is going to be the china select committee. obviously. [inaudible conversations] >> good morning. i'm vince smith director of aei's agricultural program and professor of economics at montana state university. it's a genuine pleasure to welcome everyone whether you're here in person or with us online. all watching on c-span. the american enterprise institute is wonderfully privileged to be able to welcome you here for this important discussion of the state of the u.s. farm economy and considerations about what that state means to the 2023 farm bill debates that are emerging right now. today, we have two panels of distinguished researchers and policy analysts. speakers from the first panel will focus on objective evidence about the current financial state of the u.s. agricultural sector and progress for the next three or four years. speakers in the second panel will delve more deeply into the situation of different types of farms. small versus medium, versus large, large acre crops like corn and wheat and fruits and vegetables, and live stock. in each panel two discussions will explore the relevance and potential implementations of the farm economy and emerging debate over the 2023 farm bill and each panel will include a short discussion of the issue by the panelists and discussions along with a longer session for questions from the audience. so questions from folks who are here in person, please raise your hand when called upon, aei staff will bring you a mic so that you can be heard both in the room and by people live streaming the event. for questions from folks here in person, just raise your hand, as i said. if you're live streaming and would like to submit questions, you can do that, too, by e-mail, to benjamin goren@aei.org or you can communicate by twitter to #aeifarmbill. i serve as moderator of the first panel. dr. joseph glaver. senior fellow national food policy research institute will moderate and introduce the members of the second panel. it's my pleasure to introduce the distinguished members of the first panel. our first speaker will be carry lettouski on the farm economy branch at usda service. and her focus on sector wide farming estimates for 2022 and 2023. dr. nate kaufman will be our second speaker, he is senior vice-president of the federal reserve bank of kansas city. and he will share insights about current and future potential changes in the financial conditions of the farm sector. at least that's what i believe. dr. patrick westhoff is the director of the food and agricultural policy research institute and the professor of agriculture and applied economics at the university of missouri and focus on possible evolution of sector wide farming. we have two discussions. the first is doctor who served as chief economist at the u.s. general accounting office from 2007 until her retirement in 2015 and before that, for a decade. she was the administrator of the usda economic research service. our second discussion is josh, senior policy and panelist for taxpayers for common sense where he's been addressing agricultural policy issues through several painful farm bills. we're so fortunate to have such a knowledgeable panel. now let's welcome talking about farming commission. >> thank you, ben. i'm pleased to have this opportunity today to talk about the u.s. or usda farming forecast. we put the forecasts out three times a year and this is february 7th release, earlier this month. and the goal of the program is to measure, forecast, and explain the drivers behind pages in the farm sector economy. i'm going to go right to the chart. we have two measures of farm sector profitable or net farm income and after strong growth in the past two years, we are forecasting that in 2023 net farm income and net cash farm income will fall in 2023. specifically net cash farm income is forecast to fall with inflation adjusted about 23%. that would put us at still relatively high level. in 2022 we're forecasting that net cash farm income was at its highest level ever. net farm income in 2022 is forecast to be the highest level since 1977 and then to fall 18% in 2023. note, both measures are expected to remain above their average for the past decades in 2023 and even remain above their 2021 level. this shows how we get from 2022. it's a forecast bill, we'll convert it to an estimate in august 31st. but how we get from the forecast for 2022 to the forecast for 2023. and those bars in orange are the ones that are contributing to lower income and the ones in blue would contribute the higher. so, really, a lot of it comes down to lower cash receipts. crop cash receipts all about nine billion. we do make adjustment for changes in inventory because the net farm income measure, we're trying to get at income from current production only. live stock or animal and animal products forecast to fall 15 billioand contributing to the decline in 2023,roduction expenses to rise 18 billion, and that's why higher expenses and lower income. and additional government payments are forecast to fall $5 billion in 2023. we could be -- we could go a little deeper, cash receipts higher, largely due to higher commodity prices and we're expecting many commodities to have lower cash receipts, these are calendar receipts due to lower prices. corn, soy beans, cotton, fruits and nuts, all on the chart are forecasted to decline in 2022-- i'm sorry, 23. but wheat received our forecast to increase slightly i 2023. the animal and animal products side, simar story, most commities saw really high receipts in 2022, but our forecast falls in 2023. cattle and calves, with inflation adjusted as the chart has done is forecast to be relatively stable recpts in 23. while dairy, broilers, hogs and eggs are all forecast t see deines. direct government payments, these are paymes that are made tarm operators by the federal government, ual from farm programs andhe are forecast to continue to decline in 2023. you see that spike in 2020 where government pmes reached a recordhigh. largely because of usda and non-usda pandemic assistance ymts made to producers. after that, they have-- the government paymentsave declined each year since as those payments and pandemic assistance related payments have showed or reduced. in 2022 a 23 the biggest portions are the gray bar a these are all other payments and they largelyeflect what we call ad hoc and supplemental disaster assistance. we saw it increase of about eight billionn 2022, and then going wn about six billion in 2023. and this is an accumulation of a bunch of different programs like the live stock program, the emergency live stock release program. the emergency release programs. a lot of ad hoc programs suspected to make up the core of the government payments in 2022 and 2023. expenses, they had a -- they increased a record amount, dollar amount in 2022 as comment prices-- i'm