U.S. GOVERNMENT PUBLISHING OFFICE

28–500 PDF WASHINGTON : 2019

S. HRG. 115–173 

EXAMINING THE FARM ECONOMY: 

PERSPECTIVES ON RURAL AMERICA 

HEARING 

BEFORE THE

COMMITTEE ON AGRICULTURE, 

NUTRITION, AND FORESTRY 

UNITED STATES SENATE 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

MAY 25, 2017 

Printed for the use of the 

Committee on Agriculture, Nutrition, and Forestry 

( 

Available via the World Wide Web: http://www.govinfo.gov/ 
COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY 

PAT ROBERTS, Kansas, Chairman 

THAD COCHRAN, Mississippi 

MITCH MCCONNELL, Kentucky 

JOHN BOOZMAN, Arkansas 

JOHN HOEVEN, North Dakota 

JONI ERNST, Iowa 

CHARLES GRASSLEY, Iowa 

JOHN THUNE, South Dakota 

STEVE DAINES, Montana 

DAVID PERDUE, Georgia 

LUTHER STRANGE, Alabama 

DEBBIE STABENOW, Michigan 

PATRICK J. LEAHY, Vermont 

SHERROD BROWN, Ohio 

AMY KLOBUCHAR, Minnesota 

MICHAEL BENNET, Colorado 

KIRSTEN GILLIBRAND, New York 

JOE DONNELLY, Indiana 

HEIDI HEITKAMP, North Dakota 

ROBERT P. CASEY, JR., Pennsylvania 

CHRIS VAN HOLLEN, Maryland 

JAMES A. GLUECK, JR., MAJORITY STAFF DIRECTOR

ANNE C. HAZLETT, MAJORITY CHIEF COUNSEL

JESSICA L. WILLIAMS, CHIEF CLERK

JOSEPH A. SHULTZ, MINORITY STAFF DIRECTOR

MARY BETH SCHULTZ, MINORITY CHIEF COUNSEL

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C O N T E N T S 

Page 

HEARING(S): 

Examining the Farm Economy: Perspectives on Rural America ......................... 1 

Thursday, May 25, 2017 

STATEMENTS PRESENTED BY SENATORS 

Roberts, Hon. Pat, U.S. Senator from the State of Kansas, Chairman, Committee on Agriculture, Nutrition, and Forestry ................................................. 1 

Stabenow, Hon. Debbie, U.S. Senator from the State of Michigan ..................... 3 

Witnesses 

Johansson, Robert, Ph.D., Chief Economist, U.S. Department of Agriculture, 

Washington, DC ................................................................................................... 7 

Kauffman, Nathan, Ph.D., Assistant Vice President, Economist, and Omaha 

Branch Executive, Federal Reserve Bank of Kansas City, Omaha, NE .......... 9 

Sheffer, Alec, Director of Retail Sales, Agri-AFC, Montgomery, AL ................... 11 

Weber, Bruce, Ph.D., Professor Emeritus of Applied Economics, Senior Economist, Rural Policy Research Institute, Oregon State University, Corvallis, 

OR .......................................................................................................................... 13

APPENDIX 

PREPARED STATEMENTS: 

Johansson, Robert ............................................................................................ 40 

Kauffman, Nathan ............................................................................................ 56 

Sheffer, Alec ...................................................................................................... 69 

Weber, Bruce ..................................................................................................... 76 

QUESTION AND ANSWER: 

Johansson, Robert: 

Written response to questions from Hon. John Boozman ............................. 86 

Written response to questions from Hon. Debbie Stabenow ......................... 88 

Kauffman, Nathan: 

Written response to questions from Hon. Pat Roberts .................................. 91 

Sheffer, Alec: 

Written response to questions from Hon. Pat Roberts .................................. 92 

Weber, Bruce: 

Written response to questions from Hon. Pat Roberts .................................. 94 

Written response to questions from Hon. Debbie Stabenow ......................... 95 

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EXAMINING THE FARM ECONOMY: 

PERSPECTIVES ON RURAL AMERICA 

Thursday, May 25, 2017 

UNITED STATES SENATE, 

COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY, 

Washington, DC 

The committee met, pursuant to notice, at 10:00 a.m., in room 

328A, Russell Senate Office Building, Hon. Pat Roberts, Chairman 

of the Committee, presiding. 

Present or submitting a statement: Senators Roberts, Hoeven, 

Ernst, Grassley, Thune, Daines, Strange, Stabenow, Brown, Klobuchar, Bennet, Gillibrand, Donnelly, Heitkamp, Casey, and Van 

Hollen. 

STATEMENT OF HON. PAT ROBERTS, U.S. SENATOR FROM THE 

STATE OF KANSAS, CHAIRMAN, COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY 

Chairman ROBERTS. Good morning. I call this hearing of the Senate Committee on Agriculture, Nutrition, and Forestry to order. 

We started off this year by holding two field hearings, one at 

Kansas State University, followed by another in Senator 

Stabenow’s home state of Michigan. Two great hearings. We had 

600 in Kansas. We had a smaller place but they crammed in 250- 

plus. 

We were there to do one thing, and that was to sit on the wagon 

tongue and listen, and we will continue to do that. We listened to 

farmers, ranchers, lenders, cooperatives, many others in rural 

America regarding what is working, what is not working, what 

needs to be improved in the 2014 Farm Bill. 

