety net is currently being felt across the entire country. 

House Ag Committee

Senate Ag Committee

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Outlaw, Joe, and Bart L. Fischer. “Election Impacts on Current Ag Committee Members.” Southern Ag Today 4(45.4). November 7, 2024. Permalink

As we have noted over the past few months (see here and here), there is growing pressure to complete a farm bill in advance of the 2025 crop year and to provide economic assistance for 2024 losses given the low levels of support being provided by the current farm bill extension.  Hurricanes Helene and Milton have also resulted in renewed calls for natural disaster assistance for the 2023 and 2024 crop years.

While work continues behind the scenes on the farm bill – with no clear indication of the path forward – economic assistance for 2024 losses is starting to take shape. Most of the chatter concerns the significant collapse in commodity prices over the past two years coupled with costs of production that have continued to remain high. That cost-price squeeze has resulted in the largest 2-year decline in crop cash receipts in history (here).

Rep. Trent Kelly (R-MS) has introduced the Farmer Assistance and Revenue Mitigation Act of 2024 (The FARM Act) which would provide emergency assistance to producers of eligible commodities for which the expected revenue in crop year 2024 is below the projected per-acre cost of production.  Acres planted or prevented from being planted in 2024 to the following crops would be eligible for assistance: barley, corn, cotton, dry peas, grain sorghum, lentils, large chickpeas, oats, peanuts, rice, small chickpeas, soybeans, other oilseeds, and wheat. FARM Act payments are calculated as follows:

FARM Act Payment = (Projected Cost – Projected Returns) x Eligible Acres x 60% where:

• Projected Cost is the per-acre cost published by USDA’s Economic Research Service for corn, soybeans, wheat, cotton, rice, sorghum, oats, and barley and otherwise as determined by the Secretary in a similar manner.

• Projected Returns for corn, soybeans, wheat, cotton, rice, sorghum, oats, and barley are determined by multiplying the projected 2024 marketing year average price published in the WASDE by the 10-year national average yield for the eligible commodity and otherwise as determined by the Secretary.

• Eligible Acres consist of 100% of the acres planted to an eligible commodity plus 50% of the acres prevented from being planted to an eligible commodity in crop year 2024, as reported to FSA by the producer.

Existing provisions relative to attribution of payments, actively engaged in farming, and other regulations apply. With respect to payment limitations, persons or entities that derive less than 75% of their income from farming, ranching, or forestry are subject to an overall limitation of $175,000. Persons or entities that derive 75% or more of their income from farming, ranching, or forestry are subject to an overall limitation of $350,000 in assistance.

Table 1 provides an estimate of the per-acre payments under the FARM Act. In this analysis, we use estimates from the October 2024 WASDE for the marketing year average price along with harvested acre yields from NASS. Most importantly, these are merely estimates and are subject to change.  For example, Congress may choose to reduce the payment factor, or they may choose to go a different direction altogether. Regardless, proposals are starting to take shape, and the levels of support being discussed would provide a meaningful amount of assistance to help offset losses in 2024.

Table 1. Estimated Per-Acre Payments for Select Commodities under the FARM Act.

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Fischer, Bart L., and Joe Outlaw. “Economic Assistance for the 2024 Crop Year Starting to Take Shape.” Southern Ag Today 4(43.4). October 24, 2024. Permalink

One of the most misused and abused numbers in the agricultural policy world is the Net Farm Income (NFI) projection developed by the USDA Economic Research Service.   As described in the news release from USDA announcing the latest (September 5^th) farm income projections, “Net farm income, a broad measure of profits, is forecast at $140.0 billion in calendar year 2024, a decrease of $6.5 billion (4.4 percent) relative to 2023 in nominal (not adjusted for inflation) dollars.”  Figure 1 contains the past 21 years of inflation adjusted net farm income data from the most recent release.  

There is nothing wrong with the net farm income number… it just doesn’t mean what people think it means. Why?  It is widely used in Washington D.C. as a measure of how well farmers and ranchers are doing which indicates whether or not the safety net needs strengthening in cases where NFI is declining – like now.  How does it relate to how well a farmer anywhere in the U.S. is actually doing?   It really doesn’t since it is an estimate of the farm income of all types of agricultural operations in the United States.  To be meaningful to a farmer, the farmer would have to raise all the commodities included, which would be very unlikely.

Figure 2 presents the change in inflation adjusted net cash farm income (NCFI) for the commodity categories provided by USDA.^[1]  Notice while inflation-adjusted NFI in Figure 1 only fell by $10 billion dollars ($150 billion to $140 billion), or 6.7%, from 2023 to 2024, there were significant NCFI declines for crop operations while livestock operations saw increases.

This means that the significant losses in crop agriculture are being masked by the recent boom in profitability of livestock operations.  Don’t tell wheat farmers they should feel good that U.S. NFI at $140 billion is above the 21-year average (red line in Figure 1) in 2024 when wheat operations are forecast to have a 50-percent decline in their NCFI.  That would be a complete misuse of the data.

Figure 1.  U.S. Inflation Adjusted Net Farm Income, 2023 to 2024.

Figure 2.  Percent Change in Inflation Adjusted Net Cash Farm Income by Commodity, 2023 to 2024.

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^[1] NCFI is calculated as gross cash income minus cash expenses. NFI is a broader measure of farm sector profitability that incorporates noncash items including changes in inventories, economic depreciation, and gross imputed rental income.

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Outlaw, Joe, Bart L. Fischer, and Natalie Graff. “USDA Farm Income Projections… Misused and Abused.” Southern Ag Today 4(41.4). October 10, 2024. Permalink