sorry, input prices that farmers paid for input increased for many items. this chart looks at the individual expense items for different types of spending or categories of spending across 2021, 2022 and 2023. so those above the line, we expect to see higher spending in 2023. at the top is interest expenses. we're expecting the largest dahl increase for this item. as debts are forecast to increase in 2023 and interest rates are forecast to increase in 2023. live stock and poultry and labor are forecast to continue to increase in 2023. among those with lower spending, particularly fertilizer and feed, we do expect that they will decline in 2023, but they're going to remain relatively high as you see in 2022, both of those categories have a strong growth and declined especially in the case of feed in 2023. on the farm sector balance sheet. we get some information about the physical and financial assets, debts, that are held by the farm sector as a whole. and farm sector access, debt, and equity are forecast to increase in 2023, but you can see that the equity position is still strong. in fact, we're forecasting that in 2023 farm equity will reach $4 trillion for the first time. one thing that perhaps you can't really tell from this chart though is that debt is forecast to increase at a higher rate. the percent of growth is greater than that, than for access. so when you look at something like the debt to asset or debt to equity ratio, there's a slight worsening of ratios, but overall equity is forecast to grow. this is my last chart. i can kind of give you an indication of what we think might happen geographically by region. here we're only going to look at farm businesses so this is just a subset of all farms. there are farms where the primary occupation of the operator is farming. plus, farms that have $350,000 or more in growth, cash, farm income. these are about 50% of all farms, but they contribute the most to the value of ag sector production and all regions of the country, we have nine regions here, are expected to see lower average net cash form income in 2023 with the northern crescent expected to see the largest declines and that's largely reflecting dairy in that region as i've made note of earlier, we're forecasting a fairly large declining dairy receipts in 2023. largely due to lower prices in 2023. and a brief snapshot. i encourage you to check out our website for more and we'll look again on august 31st. so, thank you. >> well, thank you, carrie, we now turn to dr. kaufman, who for many years has been monitoring the state of the agricultural sector in the united states. the floor is yours. >> thank you, ben, and thank you to aei for the invitation, pleased to be here this morning. and i don't have any shots of slides because i want my conversation as quickly as i can. why someone from the federal reserve will be here, as many people may know the central bank for the united states, the way we're structured to have regional offices scattered throughout the country and located in washington d.c. we have the office of the board of governors, but as you move across the country there are regional reserve banks tasked with representing those regions. i come from the kansas city fed where a large part of the region that we cover does have a strong concentration and agriculture. and financial institutions connected to agriculture so to vince's comments there, this is one of the primary reasons we've tracked ag for a long time. i want my comments relatively brief, but organized in a few ways. i want to start by recognizing and picking up on things that carrie mentioned, a lot context coming into where we are right now. i do want to focus on a bit more on financial conditions and credit conditions specifically and i'll end with just my very brief assessment where i think there are some risks that we'll want to be aware of especially as we start talking about some of those things that might connect back to credit conditions and finance. so the first thing that i want to start with is just recognizing, again, where we were prior to the pandemic, with are things have been the last couple of years and that's important context how we see the environment right now. keep in mind to start with, before the pandemic, we would have been describing agriculture pass, in a more precarious place, commodity prices had been low for a relatively long time, profit margins were relatively thin and at a time when we have been talking about the broader u.s. economy enjoying one of its longest expansions on record, we were talking about conditions in agriculture gradually deteriorating and seeing, again, gradual, but persistent increase ins financial stress, starting to see increases in bankruptcies. there were concerns looking ahead of 2020 what that might portend going forward. there wasn't something specific prior to the pandemic that we would have thought we were going to see the conditions change. that was the context into the pandemic, but as carrie noted we've seen some of highest farm incomes from a long time through 2022 and now the expectation in 2023 is maybe a bit lower, but still, very, very high. that's important context, one, going into the pandemic there was a gradual increase in financial stress and again, concerns and this would have happened during a time of previous negotiations of a farm bill that looked very different, that there was more credit stress starting to build, land values and other items there. as we've gone through the pandemic and as we're now looking at conditions in 2023, we're seeing things differently. there's been a pretty dramatic increase on workup on balance sheets in the farm sector, delinquency rates connected with financial stress are very, very low. as we look at lenders and otherwise, very few will describe there are significant problems associated with loan repayments. those have been very, very high the past two years, many producers are at a very strong financial position, continued to be in a position to akwar acquire land and consider expansion of operations. we're seeing dramatically different financial conditions the past two years supporting the outlook for 2023. now, there will be risks and i'll get to some of those in a few minutes, but as we assess conditions that carrie alluded to with farm income, we are seeing credit conditions extremely strong. i want to talk for a minute about land values, carrie mentioned the size of the farm balance sheet and assets and many people who follow agriculture will know that land accounts for by far the largest portion of what constitutes assets on the farm balance sheet. there are two reasons that we think that farm land values are especially important for tracking conditions in agriculture. one is that. that land accounts for a large percentage of assets. the other is because as relates to financial institutions, many farmers will use land as collateral for operating loans. so to the extent that the land market is extremely strong, that supports credit conditions and agriculture because farmers have more resources to then pursue things that they would need for requirements and operations, such as operating expenses. when we look at the land market, again, we went through a period from 2010 to 2013 in agriculture that was perhaps one of the best we'd seen in a long time and many farmers would have said maybe that's the best they were going to experience in their lifetime and then 2014, 2019 where i mentioned earlier, commodity prices were low for quite some time. land values had been declining during that time. we've gone from that environment and in 2021, in the region that we covered, the kansas city fed and would i suggest this is true as you look at other parts of the midwest and other areas concentrated, that we saw 25%. 