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There are a number of other things that we need to continue to do, and I mentioned taxes and some of those other things that we are looking at, as well as potentially some other things.
I think it is important that the committee be willing to look at a variety of different things. I don't know how much of those realistically can be implemented. I don't know how many, budget-wise, can be implemented. We need to look at things creatively. How can we finance them? I don't know that status quo is totally locked in.
Also, Mr. Northey, you were talking—and it has been mentioned several times—you said you were the first group that got on board with Freedom to Farm, and I was probably on the last train that got on. And it is like going to a family reunion where you have to kiss that ugly cousin. You can kiss her but you don't have to hug her, and that is sort of what happened. But you are right in terms of the fact that a lot of the discussion during consideration of Freedom to Farm was regulations. It was tax reform. It was a lot of others things that were also going to be a part of agriculture change, as well as and, Mr. Kleckner, you mentioned regulations as being one of the main concerns that the Farm Bureau has.
Some effort certainly has been made, but we have not seen those, for a variety of reasons, totally implemented, but they are important. And I think it is critical that we continue to talk about the fact that those issues were discussed.
Mr. Minge is right, they were not a part of the farm bill, but they were issues that were discussed because they have impacts. And a lot of the things that impact agriculture today don't even come under the jurisdiction of this committee, and that is a lot of the regulations that are out there, and obviously tax issues and those kinds of thing.
So I think it is important that we look at this as a package, and what can we do in a whole variety of different ways to recognize and see where the problems in farming are today and what we can do to solve them.
I would again say thank you very much for coming and your patience and your understanding of why the hearing was delayed from the earlier set time. I feel quite certain we will be having further conversations about this subject in a ready manner, and I appreciate the willingness of everyone wanting to continue on with this fight because we can be assured that the people on the other sides of the issues are never hesitant to let their feelings be known, and we want to balance that with pro-agricultural arguments as well. Thank you very much.
(Whereupon, at 8:20 p.m., the committee was adjourned, subject to the call of the Chair.
[Material submitted for inclusion in the record follows:)
STATEMENT OF HON. DAN GLICKMAN Mr. Chairman and members of the committee, after 2 years of robust strength, critical sectors of the farm economy are undergoing the most severe stress of the decade. The unprecedented strength of the general economy—the prosperity of the big cities, merger mania, and Wall Street-has passed by our farms and the rural Main Streets of many, many parts of our country. There are two fundamental causes for this weakness: first, slumping market conditions, and second, natural disasters.
Having just returned from Oklahoma and Texas, and before that, South Carolina, Florida, and North Dakota, I can report to you that farmers and ranchers will suffer hundreds of millions of dollars in losses this year from natural disasters. That total climbs every day the adverse weather conditions continue. Many of the farmers and ranchers you will visit when you return to your districts next week may not be in business next year because of the weather-related losses they are suffering.
The ones who are able to stay in business, as well as those fortunate enough not to have been hit by natural disaster, face another threat, sapping their finances and undermining their long term viability. After sprinting for two years, setting records by almost every measure-price, exports, and income-today, farm markets are limping. Wheat is off 25 percent from a year ago, as are soybeans, the price of corn is down almost 15 percent, and the turn around the Department of Agriculture has been projecting for beef has itself turned around and prices are now running well below the average for the decade. Overall, USDA's most recent estimate shows net farm income plunging $7.5 billion this year.
I cannot make it rain, but with the help of Congress, I can do more to help the farmers and ranchers fighting the drought and disasters of 1998 stay on the land. I cannot turn the clock back and return to the commodities markets of the last 2 years, but with the help of Congress, I can do more to strengthen the farm safety net and help farmers weather the cruel downturn in the farm sector.
Let me emphasize that point: I need help from Congress.
The disaster reserve we have used over the last couple of years to aid ranchers is depleted; without more funds that only Congress can provide, livestock producers will be totally on their own.
I will be the first to acknowledge that we have work to do to strengthen crop insurance, we have twisted and stretched that program as far as we can; without supplemental benefits only Congress can authorize to address this year's problems and the accumulation of several year's worth of disaster whose effects are hemorrhaging parts of the country, conditions over which farmers have no control will force them into bankruptcy.
USDA has been tirelessly promoting exports, opening markets our General Sales Manager is in Asia as we speak scouting new opportunities, for example but trade alone,
especially in today's market environment, is not a complete farm safety net; without actions only Congress can authorize, the fates and fortunes of our farmers will ride, by themselves, on what could be an extremely turbulent sea of commodity markets for the next year or two, or longer.