One thing is very clear. Times are extremely challenging, right 

now, in farm country, and that is why we are here today, to examine the economic landscape of rural America. 

When the 2014 Farm Bill was written and passed, times were 

relatively good in agriculture, but as everyone knows, or should 

know, a lot has changed since then. At the time, net farm income 

was at record highs. In the years since, the farm sector is expected 

to face a 50 percent decline in farm income. Low commodity prices 

are continuing to weigh on farm sector profits for both row crop 

and livestock producers. It hits everybody. Crop receipts are expected to decline by over $42 billion and livestock receipts over $23 

billion. 

On the credit front, reduced farm income over the past four years 

has continued to weaken credit conditions in the ag sector. Demand 

for farm loans, as well as renewals and extensions, has increased, 

due to ongoing cash flow shortages, and prolonged tight profit mar-
2 

gins which are creating additional declines in repayment rates for 

our farm loans. 

Right now weakness in the crop and livestock sector is causing 

producers to expend more working capital to meet short-term obligations. Many farmers are becoming more leveraged as working 

capital is decreasing while debt levels continue to rise. 

Obviously, this is a trend that should be monitored very closely, 

and, if possible, reversed, but let us not forget there are a number 

of economic factors which are different now than what was seen 

during the 1980s. 

Over the past few years, we have global production that has exceeded global demand. The fundamentals of supply and demand 

are certainly working. At the same time, our government is spending money it does not have. Our national debt is approaching $20 

trillion—that is trillion with a T. That is 20, and then you put 12 

zeroes behind it. That is hard to even imagine. 

Despite these difficult conditions, time and time again agriculture has been asked to do more with less. I would remind everyone in this room that the last farm bill voluntarily cut spending, 

and the previous crop insurance contract negotiation cut $6 billion 

from the program, on top of a previous $6 billion cut from the 2008 

Farm Bill. Whoever did that had some relationship with Lizzie 

Borden. 

That is why virtually everyone on this Committee agrees that ag 

has already given at the store. Farmers, ranchers, and rural families understand fiscal responsibility. They want to do their part, 

but now is not the time for additional cuts. We need to review what 

is working and what is not working. 

What is needed is certainly bold thinking and new ideas that address today’s challenges in these tough times in the agriculture 

economy. We need to ensure that producers have risk management 

tools at their disposal. Let me emphasize that crop insurance is the 

most valuable tool in the risk management toolbox. Let me emphasize that crop insurance is the most valuable tool in the risk management toolbox. 

Heidi, did you get me? 

Senator HEITKAMP. I did. I think it bears repeating, though, Mr. 

Chairman. 

Senator DONNELLY. I second that motion. 

Chairman ROBERTS. Let me emphasize—would the distinguished 

new member of the Committee like me to repeat that? 

Senator STRANGE. Yes, please, Mr. Chairman. 

Chairman ROBERTS. Let me emphasize that crop insurance is the 

most valuable tool in the risk management toolbox. We need to find 

ways to reduce regulatory burdens that hurt our producers’ bottom 

lines, and we need to strengthen our export markets for not only 

the things that we make but also for the things that we grow. I 

think we are making some progress on that front. 

As I have said before, we need a farm bill that meets the needs 

of producers of all regions and all crops. Let me emphasize that— 

all regions and all crops. The challenges are so great, given the 

critical times we live in, it is essential that small differences do not 

get in the way of a larger goal, and that is to pass a farm bill. 

Today we will take a deeper look and work to understand expecta-
3 

tions of the economic landscape and the challenges that all regions 

of rural America face. 

I remind my colleagues that the occupation of farming can be a 

very challenging profession. Earlier this year, farmers and ranches 

from Kansas, Oklahoma, Texas, and Colorado experienced devastating wildfires, prairie fires, the largest prairie fire in the history of the country on non-Federal lands. It affected more than 1 

million acres across the four states. 

On top of that, just a couple of weeks ago, a massive blizzard 

dumped over 20 inches of snow that has the potential to impact 

roughly 40 percent of the wheat acreage in Kansas. Our producers 

in other states are also facing floods, diseases, and poor planting 

conditions. These weather events, layered on top of the economic 

conditions, are exactly why it is important that we have strong risk 

management tools available to help producers manage during the 

times of loss. I think I mentioned the importance of crop insurance. 

We know that times are tough in the agriculture economy. Going 

forward, we can do one of two things. We could focus on narrow 

interests that do not serve all of agriculture, or we can work together to get things done, like we have in the past. This may require compromise, and all sectors of the agriculture economy will 

have to work together to achieve that goal. 

At the end of the day, our role on this Committee is to pass a 

farm bill that provides certainty, and stand stability to farmers, 

ranches, and rural communities across the country. 

I would like to thank our witnesses for taking time out of their 

valuable schedule for being with us here today. I look forward to 

hearing your testimony. But before we hear from our distinguished 

panel members, I now recognize the distinguished Ranking Member, Senator Deborah Stabenow for her opening remarks. 

STATEMENT OF HON. DEBBIE STABENOW, U.S. SENATOR 

FROM THE STATE OF MICHIGAN 

Senator STABENOW. Well, thank you very much, Mr. Chairman, 

for convening this very important hearing today, and we welcome 

all of our witnesses. I also want to just indicate we have a member 

who has a birthday today, and I want to say happy birthday to 

Senator Amy Klobuchar. We will not ask you how old you are, but 

happy birthday. 