2021 from the previous year and these were at quite elevated levels. going to 2022, we saw, obviously, lots of volatility in commodity markets and ukraine, and things that we disrupted what we might have thought about agriculture. yet end of 2022, we saw relating to land value. in terms of the asset values that farmers have at their disposal to support financial conditions, again, they've been in a very strong position. likewise, cash rents. so we think about, again, many farmingtoners -- farmers don't have the resources of land they own, but are paying rent and we're continuing to see resources as well. for land owners, maybe a good things in terms of higher rent. for those that see that as a cost, those potentially a higher risk. so i'll use that to segue into the last couple of minutes of what i want to share this morning as relates to the risks that we're monitoring and how we think about conditions going forward. if you walk away with nothing this morning, i would suggest as we see the environment for agricultural financing credit in 2023, it looks remarkably stable despite what was alluded to for declines in farm income, but there are risks as we look further ahead and these are the risks that we keep track of going forward and the first is production costs and carrie mentioned some of these exceptionally high in 2021 and 2022 and we've seen moderation in some of those. but they'll point to as perhaps the most dominant risk and managing the costs and uncertainty of those costs coming out of an environment with substantial supply disruptions and so forth. so that would be the first. the second and related to that would be drought. there's parts of the country that have not dealt with drought for quite some time. i come from a part of the country that has dealt with significant drought so for some producers, the costs i mentioned a minute ago would be more exas rated by the fact that they're more pronounced as you move further west and this is true for livestock and feed and the second risk i'd want to highlight, in the conditions going forward is drought. and the third related to the first two, is profit margins. most of what producers and their lenders care about, ultimately comes back to profit margins and ability to repay loans. they're likely to be thinner as we move forward. we've seen substantial increases, supported by dramatic increases in commodity prices and costs that didn't initially rise, but comment prices tend to pull back passer than we ultimately related to cost. something to watch for. the third risk i'll mention and carrie introduced this nicely is as relates to debt. we are seeing some increases in debt. this was not the case in 2021 and the first part of 2022. typically in the farm sector what we see when incomes are very high is that we see producers taking a stance of trying to pay down debt. they tend to be conservative when it comes to those sorts of things. and when incomes are very high, we tend to not see a lot of demand for loans. over the past year and a half or a year or so we've seen a turn whereas profit margins have become thinner, as costs have been higher, we've seen more demand for financing and so that's going to be something to pay attention to, not necessarily immediately, but the problems we've seen in the past that can continue with debt are notable and that's something i think we'll want to watch. the fifth one is as relates to incomes and i think we need to pay attention to is government payments. carrie mentioned again the strength of incomes and we've seen this play out in credit conditions in the past two years, but many of the lenders, from 2018 to 2020 would have told us that a significant portion of incomes ultimately came from government payments. there likely were borrowers who would not have been in a condition to continue to operate had it not been for the payments that we saw, not just through the pandemic, but the mfp payments two years prior. government payments again being a risk. and the next one, i've got a couple more and then i'll wrap up comments. macro concern, we pay to this at the fed macro conditions tied to the interest rate and next one i'll point to, economic growth. agriculture like every other industry is going to be dependent on broader economic conditions that we see not just in the u.s., but globally. 21 was-- 2021 was a banner year in terms of economic growth with a recovery from the pandemic supported by stimulus payments and ultimately a turn in economic conditions. the growth that we saw in 2021 was probably not going to be sustainable and we saw that pull back in 2022 and the forecasts for 2023 are modest and growth prospects for 2024 quite modest. so, the strength of global demand for products, agriculture being included in that, will be dependent on what we see as a path for economic growth. the next risk i'll point to is exchange rates. we've seen a stronger dollar over the past year and the dollar is determined by a multitude of factors. agriculture is, of course, an industry that depends on exports. so we'll need to pay attention to what happens through the strength of export activity ultimately in support of commodity prices and profits. the last risk i'll point to and end here with respect to interest rates. carrie mentioned we're expecting to see a pickup in interest rates in terms of expenses what that means for producers. we've seen increases in interest rates that are feeding into adjustments that producers will have to make. i will qualify this by saying interest expenses tend to know the be the dominant factors how producers end up making decisions but yet they will be considerations in decisions they make going forward. ... record levels in terms of 2022 the drop off expected in 2023. the trajectory shows in december we are doing revised estimates right now and i don't expect major changes. horticulture drops in commodity