This afternoon, I will give you a thumbnail sketch of the state of the farm economy and the actions the administration proposes to take. Before going into that in more detail, because I know this is a subject of immediate concern to you and your farmers and ranchers, I want to tell you our plans for responding to the ConradDorgan amendment to the fiscal year 1999 Agricultural Appropriations Bill, which the President and I strongly support.
During its consideration, Senators called on the Department to provide a comprehensive picture of the extent of the losses in the farm economy; indeed, the amendment itself requires that information. USDA's World Agricultural Outlook Board and National Agricultural Statistics Service releases the next World Agricultural Supply and Demand Estimates and Crop Production reports on August 12— two weeks from today. Those reports will contain not only the most current, but also the best assessment we will have produced this year on the prospects for this year's crops
crop production estimates will be based on actual, in the field survey data. To meet the requirements of the Conrad-Dorgan amendment, USDA intends to base its estimate of losses on that report.
Using that assessment, USDA intends to develop a proposal for consideration of the Congress building on the proposals I previously outlined in my letter of July 16, 1998 to Senator Conrad. That letter proposed a supplemental crop insurance benefits program, a program to compensate farmers and ranchers for the loss of productive farm and pasture land from standing, water, and a program of emergency livestock assistance. USDA will revise its estimate of the costs of those proposals from the August 12 report. In light of my recent trip to Texas and Oklahoma, USDA currently is reassessing the emergency needs in these States and throughout the country. We will be presenting to Congress the needs, financial and program, resulting from our reevaluation of the emergency situation.
Let me repeat: The President and I strongly support a legislative proposal to address the disasters afflicting the farm economy. We are ready to work with Congress to make sure it is enacted and we respond to those conditions.
A FIRST HAND LOOK Over the past several weeks, I have traveled to North Dakota, Wisconsin, South Carolina, Florida, Oklahoma and Texas. What I have seen has caused me deep concern, a concern strongly shared by President Clinton. Consecutive years of adverse weather, wop disease and insect outbreaks and now low prices have driven many Northern Plains producers to the brink of financial collapse.
In North Dakota, net farm income fell 92 percent in 1997 compared with 1996, the largest decline of any State. A further decline is expected this year in North Dakota and other Northern Plains States. My trip there raised serious questions about the adequacy of the farm safety net. The current crop insurance program does not appear to provide sufficient protection at an affordable rate to prevent many farm failures in particular circumstances. The combination of weather and low prices is bringing many producers to USDA's door for credit. But limitations on how much we can lend and who we can lend to will result in many being turned away.
My trips to the Southern Plains and the Southeast showed the devastating effects of this summer's drought. The_April-June period was the driest since 1896, when we began keeping records, for Texas, New Mexico, Louisiana, and Florida. Dryland crops are burning up; for example, some 3 million acres of cotton are estimated to be lost in Texas. High hay prices and the condition of pasture and range, 72. percent of which is rated “poor" or "very, poor," are causing producers to have to liquidate their cattle, as they are squeezed by low cattle prices and high forage prices. Even irrigated crops are suffering, and irrigation costs are up sharply. Southeastern field crops, such as corn and soybeans, are generally faring poorly, milk production is down and there are numerous reports of poultry losses due to heat. Everywhere I went, concerns were raised about low prices, the adequacy of crop insurance and the lack of livestock disaster assistance.
The weather problems in agriculture are unusual because they are occurring at the same time that production and stocks are expected to be large and prices declining for most major crops. The crop losses are regional and are not jeopardizing the Nation's food supply or leading to rampant economic problems. The declining prices mean that those farmers facing crop losses are not getting any offset from higher prices that often come when weather reduces production. Even for cotton, where a substantial portion of the national crop is being lost due to drought and cool, wet weather in California, prices have been limited by large expected foreign production. These regional problems are a cause for national concern.
OVERVIEW OF THE STATE OF AGRICULTURE After generally strong performance in 1996 and 1997 characterized by record agricultural exports and farm prices and incomes, the U.S. agricultural economy is now declining. The Asian economic problems, a strengthening dollar and record-large global crop production have reduced U.S. agricultural exports from the record high of nearly $60 billion in FY 1996 to the current estimate of $65 billion for FY 1998. Falling commodity prices are expected to cause net cash farm income to decline nearly $7.5 billion below last year's record of $60.7 billion.
