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4. The market transition payments authorized by the FAIR Act have amounted to $11.5 billion. Estimated payments under the previous farm bill are $3.6 billion. Therefore the FAIR Act has put $8 billion more in farmers' pockets than farmers would have received under the previous farm bill. AFBF economists project that government payments over the next five years will be $7 billion in excess of what farmers would have received under the previous farm bill.
5. What about marketing opportunities? During the first quarter of 1998 (January through March), producers could have either entered into contracts with local elevators to deliver commodities this fall or put on futures hedges at prices that were equal to or above the target prices of the previous farm bill if you add in market transition payments.
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While these prices are less than those experienced during the past two years, they are for the most part, substantially higher than the average prices received during the last decade when supplycontrol programs were in effect.
On the flip side:
1. The financial crisis in Asia has had a negative impact on our export markets. Most pronounced is the impact on the com markets. The Asian financial crisis has reduced our overseas demand. According to President Clinton, “40 percent of all exports go to Asia and there has been a 30 percent reduction in farm exports to Asian countries because of the Asian financial crisis”. This crisis is a large reason why our exports will likely fall to $55 billion this year compared to 1997's high of $60 billion.
2. If you compare USDA's Supply/Demand projections of a year ago with today's projections for the 1997/1998 crop, corn exports have declined 28 percent, soybeans are down 7 percent, and wheat is down 5 percent. Only in cotton is there an improvement in world demand with exports projected to be up 4 percent over a year ago.
3. Global production has reached record levels. The following charts show that the stocks-to-use ratios for the major crops have increased.
4. In general, prices of the major commodities have been under downward pressure during the first half of 1998 (see appendix). Beyond the Asian crisis, this is also due to an increase in world supplies. Soybeans and wheat have been especially pronounced. Certainly, the record soybean crop in South America has weighed heavily on our soybean and oilseed prices.
South American Soybean Production
Argentina, Brazil and Paraguay
5. Disease problems and weather events are impacting farm prices in several areas of the country far more than low prices. North Dakota State University's study on the reasons for the current problems in agriculture show that almost 75 percent of the reason in that state was weather related
6. The increase in supply and drop in demand has had a devastating impact in prices. Com prices will probably average 30-40 cents a bushel less in the 1998/99 crop year than a year ago. However, it is interesting to note that corn is the only commodity where prices for the crop year we are concluding, 1997/98 are actually less than where they were projected a year ago. Utilizing the mid-point range of price projections from the USDA, soybean prices for the 1997/98 year will actually be about 45 cents more a bushel than projected a year ago and wheat prices averaged approximately five cents a bushel more than projected a year ago. The USDA doesn't make projections on cotton prices. Some U.S. crops experienced better than expected prices the past two years. That is one of the reasons farmland prices and rents continued to rise into the spring of 1998.
7. Weather and disease problems such as scab, which has affected wheat and barley producers for several years, floods and late planting due to excess rain, drought, and extreme heat has lowered production and highlighted diseases and high levels of aflatoxin.
WHAT'S BEEN DONE?
There has been progress in implementing solutions to address those situations over the past few weeks. It has taken a lot of efforts from Congress, the Administration, and certainly all of the farm and commodity groups, but the efforts have paid off. Items of note include:
Last week, Congress extended normal trading relations with China. China is currently a $2 billion market for U.S. farmers with a potential for much greater sales. A bill was signed into law to remove the sanction and reopen the wheat market in India and Pakistan to American exports. We have already been notified by Pakistan that they intend to purchase 300,000 metric tons of U.S. wheat.
Crop insurance administrative expenses were fully funded for the next five years, thus eliminating the annual uncertainty by producers of the program's availability. The agricultural research title of the Farm Bill was reauthorized and a new competitive grants program targeted at a few high priority issues was implemented.
Market Access Program funding was maintained at $90 million.
The Administration announced it will use its discretionary authority to purchase surplus commodities from the market and donate those commodities to foreign countries suffering humanitarian needs.
WHAT ELSE NEEDS TO BE DONE?
Far more needs to be done. There are indeed problems in agriculture. But they are primarily regional problems – caused by weather and crop diseases. Current prices are reasonably good for rice, dairy, and cotton. They're not so good for soybeans, wheat, feed grains, cattle or hogs. But
we must remember that agriculture is a cyclical business. Fortunately, we've had several years of very good prices in the grain industry. Now we're faced with the pendulum swinging towards at least one year of low prices.
The problems are diverse enough between commodities, between regions of the country, and between individual producer crop production patterns that a “one size solution won't fit all.” We must recognize and separate the problems of low prices and weather-related issues when seeking solutions.
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Last week, Chairman Smith and Speaker Gingrich proposed legislation to allow farmers the
While we view Chairman Smith's bill as a good first step - and while it may be adequate to deal with problems for some producers – it won't be enough for others. Farm Bureau is currently analyzing other bills and concept papers to ascertain what would be both most helpful and most sound. We are guided by several principles including a) maintenance of the sanctity of the marketing aspects of the FAIR Act; b) an assurance that the disaster programs will not send the wrong signal to producers and discourage them from purchasing crop insurance in future years; c) an emphasis on trade and market development; d) assurance we are finding solutions for not only program crop producers, but also equity for minor crop and livestock producers; and e) an evaluation of the proposals effect on a balanced budget.
We are interested in several ideas which have been presented, including:
Additional acceleration of the market transition payments. Although this idea presents several problems for those in a landlord/tenant situation, we believe it still bears consideration,
Altering the crop insurance program. In numerous reas of the country, it is not working as envisioned and the program's flexibility to adjust to unique situations is at best questionable. The Dakotas are a prime example of the problems of what happens with excess rainfall several years in a row. Yields and quality have suffered greatly. With lower yields every year, the ability of producers to insure crops at a reasonable level is next to impossible. Congress must take a long hard look at this program to determine how to make it a more credible risk management tool when such anomalies occur.
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