prices as alluded to already. usda and prepare back in november and future markets as of last week looking at december contracts in november contracts suggest we are looking at lower prices for 2023, 24 and 25 relative to the crop services pasture. the current market is a little higher than anticipated in november largely because the south american crop especiay argentina is earlier than anticipated. the russian invasion of ukraine was a major factor across the world. one reason rains prices have been up in 2022. in sou america we had reduced crop of soybeans last year in brazil. this year in argentina, that's how the effects of prices for not just soybeans but other crops. in this country we have reduced production of wheat, and corn th past year and f those commodities. as we look forward, will have the impact on beef production in 2023 and beyon and support these prices even as they may be coming down in the near future. another list of issues, influenza and a huge impact if we are able to get past that in 2023 will be lower prices for those commodities. relatively strong will depend on how the economy evolves. another policy issue is an expansion of production of renewable diesel in the country and policy measures federally and in california. these are projections looking forward over the next ten years. yellow is corn, bluish soybeans, accounts for more than half total u.s. crops in 2022. more than half of the sales and agriculture in this country. going forward, ler prices coming down a little bit, they wi become rough for 2022 a 2015 to 201 latively similar story, we don't see this drop for the reasons we talked about, chicken and especiayhe big sideor receipts expected in 2023 and lower level resorts on the poultry side bringing an overa side of the 2022 peak. expenses hasncased dramatically, modest incre because of offsetting impacts discussed already. broke out fuel and fertilizer, fertilizer costs last yea f a large number of reasons including rn ukraine and reduced supplies and natural gas western europe and gas prices making it mexpensive to produce fertilizer and the effect on global markets higher price a those expected to come down as we look forward. and all the expenses. think about particular crops focusing on corn and soybeans with higher prices and the experience last couple of years, acre receipts for corn and soybeans as the prices come down, they will follow if that is what happens. expenses roughly as high for the 2023 crop as they were for the 2022 crop it as fertilizer compressors come down, we expect to see those all off of it. this does not include machinery purchases and other overhead expenses. it's a measure of returns. in 2022 because of the reduces and it yields in case of wheat. going forward we saw in 2022 and expenses in the margins are tighter and they are is proportionate f other commodities. in 1986, it's focus on federal spending in t basic commodity programs covid historically,he green is going to be crop insurance so that' a major she of the overall expendire thays followed by conservation programs in green. ifouook at the period between 1998 and 2019, some of those average about $20 milli a year between 2020 a 2022, we saw a sharp spike not bau of the commodity programs crop insurance but additional programs passed in congress or nutrition under authorities so that average isbout $42 billion. again with new laws passed, if the administration does not take it, it will come back down again in fiscal 23 and beyond if there's nothing new taken up. a major part of the farm bill going forward, the first column estimates for fiscal 2023 and expenditure of the basic commodities programs in the price covera created by the 2014 extending 2018 across next to nothing as prices for commodities are well above those and result in those programs. crop insurance are expensive, the most extensive every year for crop insurance and estimates are over $15 billion expected for taxpayers and producing cotton another crops this past year with large payments for crop insurance and returns. conservation programs $5 billion in fiscal year 23 and staff program $127 billion in fiscal year 23 for record levels in 22. total is 149 billion in progrs for the farm bill not included in the so the nex ten years, 24. the commodity programs avege about $6 billion a yea crop insurance about $10 billion a year in conservation program about $7 billion a year and $120 billion a year, 1.4 trillion expected spending on these basic farm bill programs going forward. to begin briefly to show how projections matter, left hand charters give estimates projected corn prices and green and was called the reference price, the price, policy driven price used to determine whether or not payments will be made and coverage under the 2018 farm bill, there is a clause that allows the reference price to increase the average market price sufficiently high and that is in 2024 and because of that, there's a couple of years with a green or blue light in the average prices projected by cbo, there would be payments on the coverage for the first time in a couple of years. going beyond that, the moving average, the reference below market price will occur if you have an average price. we will look at distribution and possible outcomes and what estimates will cost in the future. soybeans expected expenditures become possible and prices below projected. crop insurance the last 11 years 2011 -- 2021, spending on the program was about $5.2 billion a year in terms of payments to produce for losses in excess of what the producers themselves had. the return if you will from the program, 5.2 billion over the 11 year period. the net benefits to producers were positive and they pay premiums out-of-pocket and they received back empty payments when you look at farmers as a group. looking forward, premium subsidies jumped dramatically the last couplef years wh higher commodity pris, value of crops increased a l and because of the expansionf the program to include the ranges, they are covid as well. we expect the overall value for priums and subsidies will fall back a little bit through 2020 levels. lower prices and estimates are a bit above cbo estimates for february and expect to see a drop off and new projections in march probably at the cbo and implications for the farm bill. a few uncertainties on these, it's always going to be a surprise, what's going to actually happen versus what we expect to happen and we will take up the last few years going forward and effect markets in a major way. trying to talk to you 12 months and a few weeks ago anticipating a war in ukraine, it would have happened because of that. political issues may arise with the agricultural markets. the economy always matters in a larger recession for agriculture products and much more. the policies have in short a lot and will