Senator DONNELLY. Just old enough. 

Senator STABENOW. Yes, that is right. Just old enough to serve. 

Chairman ROBERTS. Who is going to lead us in that song? 

Senator STABENOW. Do you want to sing a song? 

Chairman ROBERTS. Well, I think it is most appropriate. Go 

ahead. 

[Singing.] 

Chairman ROBERTS. Stand up, Amy. 

[Applause.] 

Senator KLOBUCHAR. Are you going to give me one of those portraits, unpainted? I thought that might be nice. 

Senator STABENOW. Wait. Your time is coming. 

Chairman ROBERTS. We just have a large picture of the crop insurance toolbox. 

Senator STABENOW. That is right. Yes. Yes. 
4 

Chairman ROBERTS. Right next to Blanche. 

Senator STABENOW. Yes. The Chairman will give you a crop insurance policy. So happy birthday. 

So on that note, let me reiterate how important it is that we continue talking about the 2018 Farm Bill. It is hard to believe we are 

already talking about that, Mr. Chairman. But as you noted, we 

started the process by holding field hearings in Kansas and Michigan to hear directly from those who have a stake in every part of 

the farm bill. 

Mr. Chairman, I enjoyed hearing from producers at your alma 

mater, Kansas State University, where I wore Wildcat purple, and 

when you came to Michigan earlier this month I was grateful that 

you came sporting your best Spartan green. So thank you. While 

Kansas and Michigan farmers grow different crops, many of them 

face similar challenges. I have always said, farming is the riskiest 

business there is. 

A pre-harvest hailstorm on the ridge, or a late spring snowstorm, 

as your wheat growers in Kansas know all too well, can destroy an 

entire year’s paycheck if you are a farmer. 

Similarly, the economic downturn in the farm country presents 

challenges for our producers all across the country. We know that 

farm prices for many crops—not all, but many—are down nearly 50 

percent from their highs just a few years ago. Challenging market 

conditions have pinched margins and many producers are struggling to make ends meet. The U.S. has a diverse agricultural economy and these recent challenges extend to farmers in all corners 

of the country on farms of all sizes. 

We know that many farmers are facing hard times due to low 

prices. This is especially challenging for our dairy farms, who lack 

an adequate safety net. Specialty crop producers are struggling to 

find a stable workforce. New and beginning farmers are experiencing unique challenges in gaining access to credit in the current 

economic climate. All aspects of agriculture, including organics and 

local food systems need tools to survive these challenging conditions. 

We are also hearing that many of our small towns and rural 

communities are still facing tough economic times. Recognizing this 

slow economic recovery, the Agriculture Department has made historic, targeted investments in rural communities, to spur job and 

opportunity over the last several years. As a result, we are beginning to see small towns all across our country on the road to recovery. But there is much to do for these communities, which is why 

it is deeply troubling that this administration has proposed sharp 

budget cuts that would roll back a lot of the progress we have seen. 

Earlier this week, the Trump Administration released their 

budget proposal, which would have devastating effects on our farmers and rural communities. This proposal cuts $231 billion from 

farm bill programs, 10 times more than what we worked so hard 

to achieve in the last farm bill. Frankly, it would make a five-year 

farm bill virtually impossible to pass. It cuts crop insurance by $29 

billion, which would take away a crucial part of the farm safety net 

in a time when it is needed the most. 

The budget also calls for sharp cuts to the family safety net, gutting SNAP by nearly 30 percent. Proposed closings of USDA offices 
5 

would reduce customer service for our agriculture producers, and 

make their tough jobs even harder. Elimination of specialty crop 

and market access programs weakens our farmers’ ability to recover from price slumps or pest and disease issues. The budget also 

ignores the needs of small towns and rural communities. 

USDA Rural Development programs support the health of our 

small towns by supporting home ownership, strengthening water 

and sewer and road infrastructure, and providing access to critical 

health and safety services. Cutting these critical services would 

have a devastating impact on rural quality of life and eliminate 

much needed jobs. I am looking forward to bipartisan efforts to 

make sure that these cuts do not happen. 

This devastating budget proposal comes on the heels of a USDA 

reorganization announcement that would eliminate the Under Secretary of Rural Development, a key voice for our small towns. 

While I was pleased that the reorganization included plans to add 

an Under Secretary for Trade, as required by the 2014 Farm Bill, 

we have now learned it was not necessary to remove Rural Development from the subcabinet. 

Agricultural exports and rural development are both critical missions that deserve and require high-level, accountable, and focused 

leadership. The combination of devastating budget cuts to critical 

services and the planned elimination of the Under Secretary for 

Rural Development unfortunately sends a powerful message that 

this White House is not concerned with the needs of America’s 

small towns and rural communities. I look forward to working with 

the Chairman and the Secretary and others to reverse that. 

Our farmers and rural communities have done their part to reduce the deficit, as the Chairman said. In the 2014 Farm Bill, we 

made responsible bipartisan reforms to cut $23 billion. The farm 

economy was in a much better place, and the bill is still estimated 

to save $80 billion more than expected. 

