People who don’t live in rural areas where the economy is dominated by agriculture may not be aware of the looming financial crisis in agriculture. Times are tough — and are expected to get tougher — in farm country. And some fear the agricultural malaise could soon spread to infect the entire U.S. economy.
“There is a dismal outlook in agriculture for the next 24 months,” said Chip Morgan, executive vice president of the Delta Council. “There has been no other period in the history of agricultural record-keeping when all of the major commodities were experiencing depressed prices at the same time like is being seen now. It isn’t just Southern agriculture or Midwest agriculture. It isn’t just livestock or crops. All of agriculture is in an extremely depressed state.
“We think there will be a financial crisis, and so does USDA, by harvest time of this year unless the government intervenes in some fashion.”
Morgan said the U.S. is starting to feel the first effects of an “economic hurricane” that portends serious troubles ahead. He said he doesn’t see much enthusiasm in Congress to address the issue, and believes if something isn’t done to strengthen the commodity markets, the U.S. could see widespread financial dislocation in rural farming areas of the country.
In Mississippi one in three jobs is estimated to be linked to agriculture and forestry. A financial crisis in agriculture would have a pervasive impact on the entire economy of the state.
“I think the low commodity prices in agriculture are a signal, as it always has been, that a downturn in the rest of the economy is inevitable at some point,” said Fred Heindl, executive director of the Mississippi Agribusiness Council, a state agency. “We all know the Asian economy is in a slump, and that has decreased demand and lowered prices. Agriculture historically feels the trends of economic impact prior to other sectors. So I think this is a warning sign for all of our economy.”
Heindl said there is great concern right now about the planting intentions of farmers for 1999. If less land is planted, there will be a ripple effect through the ag community impacting equipment dealers, feed and fertilizer sales, and other industries that support Mississippi agriculture.
“I think there is little that we can do other than monitor where we are, continue to look to guidance from our universities and marketing specialists, and be prepared to manage wisely in all business sectors,” Heindl said. “We are in a situation of concerned economic times. Things will turn around. But in the short run, we all need to manage wisely.”
James E. Newsome, commissioner on the Commodity Futures Trading Commission (CFTC) in Washington, D.C. and the former executive vice-president of the Mississippi Cattlemen’s Association, said he favors providing as many risk management tools as possible to producers in helping them make good management and marketing decisions.
“Priorities for the 106th Congress appear to be crop insurance reform, development of livestock revenue insurance, assistance with foreign market expansion, and development of policy initiatives for the upcoming world trade negotiations,” Newsome said. “At CFTC, we are revising the agricultural trade options program so that it will be a more useful tool for producers. In addition, we are encouraging, through the use of educational programs, more traditional risk management tools that are currently under-utilized. I am hopeful that these reforms will be industry-driven and ultimately provide benefits to farmers.”
Chip Morgan said he believes the federal government needs to find a way to address the Asian financial crisis through food programs that would strengthen markets for all U.S. agricultural commodities. Another possibility is a domestic program that restricts acreages planted.
David Waide, president of the Mississippi Farm Bureau, said everybody who is involved in agriculture policy-making decisions wishes they could wave a magic wand, and make low commodity prices disappear.
“In reality, we know that is not possible,” Waide said. “One of the major obstacles I see is the economic decline of several foreign countries that were major purchases of our commodities. They are not buying in the volume that they have bought in the past. That is hurting our ability to export. And we need to export because the U.S. only consumes roughly two thirds of what agriculture produces in the U.S. We have to depend on foreign markets to sell the other third.”
Waide said that because of low commodity prices, farmers are having trouble getting production loans. The loans simply won’t cash flow, he said, because production costs exceed income for the crops.
“One other problem I see in agriculture is that we continue to lose the different purchasers of our products through merger and consolidations of these corporations that buy our farm produce,” Waide said. “We’re seeing competitive edge erode, and we no longer have two or three bids for our individual commodities. We’re seeing our markets monopolized.”
Waide said U.S. agriculture needs to look at adding value to commodities. And he believes the U.S. is missing the boat by not capitalizing more on using renewable energy sources such as oil from corn.
“I think there is a real opportunity in trying to enhance commodity products by using these renewable resources as energy sources,” Waide said. “This would take some of the supply that is on the market down. The big oil companies fight this tooth and nail, and claim we can import oil much cheaper. If you look at the price per barrel only, we probably can. But when look at $40 billion we spend a year to keep the Mideast supply lines open, keeping access to the Mideast, there is no comparison. Alternative fuels are much less expensive. Plus we don’t keep a hot spot as a result of people fighting over the different political problems they have over there.”
Chris Sparkman, deputy commissioner for the Mississippi Agriculture and Commerce Department, believes the U.S. should do more to subsidize farmers.
Sparkman said for the second year in a row the state of Mississippi had less than one million acres of cotton planted last year. It is only the second time in history that less than a million acres of cotton have been planted in the state. Farmers in the state were also negatively impacted this past year by drought and problems with a toxin in corn that greatly reduced its market value. Most disaster programs provide assistance only in the form of loans. Farmers still have to make the money to pay back the loan.
On a more positive note, Sparkman said state agricultural producers are very strong compared to the late 1980s when there was a big exodus of farmers in the state. Then there was a lot of debt on land. The farmers who survived are better off financially than 10 years ago.