continue to be important going forward. what happens in china or other groups are critical. things like electric vehicles can be important for the future, political fuels in general and they affect the agricultural sectors of these products and climate change thinking about longer-term, this thing called the farm bill. i look forward to the discussion. >> for the discussion, doctor offit, it's all yours. >> thank you for the presentations, i was able to read about it before i heard you talk, very well done. thank you. what we have heard these three experts tell us about is the situation viewing the farm sector in the aggregate. we know however, there's a lot of areas within the subject but it's particularly relevant when we think about role of government payments and contributions to the well-being of the farm households and financial conditions as well. it's established most of the payments go to a small portion of farmers and these farmers are wealthy. there's a lot of ways to slice and dice this but if you look at commercial farmers, these are farm households whose annual income is $300,000 a year and net worth $5 million. this is where the bulk of our payments go so might ask yourself to focus more strongly on the well-being of this group because that's who gets payments. neither pat nor nate did aggregate their forecast to look at different kinds of farmers and reports behind what carrie talked about there are but the fact that a minority in the commercial piece about 9% of all farmers, i would also say we have an archaic definition of what a firm is an might argue commercial farmers are the ag center and might not be a bad idea to redefine it someday but when you look at not only the well-being farm households and commercial farm sector with the financial positions, you have to conclude motivation for farm payments has something to do with economics great it's politics, rent seeking, vince talked about crony capitalism, these are transfer payments that have gone on for years. environment a working group told us as a group of considerable size subsidy payments for 37 years straight so you have to say to yourself, is this sensitivity to variation and economic divisions or something else going on here? we can talk about the political economy of farm payments and i think we should because the question of need, equity has to be part of a political discussion and while economics has its place, i believe it's an economist, we have to recognize farm policy has a place but the second question is, even if economics doesn't necessarily be the innovation, one of the effects of the payments on these? and what we get for $10 billion a year? which is what i think we are talking about in 2023, the management and budget, that is real money. what do we get? for example nate mentioned, actually all touched on the question, increase in land value. strong commodity prices but we also know one of the main drivers or a driver of increases in land value is capitalization into land value. that is important. how important? order micro level farm level effects of receiving these payments? how does it affect this management, how does it affect land management? we don't know. i'll just mention as part of my preparation for this i went back through ten years everything single issue of the american journal of agricultural economics, a flagship journal for discipline of aquaculture economics. you can count on the number -- one hand the number of articles that dealt with micro level effects, farm level effects of subsidy payments. a fairly technical way that affects the way crop insurance works so what we have is a group of economists created who came into existence to study economic agriculture completely having stepped away. why is that? think we should talk about it. lack of data. a large firm are not well represented in federal service, response rates for the main farm survey for the large farms below 50% several years ago, maybe lower now, farm record systems at the universities used to taken data from firms in the state withered as well or should because large coveted operations when you come with a survey, it is difficult a lot of times we don't know. there are a lot of reasons we don't know about these operations yet 10 billion year goes to, i don't know what's the next best number to use? 9% of firms so i would say public for the discussion today ought to be, what is the distribution of farm payments? why do people recognize how it is? two, one of the political determinants of farm payments? this is obviously in play, we're coming to a farm bill and how do we find out what we get for $10 billion a year? there is little discussion about, what effect does it have on a farm sector and decisions? >> thank you, susan. a quick review, the issue of who is getting what out of the farm bill will be at least partially addressed and it's the usual suspects. >> that's quite a bit to follow but one thing i want to bring up and reiterate, for me the question is, where is the crisis? i think the numbers show they are reminiscent of the farm bill and you will see the members of the committee showing it was dropping 50% compared to 2013 until last year was at the time, record highs so i want to caution new members and members of congress to put this in perspective, is there an actual farm crisis? i think it's clearly the data says no. that said, it is fair to look at the experience of the pandemic and across the country and see, are there holes in the safety net? i think it's a legitimate question to have and you don't get the answer from that data because such diversity within the agriculture that's where we should have the debate. where, if anywhere, has there been a hold where people have not been able to weather events outside of the control, where have they fallen through the whole if they exist? that will not be the debate we are only writing about baseline. if the committee wants to come out and say we have to defend a certain level of payments no matter what, we're not going to have a debate about the economic application and social policy implication having these various policies governed by the farm bill. that's important to remember. the second thing we talked about the baseline the congressional budget office, there's a lot of important information they came out with recently mostly about overall economy and the position our federal deficit within that so when policymakers are thinking about what to do, what can we do with these effects of government payments? we are also seeing record levels of debt, reaching a level was never done in this country. we are exceeding our economy soon in the acute related federal debt. trillion dollar annual debt of permanence now and it's going to be to trillion over the next ten years so it's a level of time debt unprecedented and we don't know implications