But a lot has changed since then, and looking ahead to the next 

farm bill, we need to put our farmers and our small towns on the 

road to recovery. More than 500 groups, representing farmers, conservationists, rural communities, and food advocates wrote a letter 

that we should not make further cuts, and I agree. 

I look forward to hearing from today’s witnesses and continuing 

this Committee’s bipartisan process to reauthorize a comprehensive 

five-year farm bill. 

Thank you, Mr. Chairman. 

Chairman ROBERTS. I want to extend a welcome to our panel of 

witnesses before the Committee this morning. I believe we have 

compiled a panel that will be informative in providing an update 

on the general agriculture economy, and I am eager to hear testimony from all of you on this very important issue. 

Without objection, I am going to go out of order and ask our newest member of the Agriculture Committee, the distinguished Senator from Alabama, Senator Strange—Senator Strange is in charge 

of all rebounds that we may have to get, and we will probably have 

to get a whole bunch. I am going to ask you to—and Senator 

Strange has to be in charge of the Senate at 10:30. No small task. 

So to introduce our next witness, or our third witness, Alex Sheffer, 

I am going to turn to him. 
6 

Senator Strange. 

Senator STRANGE. Thank you very much, Mr. Chairman. I will 

be happy to handle the rebounds for you. It is not a problem. I appreciate the courtesy. I am honored to serve on this critically important committee for our state and for the country, and I am very 

honored to introduce Alec Sheffer to our witness panel today. 

Alec is here—he serves as Director of Retail Sales for Agri-AFC. 

It is based in Montgomery, Alabama. He is a graduate of Auburn 

University, where he studied agronomy before beginning a 40-year 

career in the ag retail industry. In addition to his day job, he has 

served as past President of the Alabama Agricultural Chemical Association, and serves as a board member of the Alabama Agribusiness Council as well. 

He lives in Prattville, Alabama with his wife, Carol, and is the 

father of three children and seven grandchildren. 

I want to thank Mr. Sheffer for traveling to be with us today and 

I look forward to your testimony, as do my colleagues, and I will— 

I shall return, as they say, shortly, to ask my questions, Mr. Chairman. So thank you very much for the courtesy. 

Chairman ROBERTS. I thank the Senator. The other witnesses, in 

order, Dr. Rob Johansson. Rob serves as the Chief Economist for 

the U.S. Department of Agriculture. In that role, Dr. Johansson is 

responsible for the Department’s agricultural forecasts and projections, as well as advising the Secretary on the economic implications of alternative programs, regulations, and legislative proposals. He serves as Chairman of the Federal Crop Insurance Corporation Board—I am just pausing for effect here—and is also responsible for the World Agriculture Outlook Board, the Office of 

Risk Assessment and Cost Benefit Analysis, and other economic 

initiatives. 

Dr. Johansson received his bachelor of arts in economics from 

Northwestern University and his master of science and Ph.D. in 

agriculture economics from his home state’s land grant at the University of Minnesota. 

Welcome, and thanks for being here today, Dr. Johansson. 

Our next witness is Dr. Nathan Kauffman, from the Federal Reserve Bank of Kansas City. Dr. Kauffman serves as an Assistant 

Vice President and Omaha Branch executive for the Federal Reserve Bank of Kansas City. In this role, he serves as the bank’s regional economist and is the Kansas City Fed’s lead expert in agriculture economics. Dr. Kauffman oversees several bank and Federal Reserve System efforts to track agriculture in rural economics, 

including the quarterly publication of the 10th District Survey of 

Agriculture Credit Conditions and the Federal Reserve System’s 

Agriculture Financial Data Book. 

Dr. Kauffman received his Ph.D. in economics from Iowa State 

University, home of the Fighting Cyclones. 

Thanks for being with us today, Dr. Kauffman. 

We have had the introduction by Senator Strange of our next 

witness. 

For our final witness we have Dr. Bruce Weber. Dr. Weber is 

Professor Emeritus of Applied Economics at Oregon State University, and the former Director of Oregon State University’s Rural 

Studies Program. He is currently a Senior Economist with the 
7 

Rural Policy Research Institute. His research focuses on upward 

mobility in rural and urban areas, rural and urban economic interdependence, the impacts of social safety net programs and the impacts of federal forests in rural development policies on rural communities. 

Thank you for being here with us here, Dr. Weber. 

Dr. Johansson, why don’t you proceed? 

STATEMENT OF DR. ROBERT JOHANSSON, CHIEF ECONOMIST, 

U.S. DEPARTMENT OF AGRICULTURE, WASHINGTON, DC 

Mr. JOHANSSON. Thank you, Mr. Chairman, Ranking Member 

Stabenow, and the members of the Committee. I am pleased to 

have this opportunity to discuss the farm and rural economy in the 

United States today. I have submitted a detailed statement for the 

record and so I will direct my comments to focus on a few main 

themes. First, what is the current farm financial situation; second, 

what is the outlook for production and prices in 2017; and finally, 

what are the prospects for ag trade. 

First, financial stress continues in the agriculture sector, with income expected to remain flat in 2017 and credit continuing to tighten. Based on the prices we projected earlier on this year, in 2017, 

we expected to see net cash income rise slightly in 2017, but net 

farm income, a broader measure, to fall, although the change is relatively modest compared to previous years. 

