During the NC Chamber’s annual Ag Allies Conference earlier this month, Dr. Bart Fischer, co-director and AgriLife Associate Professor for the Agriculture & Food Policy Center at Texas A&M University, spoke about agriculture’s economic outlook and the future of the Farm, Food and National Security Act of 2024, better known as the farm bill.
The Economic Forecast
Over the past 50 years, food prices have remained relatively stable, with spikes here and there that eventually come back in line with wages and the wider economy. Since 2021, however, food prices have skyrocket with little chance for earnings to catch up. In the past four years, food prices have risen 22%, and while public expects them to come back down, prices have merely stabilized at higher levels.
Dr. Fischer emphasized that the four-year comparison is not a political point, but this is the only time this has happened in the last 50 years. “It’s unprecedented,” she said. Prices are now forecasted to increase by 2% each year, on top of the 22% rise in recent years.
Not only has inflation driven prices higher, it’s pushed the Federal Reserve to push interest rates, too, putting pressure on young growers who have never faced that kind of pressure before. For example, if a farmer pays $1 million cotton picker, Fischer cautions that he or she must spread that cost out over quite a few acres in order for it to pay off. If a more extensive operation faces a significant cash flow budget, he says, getting a crop in the ground and having to borrow against that at 8-9% the financial pressures build up. In this way, interest expenses are weighing on the farm economy, which is often reliant on debt financing to bring a crop to harvest.
Today’s are the highest levels of interest expense since 1980. Growers are extremely exposed right now, Fischer notes, and going into a new crop year, even more exposed. Costs are not coming down for growers any more than they are for consumers.
Additionally, Fischer addressed net farm income, which is roughly the entire US farm economy rolled into one number. The net farm income for 2024 is estimated at $140 billion. But this toppling number may not be an accurate indicator of how the average farm is doing.
“If you’ve got a grower that perfectly mirrors the complexion of the US farm economy, then this is how their performance is looking,” said Dr. Fischer. Unfortunately, this number “doesn’t do a whole lot,” he said, because most farms do not “perfectly mirror the US farm economy.” In the chart, below, a light blue line represents the long-run average of net farm income over the last two decades.
The problem lies in the disconnect between these aggregate numbers and the more granular reality. When you talk to most growers, “they don’t feel like they’re above the long-run average,” said Fischer. “Net farm income, I argue, does not give you a clear picture of what’s going on.”
According to Fischer, these figures are partly influenced by cash that was infused into the system. In the aftermath of the pandemic $90 billion was infused into the agriculture sector, leading to the spike we see depicted in the chart in 2023.
A more accurate depiction of the farm economy may be found in the “net cash farm income.” The following chart depicts how the “net cash farm income” has declined from 2023-24 in some major agricultural commodities, the largest being wheat, which has dropped by a whopping 50%.
Additionally, he points out how we have seen how crop prices have dropped 10-20% in recent years. But while crop prices drop, production costs rise. For example, Dr. Fischer says corn prices have fallen 38 percent in the two years, while inputs like fertilizer and labor continue skyward.
“The cost of production is not going down at all,” said Fischer. “…so that squeeze on that margin for growth, so if you wonder why there’s a huge amount of concern that more or less sums it up on the crop side, and it’s pretty uniform across the board, feeling pressure everywhere.”
While inflation has decreased slightly, there is little hope for producers and consumers, both of whom have absorbed significant cost increases. Net farm income is still above average despite a substantial increase in costs. However, Fischer points out that the new farm income forecasts are misleading because they do not reveal significant declines in crop cash receipts or more robust returns in livestock.
Direct assistance to row crop producers is at a 42-year low, the lowest since the farm crisis of the 1980s.
An examination of the livestock side of agriculture (cattle, hogs, etc.) does reveal a slightly brighter future than crop production, Fischer reveals. Heifers are worth a lot of money these days, due to supply and demand factors. for instance, Fischer points out that because of drought conditions, keeping herds robust has become increasingly difficult. The supply constraints mean farmers can sell their heifers for a lot of money if they need to. So, a lack of herd rebuilding due to the drought is keeping prices high, while the consumer demand has not dropped off.