of that so that's why we caution if we move forward into the farm bill is not about protecting baseline, it's not just about saving money, it's figuring out what we have to spend and how we can spend on it in a way it's going to be sustainable for the future so those are the two big things out of this. also, we like to summarize for folks trying to figure out what to do in this, keep it focused both on foreign public policy issues also within the programs on the people and institutes that need assistance so what are we protecting people from and who are we protecting them from? that is important you have to be fiscally responsible because deficit and debt you matter and they will matter more in the future. thematic politically right now in the farm bill debate but economically as well and resilience. one thing when you look at the data from a government payments have been helpful for some folks and i think there is truth to that the rest not be in existence without the government support. some probably shouldn't be in existence but are because of that support. what we need to make sure in the future is assistance we have on the safety net is fostering resilience instead of dependence. we can't mute it so much that businesses don't have to, even don't get to respond and that's an important thing to move forward in the financial safety net and response to climate change and conservation at large. as a lot of assistance we can do and it's important but we need to make sure we make room for opportunity and not make it so that the sector doesn't have the opportunity to just market reality so does the farm policy would like to call it and you can avoid the fourth one which we are not allowed to say so those are the main things. i think that's a different perspective that is important but also important that we need to do what is right and can't afford to do what's right and respond to the crisis, no one predicted, no one in power predicted the 2018 recession that occurred but we note that will happen again and we have to have a flexibly to respond in ways we respond and we can't do that if we -- shouldn't be that hard of a decision in our safety nets right now. >> well, thank you thank you, panel for being efficient with your time, appreciate it. you made my life easy. i want to come back to about farm bankruptcy, i want to provide some context. my understanding is chapter 12, the preferred group for bankruptcy, throughout the period 2010 to 2020 fewer than 550 farms each year declared bankruptcy in the statute out of u.s. days total, i am not lying here, if we say the top 9% about 175,000 to 180,000, there's no way the sector is there for comes close to the small amount of encrypted for a company whether it's the company, automobile, there is also the issue of how many farms are on the financial stress as defined by usda which raises ways over the last 15 years about 2%, maybe above to present. in that context, should we really care if 20% increase? i guess a bit of a caveat when we talk about farm bankruptcy, what you are referring to helps limitation, those are typically best thought of as rather small farm operations so it is true we were seeing modest increases in farm bankruptcy during that time 2014 through 2019, many were small dairies located in wisconsin, are larger farm operation would not qualify for chapter 12 so limitation of the data there in terms of what we see. i do think it is important to track what we see in respect to broader financial conditions there and chapter 12 bankruptcy data is one way we go about trying to assess that with broader measures we would look at and others to get a sense of what the financial stress is because it is important to follow from a number of angles and not just limiting to one segment in chapter 12 would be more specific. >> was i roughly correct about the financial stress data? might asking you to go beyond your brief there? >> you're right, about 2 million firms in the u.s. we have a collection of different data you could used to measure financial stress. can see some in the next panel operating profit margin. we have 18 different financial ratios that can be looked at. >> what you see in the future in terms of likely increase diminishing financial stress given the numbers you have shared with us? >> a representable farm bill for a number of years now. they build panel forms that represent agriculture in those areas. the share of the farms expressing stress now is less than it was in 2015 versus 2019 for our concerns going forward as commodity prices are expected to come down. we'll have final numbers yet from the 2023 baseline but i expect to see some parts expected some stress. >> what you think about these from the mental data? you've already shared but to reflect back on that. >> the way frame the question, how is the sector doing comes down to two things. what's happening to farm income and production costs going up? as soon as people here income is going down and costs are going up, everyone is on fire, oh my gosh. this is the motivation. obviously it's a much more complicated picture and i think this aggregation given the 2 million firms we have is critical and we will hear about it in next panel. at this time the question of how many farms are under stress will be a small number no matter what. the farms that produce most of what we eat and export are well organized as is and have access to the credit sector. ... to allow people to assume that 2 million people that we call farmers in this country are all experiencing the same level of stress or the same level of prosperity. >> just as a quick comment, as a moderate, all three of our presenters made the point that while farm receipts are going to diminish somewhat and farm expenses have gone up, nevertheless, 2023 that cash income which my view is that the more meaningful number than the other number, it's still going to be at least top ten over the last 50 years. it's exceptionally high and farms are actually really doing exceptionally well from a has to work profit, context. we are not in 2002 for example, link example when quan prices were inflation-adjusted at record lows. so i think that is interesting and appreciate that all three of you said the same thing. questions from the audience? yes. >> bob thompson, professor emeritus university of illinois. it seems that with come into a period of higher interest rates we have to start factoring in a higher discount rate when we discount expect a full future net revenues in figure out what we can afford to pay for farmland. if you divide the cash flow by 0.1 you're going to get a very large number, but is that really, are currently in prices really realistic or can we possibly avoid this bubble bursting and having a downward adjustment as we become accustomed to both perhaps a bit lower cash flow and a