Despite the decline in farm income, there are several positive indicators. First, net cash farm income for 1998, while down, is expected to be near the average of the 1990ʻs. Second, although farm debt is rising, the average debt-to-asset ratio for all farm operators is expected to remain stable at about 15 percent in 1998, compared with over 20 percent during the farm financial crisis of the mid-1980's. However, this is largely due to the fact that farm land values have appreciated. And third, stable interest rates, low oil prices, low inflation and declining grain and protein prices are helping to contain production expenses, which are currently projected to decline nearly $1 billion in 1998, although expenses will remain above the 1996 level.
However, there are also indications of increasing financial stress for many producers and prospects for more widespread difficulties. First, there have been particularly sharp declines in prices for some commodities, such as grain, oilseeds and hogs, and fed cattle prices have been low for several years in row. Second, feed grain and oilseed stocks are rising, and weather thus far suggests large fall harvests, which, if realized, will drive down prices further. Third, farmers are increasingly taking on more debt relative to their repayment capacity from current income. Following recovery from the mid 1980's farm financial crisis, farm debt fell by the early 1990's to 45 percent of the maximum debt producers could repay given current in. come, so-called debt repayment capacity utilization. This year, use of debt repay. ment capacity is expected to be up to about 60 percent. Fourth, low prices coupled with several consecutive years of below average crops and low cattle prices have greatly increased the financial vulnerability of certain areas, particularly the Northern and Southern Plains and lake States. And, as I indicated earlier, many producers are also suffering from the effects of extreme weather. Wet weather has reduced California production prospects, hot, dry weather is reducing crop yields in New Mexico, Oklahoma, Texas and several southeastern States and flooding has also wiped out crops for some producers.
MAJOR CROP DEVELOPMENTS Farm income from wheat, corn, cotton, and soybeans will all be down this year. Record global production caused wheat prices to plummet this year following 2 years of strong prices. This season, wheat prices will be pressured by large beginning carryover stocks, a large winter wheat crop and strong foreign competition. U.S. wheat stocks on June 1 compared with consumption were the highest since 1991, and the 1998 yield per acre is expected to be a record high. Texas, Oklahoma and Kansas all had record-high wheat yields, harvesting before the effects of the current drought set in. Wheat prices are down nearly 25 percent from 1 year ago and the lowest in 7 years. For the 1998–99 season, wheat prices are projected to average $2.90 per bushel, down from $3.40 per bushel last year and $4.30 2 years ago. The average farm price during June was only $2.72 per bushel, and recently prices have been as low as $2.00 per bushel in Southern Ilinois and $2.25 in central Kansas.
Corn and soybean prices are also down compared to last year and for 1998 are expected to be below the average of the 1990's. During June, farm-level corn prices were down 14 percent and soybeans down 26 percent, compared to a year ago. Current weather patterns have not adversely affected the primary corn and soybean crop producing areas, and large U.S. and global production is expected to pressure prices for these crops in the coming season. For the 1998/99 season, corn prices are projected to average $2.15 per bushel, compared with an estimated $2.45 this season. Soybean prices are expected to fall from $6.45 per bushel this season to $5.35 in 1998/99.
In June, cotton and rice prices were about unchanged compared with a year ago. Since 1995/96, U.S. rice producers have had three consecutive years of relatively strong prices and export demand. U.S. cotton production is currently projected to fall by over 20 percent this year due to weather problems in the California, Texas and several other southern States.
LIVESTOCK, POULTRY AND MILK MARKET DEVELOPMENTS Record-large per capita meat and poultry supplies have reduced livestock prices, with hog and beef prices in 1998 expected to average below last year and below the average of the 1990's. The decline in hog prices has been especially severe, with prices down by nearly one-third during the first half of the year, compared with a year ago levels. Over the coming months, hog supplies are projected to continue to remain high, keeping prices below production costs for many producers.
Fed-cattle prices continue to be below cash expenses and little improvement in prices is expected over the next several months. Prices had been expected to strengthen during the second half of 1998, following 2 years of herd liquidation. However, price recovery now appears more distant as producers continue to reduce herds, increasing nearby beef supplies. Poor pasture and range conditions in the Southern Plains are motivating producers to market cattle, and low cattle prices are encouraging cattle feeders to feed to heavier weights.