Another problem Fischer discussed is the US agriculture industry faces a trade deficit and has been for the last three years. In 2023, the deficit stood at $17 billion; the estimate for 2024 is $30. 5 billion; and, the projection for 2025 is at $42.5 billion. Dr. Fishcer asserts that these figures may not be as alarming as they might seem at first glance. Why? The numbers reflect a drop in crop prices have collapsed over the last two years, but the volume of exports is up, even though the total financial value is down. For example, corn exports will be 1/3 higher than last year, despite price drops, according to Fischer.
On the other side of the ledger, what are we importing that factors into the deficit equation? A large portion of US imports is made up of beer, wine, and spirits. Of that $30 billion deficit, about $20 billion of it is comprised of alcohol imports. The US also imports a lot of fruits and vegetables; in fact our imported fruits and vegetables represent a greater monetary value than the whole of agricultural exports to Mexico. And the US exports a tremendous amount of products to Mexico, which is our No. 1 export destination for hogs.
The US is also facing growing competition from Brazil in exports, Fischer noted. This includes some of our top exports, such as corn.
The US has long been the top exporter of corn, but there are years where Brazil has eclipsed to reach the No.1 spot. Beef is another competitive area. While the US only exports about 10 percent of the beef produced here, Brazil exports nearly twice that, according to Fischer. China has ramped up its beef imports exponentially, and a lot of that supply is coming from Brazil. Incredibly competitive in agriculture exports, Brazil is eclipsing the US in several exports categories, including soybeans and poultry.
The Farm Bill
Dr. Fischer told attendees of the NC Chamber’s Ag Allies Conference that he believed there was still an opportunity to accomplish something with the farm bill, HR 8467, during the lame-duck session of Congress. A new farm bill could be limited to Title I and crop insurance improvements, he suggested. Crop insurance is a permanent law that operates independently of the farm bill, but there is a proposal in the farm bill to increase the area-wide coverage insurance. According to Fischer, the message from most of the countryside is of the same mind: “Don’t screw up crop insurance.”
Further, the House bill includes a proposal to raise payment limits from $125,000 (from the 2014 farm bill) to $155,000. However, farmers can only tap into this higher limit if more than 75% of their income is from farming and ranching, and the payment limit is indexed to inflation moving forward. Otherwise, they are left with the $125,000 limit.
According to Fischer, the current version of the rule is not indexed to inflation. This is one reason the bill has to be redone every five years — to try to catch up.
Some of the most significant provisions in the 2024 farm bill, Fischer notes, include a doubling of funding for the Market Access Program (MAP) and Foreign Market Development (FMD). The legislation also increases funding for specialty crop block grants and research by $1.5 billion and invests $2.5 billion to address the backlog of maintenance in research facilities at public agriculture universities (such as NC State University or NC A&T).
Without a new farm bill, Fischer warns, there will be considerable pressure to include ad hoc assistance in a year-end supplemental appropriations bill. Another option would be to fund new farm bill improvements and include ad hoc to cover losses for crop year 2024.
Fischer says there is also the possibility of an extension, but there are downsides to extending the current version of the rules, including no disaster assistance for 2023 and 2024 crop losses. The need right now is acute, he lamented, with direct assistance at a 50-year low.
Growers are beginning to plan for the 2025 crop year, but in the face of significant projected losses, the safety net offers little protection.
Finally, the debt ceiling will expire in 2025, and the new Congress will have to decide whether to kick the can down the road or engage in the tougher budget debates fiscal responsibility requires.
The Agriculture and Food Policy Center at Texas A&M University ran the House and Senate bills through their policy analysis . The center has 64 crop farms (virtual) in 30 different states, two of which are in North Carolina. These farms are the basis on which the center provides policy analysis for Congress. In their analysis, the two North Carolina farms, receive 90% more assistance under the House version of the Farm Bill.