‘Better’ reports from private sector helping producers function in government shutdown
October 23, 2013
Across the country, people are dealing with the government shutdown.
Many offices are closed and services that are used on a regular basis are not being provided.
For many industries, this shutdown is a big problem, but for agriculture, most producers seem to be moving along just fine.
An issue that agricultural producers are seeing is the lack of U.S. Department of Agriculture reports, which are used to help producers market their crops.
However, for Marc Arnusch, a row crop farmer from Prospect Valley, Colo., said the reports don’t seem to have a large effect on his farm.
“In the absence of a government report, we begin to trade on fundamentals. There is no change in our day-to-day operations, and farmers are still harvesting just as they would have,” he said. “The government tends to be the baseline standard for the numbers that we trade month in and month out. That is the one thing that everyone looks to for factual, accurate information. Speculators will also look at it to make their decisions.”
“However, there are a lot of private firms that will come out with numbers that are different, and in many cases they have better intelligence, and better and quicker fact checking,” Arnusch explained. “Many times the government numbers are not as accurate, and the information is not gathered timely enough. Some of the data is 45-60 days old that is being reflected, and that doesn’t match well with private estimate that are two weeks old or less.”
Many farmers blend the two reports and make their marketing decisions on the combination of the two.
“I use both to try to see how the market is reacting. The market is basing its attitude off of the government numbers. Even if I feel they aren’t accurate, that’s what the market is going off of,” he stated.
Even if the shutdown lasts for several months, most crop farmers feel they will be okay, but the markets could change.
“Lets say it lasts three months, and we get through corn harvest. You might see more volatility in the market at that point, and there will be some differing information out there. For the farmers and from a hedger’s perspective, I don’t feel there will be a lot of surprises. However, for the speculators, the non-producers, they could have some surprises,” Arnusch explained.
Most of the farmers who are seeing the effects of the shutdowns are livestock producers that are having losses, and the Conservation Reserve Program payments that are not coming through.
Producers who have taken advantage of commodity credit loans may also see some issues, but it is a very small segment of the farming industry.
This does not mean that the government shutdown will have no effect.
The impacts to agriculture will be in the future, the longer the government stays shut down, stated Arnusch.
Farm Bill Uncertainty, CROP INSURANCE A BIGGER CONCERN
The biggest problem with the government shutdown is that the farm bill is not being discussed.
Planting and marketing decisions are happening right now, and farmers and ranchers are unsure if they should proceed with making those decisions based off of the 1949 Agricultural Act, which is permanent U.S. agricultural law, or if they should take a chance and wait to see if Congress will pass a new farm bill.
The biggest worry that farmers are fretting over is the crop insurance section of the farm bill. Crop insurance is used by farmers as a safety net against unpredictable losses, and without a new bill, farmers are stuck not knowing what to do.
Wheat farmers are planting wheat now, and acreage reporting is due on those fields by the middle of November. At this point, farmers do not know what percentage they will pay and what percentage the government will kick in, if any, to cover the premium.
“If we have to cover it 100 percent ourselves, there will be a lot more crop at risk because farmers can’t afford it. The government supports crop insurance premium at 58 percent. If that disappears, we are looking are more than doubling the price that we pay for insurance. At that level, it wouldn’t be worth it and many farmers wouldn’t have it. That would open up farmers to the volatility of market place and the weather. They will be looking at a lot more risk,” Arnusch stated.
Corn crop insurance is much more expensive than wheat crop insurance, so if a new farm bill is not in place by the time corn is planted in the spring, farmers may not know what they can afford to plant.
“It is much cheaper to insure a wheat crop than a corn crop. It is roughly 40-50 percent more to insure a corn crop. That will affect what we plant,” he said.
Most farmers plan what they will plant more than a year in advance, and without knowing what to do, they are stuck trying to make planting decisions with little data.
“I’m definitely planning beyond next year already. We are planning for 2015 even now, and are even thinking about some crops for 2016,” he said.
He continued, “It’s hard for us to market our crop within the year. We sell a lot of crop production for this year last year. We try to market our crop over multiple years to try to capture that profit, so that’s why we plan several years in advance.”
If crop insurance support goes away, farmers could be in trouble.
“That would have shock waves that would go through the industry if it’s gone. If the level goes down, we could work around that. If it disappears, it would be nothing short of a catastrophe,” Arnusch explained.
If farmers and ranchers proceed with their decisions based on the 1949 law, they will have to operate under farm programs that have not been used in the U.S. for close to 60 years.
These programs include parity pricing and quotas. If farmers and ranchers delay their decision in hopes of a new farm bill, they stand to be placed behind the eight ball when tractors start rolling.
With the expiration of the current farm bill, there is no authority for funding the Market Access Program or the Foreign Market Development Program now.
There also will be no new enrollments in the Conservation Reserve Program and the Wetlands Reserve Program.
The Senior Farmers’ Market Nutrition Program will be closed until a new farm bill or extension is passed.
The most significant ramifications of the expiration of the farm bill will not occur until about Jan. 1, when USDA would be required to start taking steps under permanent 1949 law to increase prices for milk and some commodity prices.
“This government shut down means that the farm bill is still on the back burner. We can make it past the lack of reports, but I’m not sure what will happen if we don’t’ get a farm bill. That bill is important, and uncertainly doesn’t bode well for agriculture,” Arnusch stated. ❖