Despite weather disasters, trade wars, and a commodity market under pressure, American net farm income is forecast to reach a five-year high in 2019. What gives?
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Despite weather disasters, trade wars, and a commodity market under pressure, American net farm income is forecast to reach a five-year high in 2019. What gives?
November 13, 2019
From his 1,800 acres near Plain City in central Ohio, Fred Yoder, a fourth-generation farmer growing corn, soybeans, and wheat, calls the 2019 season a “very tough one.”
It was early morning and Yoder, a farmer for more than 40 years who also operates an agricultural consulting company and a retail seed and equipment operation, was about to spend a hectic day with his son pulling the last crops from the fields and officially putting the 2019 growing season to bed.
Due to the heavy spring rains, Yoder says that his corn and soybeans weren’t planted until June—weeks behind schedule. In Ohio, 1.5 million of the state’s 9.9 million acres went unplanted this year due to record rainfall and flooded fields. Combine these problems with the White House’s ongoing trade war with China and turbulent commodity markets, and it’s hardly a surprise that many American farm operations are simply struggling to stay afloat.
According to the American Farm Bureau Federation, land values and cash rents are falling in agriculture-dependent states like Iowa, Illinois, and Indiana. Farm debt is up and in 2019 is forecast to reach $416 billion. Some farmers are looking to high-interest loans outside traditional banks to stay on the land, and farm bankruptcies have hit the highest rates since 2011. An unprecedented 20 million acres went unplanted this spring due to storms and flooding.
Despite all this turmoil, the U.S. Department of Agriculture’s Economic Research Service (ERS) forecasts that for the third consecutive year, American net farm income will rise in 2019 to $88 billion. If the agency’s forecast is accurate, this will be the highest net farm income rate in five years.
How did American agriculture, one of the most productive farming systems in the world, end up in an economic conundrum where fields are left unplanted, yet, on paper, farms appear to be prospering?
“We have these cycles in agriculture,” says Matt Russell, a fifth-generation farmer who grows produce and grass-finished beef on Coyote Run Farm, a 110-acre operation near Lacona, Iowa. Russell references the recent economic boom in U.S. farming—2013 saw a net farm income rate of $124 billion—while calling current downward trends a “normal economic correction” in the sector.
[newsmatch_box]However, Russell says, what is unusual is the impact of current Trump administration trade policy on the farm economy, which he believes is distorting natural outcomes.
According to Carrie Litkowski, a senior economist and the farm income team leader for ERS (an agency in the midst of its own crisis), the increase in net income in 2019 isn’t due to the sale of agricultural commodities like crops and livestock, it is “coming from direct government payments to farmers and from expected higher insurance payments—indemnities—to farmers.”
In its most recent forecast published in late August (the third and final forecast of the year is anticipated for release at the end of this month), ERS expects that $19.5 billion of the $88 billion net farm income total will comprise of direct government payments to farmers. The agency notes that these transactions “include Federal farm program payments paid directly to farmers and ranchers but exclude USDA loans and insurance indemnity payments made by the Federal Crop Insurance Corporation (FCIC).” This figure is a 42.5 percent increase over the amount paid in this type of support in 2018.
Litkowski attributes most of the direct payment increase to the Market Facilitation Program (MFP), a safety net administered by USDA’s Farm Service Agency, which compensates farmers and ranchers caught in the ongoing U.S.-China trade war. Over a two-year period, the Trump administration has promised $28 billion to American farmers and ranchers in trade bailout funding.
Litkowski says that from 2007 to 2018, direct government payments to farmers averaged around $13 to $14 billion per year. She calls the 2019 payouts, “way above what we’ve seen over the previous 10 years.” And, according to the Washington Post, a third round of payments for farmers impacted by the trade war is increasing “seen as inevitable.”
From his farm in Iowa, Russell says this action is unprecedented. “Using their authority to push money into the countryside in ways that has political implications is not new for presidential administrations,” says Russell, who served on Iowa’s Farm Service Agency State Committee for eight years. “The money is flowing, impacted by short-term political strategy rather than long-term economic stability.”
Based on data reported by the American Farm Bureau Federation (AFBF), insurance payouts for crops and livestock are forecast to account for $10.5 billion of the $88 billion 2019 net farm income forecast. “If realized, crop insurance indemnities in 2019 would be the highest since the drought-impacted years of 2012 and 2013, and the third highest over the last decade,” John Newton, AFBF’ chief economist, wrote in a briefing on the topic.
In addition to incentivizing farming practices that generally fail to address climate change adaptation, crop insurance programs are increasingly used to prop up the largest players in the American farm industry.
Although farmers help to pay the cost, more than 60 percent of insurance premiums in the industry are subsidized. The majority of these indemnities are paid to corn, soybean, and wheat growers. Based on the Environmental Working Group’s Farm Subsidy Database, in 2018, all farm subsidies, including subsidized crop insurance, went to just 31 percent of U.S. growers. And over 80 percent of those premiums are paid to the largest 20 percent of farms in the industry.
In other words, there are sizable gaps left in the system.
[pico_box]USDA’s Litkowski acknowledges that the increased net farm income in 2019 may only look like good news on paper compared to headlines painting the picture of a tumultuous American farm sector. “Certainly, there are farmers out there who are struggling and going out of business,” she says. “But a lot of that struggling is happening with farmers at the margins. A lot of agriculture in the U.S. is big: Large-scale farms that produce a lot of output. These large operations are benefitting to some extent from government payments and they may not be struggling as much from market changes.”
Indeed, Agriculture Secretary Sonny Perdue appears to be less concerned with farmers on the margins than others who have proceeded him—or at least likely to mince words about it. At this year’s World Dairy Expo in Madison, Wisconsin, Perdue turned heads with the comment: “In America, the big get bigger and the small go out,” about an increasingly industrialized American farming sector.