higher discount rate? >> so if interest rates go up the land prices go down. >> i can take a stab at that. feel free to chime in. generally speaking you would expect to see an increase in interest rates would put downward pressure on land values. i say generally, largely because there are many other factors that also go into that. we have been in a highly unusual environment the past few years and what i i will say is when there tends to be instability and uncertainty about cash prospects in any different sector or investment prospects going forward the tends to be a premium that's paid for assets that generates stable returns over a very long time horizon. and agriculture and farm real estate has fit that category. i think you've seen a number of other reasons whether it's farmers or investors expressing interest in farmland, inflation could be one of those as a hedge against that. there are a number of things like going to the determination ultimately of how land is valued but in short yes, you would expect a normal circumstances higher interest rates would put some downward pressure on those land prices going forward. >> which leads to a follow-up question i suspect, which is isn't it paradoxical than in some ways that prices for land in the regions by the kansas city fed and also by the minneapolis fed, land prices have jumped nine to 10% in the region that your banks are, and 18-20% apparently in the regions by the minneapolis fed. so eventually the great planes. >> i think a primary reason for that was described well by pat a minute ago in showing much of the cash receipts were tied to corn and soybeans. those areas of the country that were predominantly concentrated in corn and soybeans because of the profit increases in those industries really were quite substantial. and as was alluded to earlier there are distribution differences when it comes in, not just on a basis of the size of farm operations but regions as well. when we look at disparities regionally across the country you are going to see some of that that is tied to the kind of industry, the region there located in. >> let's go to another question for i'm sorry, susan. >> question of land values, nate minchin investors. -- mentioned. there was information who is buying farmland? we were worried about the liechtenstein by too much harlan. but who is it these days? people like bill gates. why do these people live farmland? it's a good hedge against inflation but how much of that is because people come savvy investors know that the government has a a role, willp up in keeping land values from crashing, right? the issue is it the distributional issue. who benefits from higher land values? people with a lot of land. the more there are nonfarm, non-farmers non-farmers owning land, that's a distribution away from as joshua pointed out, the goals of foreign policy. soak in the question, i spent seven years at gao and it finally had an impact on me. where are we going with this? what do we get into gets it and why rex. >> there's a question that we will come to in the second panel. yes, sir. >> banking consultant and longtime observer of farm credit system. my question is following up on the previous question, if financial distress hits the agriculture sector for whatever reason and it in particular has a negative impact on farmland values, where will that stress extend to past farmers ended to financial institutions? as we know in the '80s, a lot of somalia farm banks failed, farm credit system at its issues. to what extent would a similar circumstance arise if we get a significant downturn in farmland prices? what financial institutions are going to really feel the effect of that and have serious like that impact to be? >> who would like to take that question on? as a moderate i would love to but it's not my role. >> i can take it again but others feel free to chime in. i do think suze made it very important point here earlier in recognizing rigors of whether were talking about government payments or some other aspect of finance and income, those supports do find a way into the capitalization of certain assets. land could be one of those markets. it would be important to try to make sure we understand potential change the policy in terms of how that might affect things like land or other asset markets. in some ways that might not be foreseen or that would lead to some unintended outcomes. when was on the issues of the 1980s part of the reason there was such a financial crisis in ag associate with land was in part because of leverage that it built up in the financial sector that was ultimately tied to land as a collateral on those loans. as you saw land values diminish at a time of her interest rates it caused severe financial pressure. i think there been some mid against over the past ten years associate with the outcome, in part because during the low interest rate and private use of many financial institutions both farm credit system and banks take a fairly conservative approach when it came to lending. they were not necessarily lending on the entire value of the land. they would've put ceilings a place in terms of loan-to-value ratios to try to protect against the scenario you're describing of the potential decline in land values. that provide some mitigation but it do think if you're talking, depending on what magnitude you're talking about as a possible decline in land values that of course would ripple through the farm financial sector in part because of the size of land in terms of the contribution to balance sheet. >> yes. >> may be to follow up on that question. in her own projections we are showing relatively flat land values going forward as various things offsetting what another. we do have higher interest rates, the fact we have decline in net returns and what it has been the last two or three years, stopped those markets and expand as fast as they have been. it does mean the potential for stress if prices fall sharper on the upper side of interest rates go higher than we currently anticipate. i think back to the 1980s, love institutions got in trouble were very refocused on agricultural loans and you probably have a smaller share of lending institutions today that are quite as focus on agricultural loans as would've been the case back then. >> so in a related discussion, carrie, just to follow up again. you and nate talked about an increase in debt within the farm sector. the impact on dutch asset ratios has been really almost minimal, what did he go from about 30.09% that the asset ratio to about 30.12, something like that. which by the way in the broader context means that farming has incredibly low debt to asset ratios. in the farm crisis of the 1980s you were looking at that asset ratios in a range of 27% which is different well. of that debt, how much is due to the increase in debt