Mike's Blog

Insights from the President of ProAg

The Amazing MC Predictions!

by Mike Connealy on 04.03.2013

The US House and the US Senate Budget Committees have each produced a product for the upcoming fiscal year. In addition, the strong rumor is that the Obama Administration will also be killing a lot of trees and producing their version of a Budget. While it is highly unlikely that these three sources will ever iron out their differences and establish an actual budget, the stage is set for the House and Senate Ag Committees (HAC and SAC) to again take up a Farm Bill during the summer of 2013. This means that we can try to look into the crystal ball and predict what will be the outcome. Like an NCAA 64 team college basketball bracket, the Farm Bill has many chances for the prognosticator to go wrong, this should never prevent anyone from giving it a shot, so here it goes, in my humble opinion. 
The Farm Bills passed last year, one by the full US Senate and the HAC passed version of the 2012 Farm Bill will be the models for the upcoming efforts. The SNAP program (food stamps) will be hotly debated and soak up most of the money. We expect the Farm Bill to run about $100 billion a year in round numbers and SNAP will be $80 billion or so. The mostly uninformed press will call it a bloated “trillion dollar Farm Bill” by taking the $100 billion projected annual expenditure and taking that times ten years – even though the Farm Bill is only a five year piece of legislation.
The amount of negative press on the $80 billion of SNAP payments will likely not amount to many more pixels than used on this article. The amount of mis-information (lies and questionable statistics) and generally uninformed rhetoric on the remaining $20 billion of annual expenditures including crop insurance will be massive. Crop insurance will be noted as the primary or at least a major contributor to many controversial items including but not limited to:
Farms getting larger
Land prices going higher
Conservation Reserve Program (CRP) acres being plowed up
Fewer acres going into Wetlands Reserve
These will be countered by thoughtful narratives pointing out that crop insurance allows that:
Farmers can acquire adequate credit
Farmers can safely forward contract their grain for sound business management reasons
Farmers can make better planting decisions based upon their crop insurance coverage
The taxpayers receive a better deal long term with the self-help crop insurance program than they would with ad hoc disaster payments such as illustrated by Hurricane Sandy
Despite the historic drought of 2012, most all the farmers that had crop insurance and wanted to stay in business for 2013, are still in business
Other aspects of the Farm Bill will be even more contentious. The sugar program will be the leader in generating rhetoric, despite the fact that it costs little if anything to the taxpayer. The direct payments will finally hit the cutting room floor and become “history”. Despite the fact that direct payments are gone, the uninformed press will beat this dead horse again and again as if the failure to pass a 2012 Farm Bill was caused by the farm producers wanting another bite at direct payments and not a “do nothing but kick the can” Congress.
Farms getting larger, this has been happening for over 50 years. It cannot be turned back with modern machinery and equipment allowing for large tracts to be farmed by a one or two person operation. The cost of this machinery is such that acquiring additional acres makes perfect economic sense, the fact is that the farming business is like many other businesses, you must have scale to have efficiency.
There will be the conundrum of declining CRP payments causing marginal land to go back into production. As mentioned above, this will be blamed in whole or in part by crop insurance when the core issue is that Congress did not authorize or appropriate the $$ necessary to keep the land in CRP. ProAg would support a crop insurance rule that CRP acres have no coverage the first year back in to production. It is not the crop insurance sector anxious to “get after” these “new breaking” acres, it is equipment manufacturers, seed vendors, fertilizer vendors, etc. Marginal land does nothing beneficial for any crop insurance company,  we need an underwriting gain to cover our costs.
Wetlands and EQIP will continue to decline – like CRP – unless Congress comes up with money. The farmer’s crop insurance premium subsidy “bank” will be targeted for numerous programs that are unfunded or underfunded. The fact that the farm community lost direct payments will be lost on the uninformed press and the EWG, they will scream for more blood on the premium subsidy.
The issue of rising land prices will be debated and eventually land on higher commodity prices. This will cause another epic discussion of the renewable fuels mandate and whether the needed ethanol to comply with these mandates has skewed the marketplace. This is not rocket science, of course this mandate has skewed the market. The four billion bushels of corn needed to produce the necessary ethanol sent a strong message to the farm community to plant corn. This causes land prices and cash rents to reflect the economics of the current situation. The mandate continues to be in place and if anything will grow a bit more over time unless revised or withdrawn. In my opinion, this issue which is not part of the Farm Bill is the most critical item facing the corn belt and agriculture. Should we as a society continue to support renewable fuels or should we merely allow the marketplace to settle the issue ? We only hope that those involved in the ag sector are given adequate warning if there is a change in direction, jerking the rug out from under people that are invested in the current policy would be unfair at best.
The SAC and the HAC will each produce their version of the Farm Bill before Labor Day of 2013. The full Senate will pass a Farm Bill on a timely basis. Unlike in 2012, the full House of Representatives will also vote on a Farm Bill. The House vote will go down to the wire, but it will pass. During a conference committee, the House version will lead the discussion since the necessary final votes will be difficult to generate should a version come back for final passage that differs much from the thin margin in the original House passed bill.
The 20% of the Farm Bill that is not SNAP related will generate a media storm of interest far beyond the magnitude of the spending. The far left (EWG and others) and the far right (Heritage Foundation and others) will ramp up their version of the “facts” in hopes of stopping the process. Fortunately, cooler heads in the middle will prevail in the House and the Senate, and we will move past the conference committee.  
The final version will be passed and signed by the President on or before 12-31-2013. This version will leave crop insurance as we know it largely unchanged, SNAP will be mostly intact as we know it today, sugar will survive, CRP will be reduced; ACRE, SURE and direct payments will be gone; shallow loss, supplemental coverage and STAX will exist in some limited hybrid form designed to save some baseline money for the Farm Bill and preserve some activity for state and local FSA offices, full crop insurance premium subsidy will be whacked for “the rich” and will also be tied to some form of conservation compliance for all participants.
So, there you have it, THE AMAZING MC has spoken and as always questions and comments are welcome !


Your browser is out-of-date!

Update your browser to view this website correctly. Update my browser now