Since that first farm outlook in February, our expectations for 

many crop prices have changed to be a little bit lower. Currently 

the low prices for wheat and rice did spur a decrease in area, in 

terms of planting intentions, which, coupled with regional adverse 

weather effects, as you mentioned earlier, has sparked a modest rebound in expected prices for the coming crop year. However, corn 

and soybean price expectations have weakened. 

Livestock production is expanding fractionally more than initially 

anticipated, but despite large supplies, prospects for prices in 2017 

have improved. Milk price expectations for 2017 are lower than initial estimates but are expected to rebound in 2018. 

The continuing strength of farmland values has kept farm assets 

high, but we have seen land values and cash rents recently declining. Evidence suggests moderate declines in land values will continue into 2017. As a result, we are seeing an increase in debt-toasset ratios, though, in aggregate, they are rising slowly and still 

remains low by historic standards. For some farm businesses, however—wheat, cotton, poultry, and hogs, in particular, or those with 

higher shares of rented land and those with younger operators— 

debt-to-asset ratios are generally higher and they will be most vulnerable to low commodity prices. 

Commercial loan demand remains high while loan repayment 

rates continue to weaken, as I am sure Dr. Kauffman will discuss. 

Demand for Farm Service Agency loans this year has seen only a 

small 6 percent decline from last year’s $6.3 billion record level, 

with an increase in delinquencies of only about 1 percent in the 

last 12 months. Fixed and variable interest rates have been increasing for farm loans but remain low again by historic standards. 

Farm budgets are expected to tighten into the 2017–18 season. 

However, with flat commodity prices and an expectation of more 
8 

normal yields, unlike the records we saw last year, we expect to see 

financial conditions continuing to tighten. 

Farm bill programs will help some producers, with payments under the ARC and PLC programs expected to increase from $8 billion for crop year 2015 to $9.8 billion for crop year 2016, before falling off in the final two crop years of the 2014 Farm Bill. 

In addition, nearly 90 percent of all major crops are covered by 

crop insurance—pausing for effect—— 

[Laughter.] 

Mr. JOHANSSON. —with coverage for other crops increasing as 

new crops and policy types are added. An expected 4 percent rise 

in median farm household income as a result of continuing increases in off-farm income will provide some support as well. 

Cotton and dairy producers, as mentioned, have had more limited farm program support. Cotton producers have had the option 

of purchasing supplemental crop insurance coverage through 

STAX, but most have found it not beneficial, with less than 30 percent of cotton acres covered by STAX policies in the last two years. 

Dairy producers enrolled in the Margin Protection Program paid 

premiums of more than $20 million for 2016 coverage, but only received about $11 million in payments. Estimates for 2017 are for 

another year of minimal or no payments under the MPP program, 

as feed costs remain low relative to improving dairy prices. 

Second, producers are responding to tepid price signals by reducing and reallocating acres. The backdrop to the 2017 outlook is 

similar to last year, with generally softer commodity prices, tighter 

producer margins, and flat farm income. Producers in the United 

States and other countries did respond to the high prices in 2008– 

12 by increasing plantings and production, and after four years of 

record or near record production, stock levels for many commodities 

have risen and are expected to rise again for soybeans and wheat. 

Given favorable global harvests and ample stocks, we expect crop 

prices to remain flat into 2017–18, as I mentioned. Based on the 

NASS survey of farmer intentions in March of this year, U.S. 

planted acres for the eight major crops is expected to decline by 

two million acres this year, as narrowing margins push some acres 

out of production. 

Low wheat prices resulting from large domestic supplies and 

large crops among our global competitors resulted in record low 

winter wheat seedings this year—32.7 million acres. Prospects for 

better returns in some crops, notably cotton and soybeans, resulted 

in an expected reallocation of acres with producers, increasing soybean acreage to 89.5 million acres and cotton to 12.2 million acres. 

We can easily observe what farmers are facing by looking at crop 

budgets for places like Kansas. Based on the Kansas State Extension crop budgets for northeast Kansas, soybeans, with an expected 

return at $65 an acre, offer the best opportunity for a positive return, compared to only $15 an acre for corn and negative returns 

for wheat and sorghum. The budgets offer insight into producer options, and we saw Kansas farmers plant a million fewer wheat 

acres this last year, offset by intentions to plant nearly a million 

more acres of soybeans and 100,000 more acres of corn. We have 

seen record plantings of corn and soybeans expected this year in 

North Dakota, Nebraska, and Kansas. 
9 

All right. I am running out of time so I am just going to go to 

my summary and turn it over to Nathan. 

Finally, we expect the global economy to see continued recovery, 

improving prospects for trade. Expanding export opportunities for 

U.S. farm products is critical for the agricultural economy. U.S. ag 

exports account for about 20 percent of the value of U.S. ag production, rising even higher for some commodities, about 50 percent for 

soybeans, wheat and rice; 75 percent for cotton, and 90 percent for 

crops like almonds. 

Trade is not only important to U.S. farm incomes but to the 

broader U.S. economy. USDA estimates that each dollar of U.S. 

farm exports produces an additional $1.27 in economic activity, and 

every $1 billion in ag sales overseas supports about 8,000 American 

jobs. 

In summary, some commodities may see improving returns. Interest rates and energy prices remaining near historic lows. Export 

values are projected up. Median farm household income is expected 

to rise. But, nevertheless, the ag sector will continue to adjust to 

lower prices for most commodities, both in the U.S. and abroad. 