associated with land and buildings and mortgage debt, rather than in say i need money for seed or fuel? >> yeah. i'm trying to visualize it in my head. >> sorry. >> i believe that most of the forecasted growth in debt is a non-real estate debt. i think that's with action is been in the past few years. >> is at being driven by concerns about higher input prices, pat. >> was its part of the story and when you think about a sector wide data as the ratio yet to be careful because a lot of departments of debt that ao the smaller share of of produce of the lot higher levels of debt. >> please. >> this is probably a question for pat and nate but it seems like one of the big factors that's change over the last few years that we've seen is pat you mentioned the growth in renewable diesel. i'm curious as to how much of the factor you see considering all of the plans for increased capacity both on the production and soybean crushing side, , how much you see that underpinning farm economy over the next ten years and creating competition for soybeans, demand for soybeans and polling land away from competing crops like corn and cotton, for example? >> sure. the growth industry as supportive festival oil prices for protein meals. we expect that to continue going forward. the policy remains uncertain. we don't know for sure whether renewable fuel standard will be for set for future years, how the california low carbon fuel policy in california will be going forward. and, of course, some of those plans currently in plan may never be built but they will build and operate at full capacity yes, it would provide a lot of support for vegetable oil consumption in this country, pushing up the area that's devoted to soybean area in this country but also south america. in our own projections were probably going to be showing the united states to become a net importer of vegetable oil in the future if those plans were to be carried out to the extent people are talking about. >> the only thing i think i would add to that is again going back to the comment earlier that these sorts of things and prospects for the build out of some of that ultimately are also factoring in the things i get capitalized into things like the valley of lent. to the comment earlier about the differences in the midwest versus for the west into the plains, you would expect that produces or investors or whether is involved with the buying the land and expanding and all the considering the future prospects associated with that, to the extent physical to be increased demand come by way of things tied to energy. that's also contributing to some of which is in terms of regional differences. >> bob thompson again. susan, one of my pet peeves about our national agricultural statistics, and that is the definition of a farm that's imposed by congress on the data collectors. as far as i know it still $1000 a year, any place any cushion it could produce $1000 a year produces statistics on the national averages of farms in the united states that are utterly meaningless and most, the majority of those are hobby farms, rural residences that by no stretch of imagination view themselves in the business of farming. they may do a little farming on the side of their retirement or their rural residents, but to count them in our national averages and suggest that those averages mean anything about the economics of agriculture is absurd. >> does anyone want to comment? >> sure. yeah, i get your point and that last map that i showed, one thing we did with that is was just farm businesses because you're right, 50% of all farms, what we call residence farms, meaning their primary occupation is in farming and that less than $150,000 in gross cash income a year. so we do this kind of supplementary set of statistics that look just at the zafar businesses which account for the other 50% of farms but they count for like 90% of the valley of ag sector production. they hold no sector assets and debt so we think it's worth giving them a little extra attention because they are such a dominant force in the sector. >> it seems to me -- we are really talk about the performance of the commercial farms because the remainder of the 2 million don't really produce much. other than the burden of having to go out and count all these farms all the time, the harm to me that's done is that the existence of these 2 million farms is used to justify payment they go to only 10% of the farms. i wouldn't mind, you could to find farms however you wanted if it weren't used as sort of a smokescreen to sort of distract attention from the fact most payments are going to very small number of farms. most americans, despite what you can report, don't see that. >> the next panel we will be seeing presentations that there was some of these issues in more detail. as the moderator i want to have the last question, just the one of couple minutes of responses. small farms include many minority owned operations where the very few, less than 2.5% of families lived below, have farms who live below the poverty line. it seems to me one of the problems with the statistics we have is we are gloriously ignorant of actually the status of minority farms owned by, for example, african-americans or a native americans and so on. is that a fair assessment or is that just me being a mean moderator? >> island jump in just quickly that i won't just jump in on the circuit which is a basis for a lot of the research that we do in ers and it is a limited unlike characteristics of race and ethnicity, just in that it is a survey so we can sometimes get at a sizable enough of these minority or underserved farmers to produce statistics it might be as robust. >> so it's one thing the farm bill might be able to do that would be bipartisan is to improve the information about particularly what we often call underserved communities? >> well, i think timmy the question is when you look at that segment, and as carrie says, the ability to sample what is a very small number is limited, you know, what are the real drivers of the circumstances of poverty that you find on these places? is it that they are not good farmers or is it something else? is a farm policy really is a way to address the fact that these are households who are doing well, who are poor? i think that's too josh his point which is let's see what we actually come let's assess what we see out there and then decide what to do about it. farm policy if all you have as a hammer everything looks like a nail, right? but that's probably not true. >> that's a great note on which to end the session with many thanks to all of our participants in this panel. we will take a ten minute break, 15 minute break? ten minute break for people to gain some coffee, visit appropriate places and go from there. thank you, guys. 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