On trade support, Matt Perdue, the government relations director at the National Farmers Union (NFU), and no relation to the ag secretary, acknowledges the importance of supporting farmers in tough trade years, but also says the MFP payouts are not ideal for the long term. “I think all farmers prefer to get their revenue from the marketplace,” he says.
Perdue expressed concern that MFP was “a package developed behind closed doors with little predictability or clarity moving forward.” He called the program particularly challenging as it offers inconsistent relief, leaving farmers unable to predict what to expect from year to year.
Not only are larger operations most likely to benefit from 2019’s farm economics, but this year they are eligible for even more support. In 2018, MFP payments were capped at $125,000–however, the Environmental Working Group and New Food Economy reported that many farms received well above this limit due to policy provisions that multiple owner-operators could file for support. In 2019, the limit is set at $250,000 based on crop or livestock category with a cap of $500,000 in total per person or legal entity.
NFU’s Perdue says that this “significant increase” is a disappointment for the organization and the farmers it represents. He says that MFP’s 2019 structure allows large farms to benefit most due to the finite amount of money available for payout to the whole sector. “When you give more to the large farms, there’s less to go around, particularly for smaller producers,” he says.
Back in Ohio, Yoder, a vocal advocate for climate-smart agricultural adaptation, has seen directly the impact of climate change on his Midwestern fields. He questions the long-term sustainability of programs like MFP while also noting his gratitude for the safety net in the same breath.
These days, Yoder spends much of his time advocating for agriculture as a climate change adaptation strategy through his work with the North America Climate Smart Agriculture Alliance. He has also testified before Congress and at the United Nations Climate Change Conference on the subject.
Yoder calls his efforts to raise awareness as a commodity farmer “sometimes awkward” due to the Trump administration’s views on the topic. As Politico reported, the administration allocates less than 1 percent of USDA’s $144 billion annual budget to climate change adaptation support for the American farm community.
“Let’s quit arguing about [climate change] and work on adapting,” says Yoder. “We can’t keep farming the way we’ve been the last 40 to 50 years; we have to change. Farmers realize that.”
Yoder acknowledges the small steps being made in programs like MFP, which includes an incentive for cover crops. However, he notes, the financial support is relatively meager at $15 per acre. “It still encouraged some folks to plant something,” he says optimistically.
From Iowa, Russell zeroes in on the intricate, mutually dependent relationship between American citizens and farmers where billions of dollars in tax revenue are tied to the production of abundant, safe, and affordable food. “They are partnered,” he says about the entities. “It’s who we are as a country.” As a result, Russell says there is a “huge responsibility to be incredibly efficient and honest” in this pairing.
He questions how current politicized policy creates long-term solutions since, he says, much of it doesn’t address the enormous structural issues facing the sector. “If we were to invest $28 billion in farmers to help figure out how to solve the climate crisis, we could move the needle in such a big way,” Russell says.
Gabe Brown, the author of Dirt to Soil: One Family’s Journey into Regenerative Agriculture, and a widely respected voice on sustainable farming, operates Brown’s Ranch near Bismarck, North Dakota. He says that when his farm finally decided to take the leap to escape federal farm subsidies, they were able to not only excel but grow.
“I thought that we should have a business that can survive on its own without subsidies and, if it can’t, then I shouldn’t be in business,” Brown says. “So, that’s the path we’ve been on for a while.”
On 5,000 acres of land, the Browns have farmed with a focus on soil health and ecosystem function since the 1990s in what Brown calls “farming and ranching in nature’s image.” In addition to cultivating cash crops, the family raises pastured livestock and poultry as well as some produce and honey. Brown says that all his products are mainly sold directly to local consumers.
In his book, an excerpt of which was published on Civil Eats last year, Brown writes about the federal crop insurance program noting that, “As with most government programs, good intentions often lead to disappointing results. A program that was intended to minimize risk has become a monster that now dictates most of the cropping decisions made in the United States today.”
Brown says that despite the tumultuous 2019 season, his farm will weather the storm successfully without relying on the federal government. “We set our own prices, which allows us to be price makers rather than price takers. We have become resilient to these swings in the market.”
He acknowledges, however, that this switch didn’t come overnight. It’s a hard leap for many taking into consideration other structures in the system, for example most farm loans require enrollment in crop insurance.
Brown says his success resides in his family’s tireless commitment to identify markets in which they could prosper. He gives the example of pastured pork: “In the commoditized, industrialized model, the average profit per hog is less than $20. Last year, our average profit per hog was $598.” He notes that he’s been able to cultivate a customer base willing to pay more for the overall higher quality—taste, health, and environmental impact—of his product.
Brown also serves as an educator with the Soil Health Academy, a nonprofit training program that educates farmers on regenerative agriculture practices. He claims that the group has consulted with farmers with a combined reach of 15 million acres.
“These farmers and ranchers want to move out of the hamster wheel they’re in,” Brown says about the growers attending the trainings and their reliance on programs like MFP. “They want to be self-sufficient and farm and ranch without government subsidies.”
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It's rather sickening to listen to a president strongly criticize healthcare subsidies, Social Security and Medicare for the individual American citizen yet pay out huge sums to already wealthy corporations that don't need the money. THAT is out of touch with the taxpayer, dishonest and blatantly crooked. https://www.forbes.com/sites/adamandrzejewski/2018/08/14/mapping-the-u-s-farm-subsidy-1-million-club/#3821af543efc https://usafacts.org/articles/federal-farm-subsidies-what-data-says/ https://www.downsizinggovernment.org/agriculture/subsidies https://civileats.com/2019/11/13/government-bailouts-are-the-only-thing-bringing-farm-incomes-up/