Broiler and milk prices have risen recently and most poultry producers appear to be operating in the black. Broiler prices were about unchanged during the first half of the year and are expected to average about 2 percent higher in 1998. Farm-level milk prices up about 7 percent during the first 6 months of 1998, compared with a year ago. Recent strength in dairy product markets marked by strong increases in butter and cheese prices suggest that milk prices will remain strong over the coming months. Lower grain and protein prices will reduce livestock and milk producers' production expenses.
ACTIONS TAKEN TO DATE USDA reacted quickly to the Asian financial crisis and since late 1997 has made available export credit guarantees under the GSM-102 program totaling $2.4 bil. lion. Overall GSM–102 credit guarantees now operational worldwide total nearly $6.8 billion, up from $4.6 billion last year. We also continue to help U.S. producers develop foreign markets through a variety of programs, such as the Market Access Program, Foreign Market Development Program, Cochran Fellowship Program, and Emerging Markets Program.
President Clinton recently announced that USDA will purchase surplus wheat utilizing the surplus removal authority of the Commodity Credit Corporation (CCC) Charter Act. Initially we expect to purchase roughly 2.5 million tons of wheat. The Department is in the process of purchasing the wheat and the first tender for 550,000 tons was issued last Friday.
USDA continues to purchase beef, pork and poultry for domestic food assistance programs. Purchases approved thus far this fiscal year for meat, poultry and fish have totaled over $440 million. USDA has also purchased over $135 million of nonfat dry milk under the dairy price support program, which under the Federal Agricultural Improvement Act of 1996 (the 1996 Act) will be phased out on January 1, 2000.
USDA is proposing to revise crop insurance regulations to provide more effective assistance to producers in the Northern Plains and other regions where successive disasters have sharply raised premiums and reduced coverage. We are also expanding our research into developing new strains of wheat that are resistant to scab and other diseases.
Earlier this month, the House and Senate passed and President Clinton signed the Agricultural Export Relief Act of 1998 exempting the USDA's GSM export credit guarantee programs and certain other USDA programs from mandatory sanctions imposed by the United States under the Arms Export Control Act. This allowed Pakistan to purchase 300,000 tons of U.S. wheat the day after President Clinton signed the bill into law. This rapid action by Congress and the administration ensured that our wheat exports to Pakistan will not be lost. Pakistan is the third largest export market for U.S. wheat and the leading export market for U.S. white wheat. More broadly, President Clinton has stated our view that food should not be used as a weapon and that whenever possible, basics such as food and medicine should not be withheld. The administration supports Congressional efforts to develop a more reasoned U.S. sanctions policy. The President should have the authority to waive sanctions when it is clearly in the national interest to do so.
SENATE-PASSED APPROPRIATIONS BILL The administration supports the Senate amendment to the FY 1999 Agricultural Appropriations Bill to provide emergency assistance to farmers and ranchers who are experiencing income losses. Year-after-year disasters create farm cash-flow problems beyond the ability of insurance to cover. Because of deductibles and other factors, insurance does not make a farmer fully whole from a crop loss; the cumulative financial effects of repeated loss years can be painful, even for fully-insured farmers.
If the Senate amendment is adopted in conference, USDA proposes a Supplemental Crop Insurance Benefit program to address this immediate cash need in hard-hit areas within the crop insurance framework. The supplemental benefits would be 25 percent of the total indemnities received during those years.
In addition, the Risk Management Agency would develop a plan of insurance that provides the producer an option of purchasing protection against repeated years of crop loss if the producer also purchases a policy for the same crop or crops for each of those years. This product would be offered not later than the 2001 crop year, where practical and feasible.
In some areas, long-term flooding has been occurring since 1992, and the most severely affected crop and pasture land has been flooded and submerged since 1993. The topography and soil of the affected regions provide no outlet for drainage; the land will return to production only after the water has evaporated some years from
USDA has proposed developing a multi-year program to compensate farmers and ranchers who have crop or pasture land under standing water for several years. USDA projects that approximately 1 to 1.5 million acres could be eligible for this program annually at a cost of $40 to $60 million per year.
During the past 2 years, USDA has funded livestock disaster assistance programs from the sale of grain in the disaster reserve, but the funds from the sale of disaster reserve stocks are depleted and will not be sufficient to meet current and potential futures losses from natural disasters. Changes mandated by the 1996 Act and the