The net effect of this financial stress over time is difficult to forecast, but certainly we might expect consolidation in some farm sectors, certain regions, and movement of the most leveraged operators out of farming. 

A key component of measuring that change will be the NASS Ag 

Census, which is going to be put into the field this December. We 

expect results to be available at USDA’s Agriculture Outlook 

Forum in February of 2019. 

Mr. Chairman, that concludes my opening statement. I am happy 

to answer questions and follow-up questions that you may have 

now, or later for the record. Thanks. 

[The prepared statement of Mr. Johansson can be found on page 

40 in the appendix.] 

Chairman ROBERTS. Doctor, we thank you. We turn now to Dr. 

Kauffman. 

STATEMENT OF DR. NATHAN KAUFFMAN, ASSISTANT VICE 

PRESIDENT, ECONOMIST, AND OMAHA BRANCH EXECUTIVE, 

FEDERAL RESERVE BANK OF KANSAS CITY, OMAHA, NE 

Mr. KAUFFMAN. Thank you and good morning, Chairman Roberts, Ranking Member Stabenow, and members of the Committee. 

Thank you for the opportunity to testify today. 

My name is Nathan Kauffman and I am an economist and 

Omaha Branch executive with the Federal Reserve Bank of Kansas 

City, a regional reserve bank that has long devoted significant attention to U.S. agriculture. In my role, I lead several Federal Reserve System efforts to track the agricultural economy with a focus 

on farm finances and agricultural credit conditions. Our bank is 

committed to including perspectives from rural America in discussions on the national economy, and I am here to share recent developments in the U.S. farm sector. 

Before I begin, let me emphasize that my statement represents 

my views only and is not necessarily that of the Federal Reserve 

System or any of its representatives. 
10 

At a high level, the U.S. farm economy has weakened notably 

over the past several years. The primary cause of the downturn 

that began in 2013 was a sharp drop in agricultural commodity 

prices and this remains a top concern in the agricultural community today. 

In a recent survey of agricultural banks, conducted by the Kansas City Fed, about 85 percent of lenders in our region, in the Central United States, identified the current environment of low commodity prices as a leading concern. In addition, while agricultural 

commodity prices have dropped sharply and remain low, farm sector input costs have declined only gradually and profit margins 

generally have remained weak. 

Reduced profitability has gradually intensified the level of financial stress among farm borrows. Nationally, debt-to-asset ratios 

and farm loan delinquency rates have edged higher over the past 

year, but only slightly. Federal Reserve data also show that the 

rate at which farm loans are being repaid has fallen steadily in 

each of the past four years, alongside persistent increases in borrowers’ financing needs. 

The degree of financial stress in the farm sector, however, has 

varied regionally. In the first quarter of this year, nearly 60 percent of agricultural bankers surveyed in Colorado and western portions of Nebraska, Kansas, and Oklahoma, reported that loan repayment rates had fallen from the previous year. This is a region 

that is highly concentrated in cattle and wheat production. In contrast, only 25 percent of respondents in the eastern portion of our 

district, a region that is more concentrated in corn and soybean 

production, reported lower repayment rates. 

Other measures of agricultural credit conditions in our region tell 

a similar story and are consistent with other parts of the country. 

This is to say financial stress in the farm sector has increased more 

significantly in regions where cropland is generally less productive 

and in regions concentrated in markets that have been particularly 

weak, such as cattle and wheat, for example. In other areas, strong 

crop yields last fall resulted in cash flows that were better than expected, and financial conditions have been more stable recently in 

those regions. 

In a similar vein, farm real estate values have also declined in 

the past few years, but only at a modest pace, and regional disparity has also been notable. Federal Reserve surveys show that 

the average value of high-quality cropland has fallen by about 10 

to 20 percent since 2013, in states with a high concentration of crop 

production. Since the beginning of 2015, however, farmland values 

have decreased more significantly in regions where the land is considered to be less productive, or where the local farm economy has 

weakened more dramatically. 

Despite regional variation, the relative strength in farm real estate markets has likely shielded the farm economy from potentially 

more severe financial stress, since farmland accounts for more than 

80 percent of the farm sector assets, and is an important source of 

collateral for other farms. The strength in land values has given 

agricultural lenders some opportunities to work with borrowers by 

restructuring loans and requesting additional collateral in response 

to heightened risk in their loan portfolios. 
11 

To briefly summarize, the U.S. farm economy is in the midst of 

a prolonged downturn, and financial stress in the farm sector has 

risen gradually over the past two years. Despite recent signs of stabilization in some areas, farm income has continued to decline 

overall, due to persistently low agriculture commodity prices and 

elevated production costs. Alongside the reductions in farm income 

the past four years, agricultural credit conditions have weakened 

steadily and farm real estate values have trended lower. In general, I expect these downward trends to continue in the near term 

as global supplies are likely to continue to weigh on agricultural 

commodity prices and profit margins. 

Although a farm crisis does not appear imminent, some regions 

appear to be notably weaker than others, and there are still risks 

that could lead to more widespread challenges in the coming years. 

This concludes my formal remarks and I would be happy to answer questions at the appropriate time. Thank you. 

[The prepared statement of Mr. Kaufmann can be found on page 

56 in the appendix.] 

Chairman ROBERTS. Thank you, Doctor. 

