As if low crop prices weren't tough enough,
the nation's farm economy is now being battered by soaring costs
for energy and fertilizer.
Net farm income is likely to drop 20 percent, or $9 billion,
over the next two years unless there is a fresh outpouring of
federal aid, an agricultural policy institute told Congress on
Farmers received $8 billion in emergency aid last year and
lawmakers are virtually certain to pass another large bailout this
year. Congress will begin hearings this month on a long-term
overhaul of farm policy that includes proposals for a new system
for subsidizing growers when crop income is down.
The cost of fuel that farmers need for tractors, combines and
irrigation equipment jumped 31 percent last year, according to the
congressionally funded Food and Agricultural Policy Research
Institute, which is based at the University of Missouri. Prices may
drop slightly in coming months, but growers are expected to be hit
this year with a 33 percent cost increase for fertilizer, which is
made from natural gas, the congressionally funded institute
"It's not only low prices, it's high production costs that are
squeezing farmers," said Bruce Babcock, an Iowa State University
Nebraska farmer Keith Dittrich said he expects to pay about $67
an acre to irrigate his corn this year, compared to $37 an acre in
2000. Fertilizer costs are running $40 an acre, up from $25 last
Meanwhile, the price of corn has averaged under $2 a bushel
without a significant increase for several years.
"You keep looking for ways to find better efficiencies in your
operation, but there's a limit to that," Dittrich said. "It's to
the point where there is no place to cut."
The financial squeeze isn't just in the Midwest. Cotton farms in
California and Texas that rely heavily on irrigation are likely to
be among the hardest hit over the next few years, according to an
analysis by Texas A&M; University. Rice farms of all sizes are
likely to lose money, too. Wheat and soybean farmers, whose
fertilizer and fuel costs are generally lower, would do a little
A 2,000-acre cotton farm in California is expected to have $1.05
in costs for every $1 in income over the next five years.
Cattle producers are in the best shape, in part because of
rising beef consumption and the low grain prices, which result in
lower feed costs.
Crop prices plummeted in the late 1990s because of lagging
exports and heavy worldwide production, and Congress responded by
passing multibillion-dollar packages of supplemental assistance in
each of the past three years.
Sen. Pat Roberts, R-Kan., warned recently that farmers faced a
"economic and energy powder keg" because of the rising production
costs. Agriculture Secretary Ann Veneman has endorsed the idea of
another emergency aid package this year but hasn't said how much
money will be needed.
The report released Tuesday estimates net farm income will drop
from $45.4 billion last year to $39.6 billion in 2001 and $36.3
billion in 2002 before starting to turn around in the following
years as commodity prices rise.
Farm income peaked at $55 billion in 1996.
Government payments have been soaring since then, topping $22
billion last year, triple what they were in 1996.
"What the payments have done is help them (farmers) maintain
their position," said James Richardson, a Texas A&M; economist.
"Some have lost ground but most have maintained their position."
Roberts and other farm state lawmakers also want to protect
farmers from more taxes. At issue are conflicting court rulings
over whether farmers must pay self-employment taxes on income from
the federal Conservation Reserve Program, which distributes $1.4
billion to more than 290,000 farmers who take environmentally
sensitive acreage out of production.
"Now is not the time to add another tax burden on our
struggling farmers," said Roberts, one of several sponsors of a
measure blocking the additional taxes.