Uncle Sam has just responded to the farm crisis with the biggest pay-out in history. And let there be no doubt that this was no "band-aid" but a whole lot of money.
First, let's look at the highlights of what the government is doing:
* The emergency agriculture relief package approved in late October totals $8.7 billion in emergency funds. Of this amount, $5.8 billion is expected to be in farmers' pockets before the end of 1999.
* $5.5 billion of the $8.7 is for lost market value of crops.
* $475 million is to be paid in direct payments to oil seed producers.
* $1.2 billion is for weather-related losses in 1999.
* A major change for larger producers is easing the limit on loan deficiency payments (LDPs) and marketing loan gains from $75,000 to $150,000. This year, LDPs alone are expected to hit $6.6 billion, compared to $2.7 billion a year ago.
Now let's take a look at the bigger picture. The Economic Research Service (ERS) is forecasting that direct payments to farmers this year will reach $22.5 billion, an all-time high. The previous highest payment from the government to farmers was $16.7 billion in 1987. In 1998, government payments totaled $12.2 billion (see printed article).
The bottom line - this is a huge amount of dough. ERS is forecasting this year's net farm income at $48 billion versus last year's $44.1. Of the $48 billion, $22.5 is coming from the government. That's 47% of the net farm income.
The largest net farm income in history was in 1996 at $54.9 billion. As bad as financial times seem in agriculture, with this influx of cash 1999 should now be one of the top five years.
Over the next couple months there will likely be two kinds of complainers at the coffee shop:
* Those who say they can't make a living at these low commodity prices.
* Those who have done well at marketing, and when combined with their government payments, are going to be complaining about high income taxes.
I'm completely in favor of aid packages for "Acts of God" disasters (production losses from flooding, drought, diseases in livestock, etc.). I'm not in favor of disaster relief for those who have done a poor job of running their business and/or a poor job of marketing. But production losses are an entirely different issue. The government should be stepping up the plate to aid farmers with those problems.
The more money the government doles out, the more unlevel the playing field is going to become. For example, producers already having a good year financially because of good marketing, combined with the new influx of government cash, may well have record-high incomes this year. They will have more buying power than ever when it comes to buying land and/or driving up cash rents. There is little doubt that this huge influx of cash, albeit needed by many producers, will result in an acceleration to fewer and larger farms.
Parting Thoughts
For many, the farm-aid package was a Christmas present come early. As we've said previously in this column, good times don't last forever. Fortunately, the bad ones don't either. Two years ago few would have dreamed that commodity prices would be where they are today. My guess is that two years from now we'll look back and want to forget the commodity prices of 1999.
Have a nice holiday.