Many rice producers will not be able to pay back their loans this December due to low prices and a couple of unfortunate features of the new farm bill.
According to Michael Salassi, an economist with the Louisiana State University Agricultural Center, in Baton Rouge, the most pressing problem is record low prices, which continue to tighten their death grip around the throats of Louisiana rice producers.
“Most of our rice is sold at harvest and right now, the market price is historically low,” Salassi said. “The seasonal average price for Louisiana has not been below $4 per cwt. for a while, and I've looked all the way back to 1948-49. A few weeks ago, when a lot of Louisiana farmers were selling rice, prices were running $3.50 to $3.70 per hundredweight.
“That's why a lot of them can't cash flow or get financed for next year. Market prices are so low.”
In addition, rice producers usually have enjoyed selling rice at a premium above the world price. From 1998 to 2001, the premium averaged about $1.44 per hundredweight. This harvest season, it has all but disappeared.
Government support has also declined. The combined farm program support from the new farm bill's direct and maximum counter-cyclical payment is around 98 cents per hundredweight below the average support during 1998-2001, which included emergency payments to farmers.
Salassi estimates that for water-planted rice in southwest Louisiana in 2002, a market price of $4.50, an LDP of $2.93, a fixed program payment of $2.35 and a countercyclical payment of $1.65 projects a residual return for rice producers of negative $68.93 per acre.
Residual returns represent net income to producers for payment of management costs and living expenses.
Since then, U.S. rice prices have fallen even further, while the LDP has remained constant. Losses are now closer to $95 per acre.
In addition, many rice producers can't afford to update their rice base under the new farm bill. And they need to, according to Salassi. Louisiana state yields average 5,200 to 5,500 pounds per acre, but the state average rice program yields are only around 4,000 pounds.
“If a rice producer in Louisiana only plants his paid base and the target price is $10.50 per hundredweight, he's going to end up with something less than $10.50 because the countercy-clical and fixed payments are only going to be paid on his program yield of 4,000 pounds as opposed to his actual yields,” the economist said.
“So his income per actual hundredweight of rice produced is going to be less than the target price.”
Under the new farm bill, a farmer can update his yield as long as he updates his base acreage at the same time. But many Louisiana rice producers significantly reduced their acreage during the update period. Salassi says the reduction is 75 percent for the entire state.
Essentially, for Louisiana growers “the drop in base in paid acres should they update would offset the gains they would make by increasing their yields. So they can't update yield because they planted so much under their base.”
Some changes in Louisiana rice production appear imminent, according to Salassi. “If rice producers can't afford to update, they're going to have to determine how much income they have to have to cover the costs of producing a hundredweight of rice.
“Because most of them can't update, they're just going to have to plant significantly less than 85 percent of their base and use some of that extra payment on some land not planted in rice. That's pretty much the only option they have.
“I would suspect that you are going to see a drop in rice acreage in Louisiana next year,” he added.
Another problem is the spread-out counter cyclical payment under the new farm bill. “Growers are not getting the final payment on the 2003 crop until September 2004, which makes the cash flow problem worse.”
According to Salassi, rice producers in other states are having the same problem “in the sense that we all have low prices. Their situation is not as bad because their costs are not as high as ours and their yields are higher.”
Louisiana Sens. John Breaux and Mary Landrieu introduced a bill on Sept. 20 that would authorize USDA to make a one-time economic disaster payment of $2.42 per hundredweight to Louisiana rice producers, based on actual 2002 production.
According to Paul “Jackie” Loewer Jr., chairman of the Louisiana Rice Producers' Group, growers in other states have also complained of similar shortfalls in cash flow. Therefore, the Louisiana bill might be modified to include other rice-producing states, with a one-time payment of $2.40.
If the bill is not passed, 20 percent of Louisiana rice producers would not be refinanced in 2003, according to Loewer. The pending bill offers some hope for those producers, but Loewer believes the bill “is still a longshot with the climate in Congress right now. But we have to try for it. It's the only thing we can do.”
According to Mike Unkel, a rice producer on the board of directors for First South Farm Credit, “we do not anticipate any of our rice loans to cash flow for two reasons. First, we figure we're getting a dollar a barrel (162 pounds) less from the farm bill and $4 less from the market. This will not cash flow with the high costs.”
Unkel says Farm Credit as well as other banks “will do some long-term financial restructuring for farmers with some net worth who want to continue to farm. They'll extend the debt out maybe five years. But there will be some who don't have net worth. But virtually no one will be able to pay their loan off at the end of December.”