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Farm bill stalls, input costs climbing — agribusiness weary?

Washington, D.C., is a long way from the Mississippi Delta, but what happens — or in this case what doesn’t happen — has far ranging impacts for the biggest sector of the Mississippi economy — agriculture.

The U.S. House of Representatives approved a new farm bill this past summer, and the U.S. Senate approved its version of the bill in December. But Congress hasn’t agreed yet on a compromise between the House and the Senate versions of the bill, and President George W. Bush has threatened to veto the bill because it contains provisions raising taxes on multinational corporations with U.S. subsidiaries to help pay for approximately $4 billion in food stamp and other nutrition programs.

The farm bills are considered a “safety net” for agriculture guaranteeing minimum prices for commodities, and also providing funding for conservation programs, biofuels, rural development and nutrition.

Uncertainty

While there has been concern in the larger economy about credit problems affecting primarily the home mortgage markets, the bigger issue for agriculture is that a new farm bill hasn’t been passed. The old farm bill has been extended, but the uncertainty of how long the extensions will last, Congress agreeing on a compromise bill and the possible Presidential veto are causing considerable concern.

“The farm bill is very important to us,” said Sells Newman, senior vice president, First South Farm Credit Association, Ridgeland, which does business in Mississippi, Alabama and Louisiana. “It offers a safety net not just to farmers, but farm credit institutions and commercial banks as well as anyone else who finances production agriculture. It is also important to the economy of the State of Mississippi because agriculture needs a safety net for commodity prices so commercial institutions can continue to loan money. Today, commodity prices are high, but looking at the averages for the past six to 10 years, commodity prices can fluctuate widely especially in a world market.”

Cascading

Commodity prices can vary widely depending on weather conditions that can cause bumper crops or crop failures, trade agreements and the demand. And because ag is such a big driver of the economy in Mississippi, the way things go on the farm has a ripple effect throughout the state’s economy.

“Production agriculture is big throughout the State of Mississippi,” Newman said. “A lot of people just don’t see agriculture except when they drive down the road and see a tractor. They don’t see what agriculture puts back into the State of Mississippi whether it is trees growing or poultry houses. Agriculture is very big in this state and the nation.”

Diversified

A key factor for First South Farm Credit Association, which is a $1-billion-plus operation, is that it is diversified in its commodities.

Newman said what that means is when one commodity is down, it is balanced by profitability in the other commodities.

“That has been very fortunate for us,” Newman said. “What we finance in each commodity is diversified. We don’t have all our capital in one commodity. When you are diversified, you can withstand the downs of our market. That has been our biggest strength. We finance full-time as well as part-time farmers. Most part-time farmers have other sources of income coming into the family other than farming. It is a good mix to help cash flow their loan and standard of living.”

Mississippi Farm Bureau president David Waide said growers are being impacted in the ag credit market because they are having to pay more for operating capital and expenditures due to input costs that are up so much — impacted greatly by the high cost of fuel.

“It has been harder to get credit,” Waide said. “The bigger row crop farmers have probably had a harder time getting production loans as a result of not having the farm bill in place. There is a tremendous concern that there has not been a farm bill passed and the president says he is going to veto it. Is there enough pressure to override a veto? I don’t know the answer to that.

“I can’t understand why we have not had more interest in trying to see we have a stable farm policy. I guess one of the excuses is that commodity prices are pretty high and the farm bill is not as important this year. But our lenders know that our commodity prices fluctuate tremendously. And with extremely high escalation of our input costs, we desperately need protection as far as the commodity prices. We don’t ever know what we will get for a product when it is produced. We love having the availability of loan programs to ensure some cash flow when we are unable to sell the product because of the basis spread. The loan gives us time to narrow the spread and perhaps get a profit on that commodity.”

Contact MBJ contributing writer Becky Gillette at 4becky@cox.net.

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