Mr. Sheffer. 

STATEMENT OF ALEC SHEFFER, DIRECTOR OF RETAIL SALES, 

AGRI–AFC, MONTGOMERY, AL 

Mr. SHEFFER. Good morning, Chairman Roberts, Ranking Member Stabenow, and distinguished members of the Senate Ag Committee on Agriculture, Nutrition, and Forestry. Thank you for allowing me to testify in regard to America’s farm economy. 

My name is Alec Sheffer and I serve as Director of Retail Sales 

for Agri-AFC, headquartered in Decatur, Alabama. At Agri-AFC, 

our roots have been firmly planted in the Southeast since 2003. 

With offices in Georgia, Mississippi, Florida, and Alabama, we have 

made a name supporting crops of all varieties. From cultivation to 

harvest, our goal is to provide an abundance of information and resources to help guide farmers. 

I also appear before you today on behalf of Agriculture Retailers 

Association. ARA advocates, influences, educates, and provides 

services to support its members in their quest to maintain a profitable business environment. 

America’s retail farm suppliers have been hit hard by the downturn in the agricultural economy over the past decade. There are 

a growing number of factors that have led to this decline, including 

a steep drop in farm commodity prices, increased regulatory burdens, and market uncertainty. However, we are confident these 

winds are beginning to shift. We believe Congress will make 

changes in the upcoming farm bill to help strengthen the safety net 

provided by crop insurance programs and assist in improving conservation efforts. 

Secretary of Agriculture Sonny Perdue, testified before the House 

Agriculture Committee last week and I was heartened to hear that, 

despite the steep drop in commodity prices and market uncertainty, 

he was hopeful rural America will strengthen in the coming years 

as the United States Department of Agriculture looks to improve 

existing safety nets for farmers and ranchers. 
12 

As referenced in my written testimony, USDA’s Economic Research Service reported a dim outlook for farm profits. Other indicators of a weakening farm economy include a decline in farm credit access while the demand for loans remains strong, creating a 

higher uncertainty level among America’s farmers. In addition to 

declining farm revenues, USDA ERS predicts a decline in crop cash 

receipts. This means safety nets through USDA are crucial in making sure our industry receives full support. 

I fully expect your committee will work swiftly to ensure these 

gaps are filled when crafting the upcoming farm bill. We also feel 

it necessary to push for comprehensive tax reform to help agriculture retailers and their farm customers. In addition to a full repeal of the estate tax, we believe it equally important for Congress 

to preserve policies which will help keep farm businesses intact 

and families in agriculture. 

U.S. farmers and ranchers understand and appreciate the roles 

of taxes in maintaining and improving our nation’s infrastructure, 

but believe the most effective tax code is a fair one. For this reason, 

we respectfully request that any tax reform legislation considered 

in Congress will strengthen the business climate for farm and 

ranch families while ensuring agriculture businesses can be passed 

to future generations. 

The ag community also understands the need for infrastructure 

improvement, especially in rural America. Roads, bridges, ports, 

locks, and dam systems all play crucial roles in our delivery of essential farm inputs. Additionally, expansion of broadband infrastructure throughout rural America is sorely needed. From precision agriculture technology to rural health care needs, a greater 

and more robust broadband network will mean more effective, efficient, and safer farm communities. 

Farmers continue to be America’s best stewards of land conservation and work diligently to follow best management practices when 

applying pesticides and fertilizer. The legislative, regulatory, and 

judicial landscape is vastly different from what the agriculture retail industry experienced decades ago. 

In the past eight years, federal regulators completed hundreds of 

major rules that have impacted many sectors, including agriculture. The EPA has targeted several important crop protection 

products over the years in an attempt to remove these important 

compounds from the marketplace. Our industry asked the new administration and EPA reset the process to be based on sound 

science and a predictable registration and regulatory review process. 

Another regulatory burden for ag retailers has been EPA’s assessment of National Pollutant Discharge and Elimination system, 

under the Clean Water Act, which is the result of a Federal court 

ruling in 2009. The court invalidated decades of precedent and congressional intent of EPA regulation and created a duplicative permitting system. Additionally, we support the administration plans 

to review and restructure WOTUS rule, promulgated under the last 

administration. 

As a farm retailer, I am confident that improvements to safety 

nets in the upcoming farm bill, free and fair trade for agriculture 

producers and consumers, tax reform, infrastructure improvements, 
13 

and changes to the regulatory landscape hindering farm production 

will all contribute to once again growing farm economy. 

Thank you for your continued commitment to supporting America’s agriculture industry and I look forward to your questions. 

[The prepared statement of Mr. Sheffer can be found on page 69 

in the appendix.] 

Chairman ROBERTS. Thank you very much for your testimony. 

All the way from Oregon, Dr. Weber. Thank you for coming. Did 

you use the Oregon Trail to get here through Kansas? 

Mr. WEBER. I did not. Alaska Airlines provides a very direct 

route here. 

STATEMENT OF DR. BRUCE WEBER, PROFESSOR EMERITUS 

OF APPLIED ECONOMICS, SENIOR ECONOMIST, RURAL POLICY RESEARCH INSTITUTE, OREGON STATE UNIVERSITY, 

CORVALLIS, OR 

Mr. WEBER. Thank you, Chairman Roberts, Ranking Member 

Stabenow, and Committee members. I am honored to offer testimony today. I hope you will find this useful as you develop the 

Rural Development Title of the farm bill. 

