Agriculture probably will not escape unscathed from the recession that has hit the U. S. and world economies.
“Ag lenders likely will face a shortage of money,” said Joe Outlaw, co-director for the Texas A&M Extension Agricultural and Food Policy Center, during the Texas Commodity Symposium in Amarillo. The symposium is held annually in conjunction with the Amarillo Farm Show. “We don’t expect a replay of the 1980s.”
Outlaw said farm lending policy has changed in the two plus decades since the 1980s, shifting form “collateral based to repayment capacity. And we now have volatile prices instead of depressed prices.”
He said land values remain strong, but commodity prices have dipped significantly in the last few months while production costs remain high, in spite of recent drops in energy costs.
He said corn production expenses rose from $200 per acre to $350 per acre in one year. “It will come down some.” But maybe not enough.
“Farmers will try to put in a cheaper crop, but I don’t expect seed prices to drop. Fuel prices will come down and chemicals tied to natural gas prices will be down. Machinery and repairs are not down and labor is not down.
“Farmers will face pressure on cost and the revenue sides.”
Outlaw said farmers likely will see a profitable price for commodities sometime during 2009. “But they have to stay on their toes.”
He said details on the 2008 farm legislation continue to come in slowly. “We don’t have solid information yet. We know conservation got a big boost.”
Outlaw said farmers should be wary of signing up for the new payment program, Average Crop Revenue Election (ACRE) until they get more information. “You don’t have to sign up this year to remain eligible,” he said. “Farmers probably will not jump on this program until they have the final details and we don’t have enough information yet to make decisions for the 2009 crop.”
Outlaw said banks may be leery of ACRE as well. “They want to know payback opportunities,” he said.
He said with cotton, for instance, farmers might have trouble penciling in a profit with the payment reductions and low commodity prices.
ACRE includes reduced payments, 20 percent less in direct payments and a 30 percent reduction in loan rates. “It’s complicated,” Outlaw said.
ACRE is a two-step process in which both the state and the individual farmer must have a loss to qualify.
Outlaw said Texas A&M will put details and analyses on its website as soon as final details are available. “For now, we don’t have enough information for 2009 crops. Farmers will have to analyze each farm. Also, once a farmer signs up for ACRE he is committed to it through the life of the farm program.”
Producers may enroll part of their overall acreage in the program. “It’s based on farm number,” Outlaw said.