Higher production costs could sting farmers even more than low crop prices this growing season, according to Keith Collins, USDA's chief economist. Collins, in a
briefing this spring with leaders of the National Association of Wheat Growers in Washington D.C., said that higher interest rates will increase the cost of production for farmers.
However, he said he is more
concerned about the effect of higher fuel prices, which have gone up by at least 50% since 1999. If the increase were to last through the year, it could translate into $2 to $3 billion in increased production costs for
producers in the U.S. For the average wheat producer, that would mean an additional $5 per acre, Collins said.
The production cost increase has more of an impact on farmers than a drop in crop prices, he
pointed out, since the drop in prices is offset by the loan deficiency payment (LDP) while the production cost increase is not offset. "Oil costs will come right out of the bottom line," Collins said.
Ron Anderson,
president of the Minnesota Association of Wheat Growers and a Hallock, Minn., producer, said Collins' comments reaffirms the need for federal assistance in 2000 to be at least equal in size to the combined farm bill and
market loss payments in 1999.
"Wheat growers along with the NAWG would prefer a price-based, counter-cyclical mechanism added to the current farm bill so we wouldn't have to ask for emergency assistance for a
third straight year. But the elections mean there will be less time for new legislation, making a third round of market loss payments more likely," said Anderson. "So while we were in Washington, D.C., we
pointed out to officials and lawmakers here that matching or exceeding last year's combined payment rate is going to be important, since this year's scheduled "Freedom To Farm" payment is less than last year (63.7 cents
for wheat in 1999; 58.8 cents this year) and production costs will be greater."
Congressional staff assistants who met with MAWG leaders in Washington advised watching changes in net farm income forecasts this year as
a barometer to help estimate the size of any market loss assistance package this year. Collins' briefing to the NAWG concurred with that assessment: That Congress was on track to pass another emergency payment
this year and that it will be close to the estimated reduction in net farm income.
In 1999, net cash income came in at the second highest on record; However, Collins was quick to point out that 38% of the income came
from government payments.
There is no emergency assistance built into the 2000 net farm income forecast, estimated to be $5.5 billion less than last year. Combined with an estimated $2 billion reduction
in cash receipts and an increase in production costs which Collins says he is "conservatively" projecting at $1.5 billion, net cash income could drop $9 billion or 16% from last year.
Collins projects net cash income
for wheat to be $2.3 billion in 2000, a 38% drop from the 1995-1998 average net wheat income of $3.7 billion.
World economic growth will help U.S. agriculture rebound, Collins said. The world economy is expected to
grow by 3.3% in 2000, which would be the largest growth since 1996, according to Collins. He believes that when the world economy grows by over 3%, it will be good for U.S. agriculture, and that it will set the
stage for recovery in world export markets for ag products. That recovery will likely be pushed into next year's economic statistics, however. Collins forecasts agriculture exports to be at $49.5 billion
this year, up only slightly form $49 billion last year and down dramatically from the $60 billion record in 1996.
One Congressional source told MAWG leaders while they were in Washington that it's possible emergency
loss payments in 2000 could be included in the 2001 baseline budget, which would make the payment recurrent, in addition to payments included in the current farm bill. Several lawmakers in both political parties
also assured MAWG leaders that a proposed payment limitation included in the Administration's farm assistance plan is a "non-starter." The Administration proposal would cap the combination of transition payments under
the current farm bill plus supplemental income payments at $30,000 per person.
Along with Anderson, other MAWG leaders in Washington to meet with federal lawmakers were Mike Bruer, Alberta, MN; Brian Hest, Perley, MN;
and Scott Swenson, Elbow Lake, MN. Leaders of the North Dakota Grain Growers Association and South Dakota Wheat Inc. participated as well.
In Washington, Anderson thanked Miley Gonzalez, USDA Undersecretary for
Research, Education and Economics, for coming to northwest Minnesota at the invitation of the MAWG several years ago to gain a better understanding of the scab outbreak.
"He remembered being in one of my fields
at harvest, and the seriousness and economic hardship that scab has imposed on us," said Anderson. "We expressed our appreciation that his visit gave a lot of growers in our area hope that something was going to
be researched and accomplished, and now a few years later a federal research initiative is in place and we are starting to see some of the results."
Anderson invited Gonzalez to return to northwest Minnesota in
several years to see the end-result of greater federal attention to scab research: scab-tolerant wheat being harvested on Anderson's farm, in the same fields that Gonzalez visited several years ago that were infected by
the disease.