I would like to begin with four fundamental structural realities 

that drive the future of rural America and the farm economy. 

These are discussed in greater detail in my written testimony. 

Number one, the incomes of farm families, and thus the health 

of the agricultural sector, are very dependent on the health of rural 

communities. This is because most farms get most of their income 

from off the farm. 

Number two, each rural community is unique, and a diverse set 

of non-farm sectors provide the primary economic base for most 

rural counties. 

Number three, the health of rural communities is very tied to 

urban centers, and rural economic health requires increasingly 

strong connectedness with urban centers. 

Number four, and critically, rural communities face inherent 

structural challenges due to their small populations, their low density, and their remoteness. This Committee has long recognized 

this, as you have developed a remarkable set of programs tailored 

specifically to address these challenges. 

My colleagues here at the table have discussed the structural 

challenges in the agricultural economy and the farm programs, how 

they can address these challenges. I would like to discuss the challenges facing the rural economy and how the Rural Development 

programs can address these challenges. 

The takeaway is that place-based federal rural investments have 

stimulated income and job growth and reduced poverty in rural 

areas. Several recent studies support this conclusion. USDA economists, Reeder and Pender, have recently analyzed the impact of 

Rural Development projects funded by the Delta Regional Authority in distressed Mississippi delta counties. They found that income 

and earnings grew more rapidly in these counties—in the DRA 

counties, than in similar, non-DRA counties. 

In some of the ongoing research that I am involved in, there is 

some preliminary evidence that spending by the USDA Rural Development Agency on business and economic development loans 
14 

have increased employment and reduced poverty. A colleague of 

mine at the University of Missouri and I are finding that counties 

that received more of these RD loans during the 2000–2010 decade 

had lower poverty rates at the end of the decade, controlling for 

other factors that might affect poverty. Research currently underway with colleagues at Penn State University and Texas A&M Galveston show a positive impact of these same programs on employment growth over time. 

In closing, I would like to suggest some specific examples of rural 

investments that I believe are important for rural people and 

places, based on my 40 years of studying the rural economy. 

First, as Mr. Sheffer has eloquently noted, accessible and affordable high-speed broadband connections are now essential for rural 

economic development and are critical infrastructure investment 

for rural places. 

Second, food assistance is a different kind of investment in rural 

America that not only provides a safety net for vulnerable people 

but also is a significant boost to the economies. ERS research on 

the impacts of the SNAP program, for example, suggests that $1 

billion in SNAP payments generates over $100 million in farm income and over 3,300 farm jobs, as well as $1.8 billion in total economic output in the overall economy. 

Finally, as the Pender and Reeder study shows, regional approaches that use federal place-based investments to leverage other 

public and private sources of funds can increase income and jobs 

in rural communities. 

Chairman Roberts, Member Stabenow, and members of this 

Committee, the rural development programs that you have developed over many decades have had a significant positive impact on 

America’s rural communities. Many of these programs are currently at grave risk. This is a critical moment for the Senate to exercise leadership in ensuring that rural communities have the supports that they need to thrive as they face the future. 

Thank you for the opportunity to testify today, and I will be 

pleased to answer any questions you might have. 

[The prepared statement of Mr. Weber can be found on page 76 

in the appendix.] 

Chairman ROBERTS. Thank you, Doctor. 

Dr. Johansson, and also Dr. Kauffman, well, for that matter, the 

whole panel, during consideration of the 2014 Farm Bill, the farm 

sector, as has been stated, experienced high commodity prices, 

record net farm incomes. But as you have all testified since then, 

we have seen our commodity prices received by producers drop 

drastically—corn, 43 percent; soybeans, 31 percent; wheat by 40 

percent, and that will probably go up with the freeze we have just 

had; and cattle by 16 percent. Obviously we see the trend. 

Since that time we are also expected to see net farm income drop 

by 50 percent. Certainly the ag economy is in different shape than 

it was back when the 2014 Farm Bill was being considered. 

So my question, as we again work on our next farm bill, give me 

the top three factors, or two factors, in the agriculture economy 

that we should be considering, given this trend that everybody is 

talking about and the word ‘‘prolonged.’’ I just wrote that down. I 

do not like prolonged. I do not know any farm that likes prolonged. 
15 

But at any rate—and I am not sure that is going to happen. I 

know Brazil is exporting more soybeans than we are, but Brazil is 

doing exactly what they do all the time. They are changing leadership. That is a problem if you are going to be trading with Brazil. 

Russia is exporting more wheat. Who knows? Maybe they will have 

wheat mosaic next year. 

But we are making progress with China, opening it up to beef, 

and I think other products—1.4 million people, or a billion people— 

it is hard to keep track there. Then, Bob Lighthizer, our new trade 

rep, actually mentioned, in one sentence, the repair of NAFTA and 

strong bilateral agreements with the TPP countries. First time anybody in the administration ever mentioned TPP and bilateral together. What a wonderful idea. 

So if you could just list for me maybe the two or three things 

that you think are most important that this Committee should address. 

Mr. JOHANSSON. Well, I will just start with, as you mentioned, 

stock levels right now are much higher relative to use globally, relative to last time the farm bill was being negotiated. That means 

that we are in a very flat price environment. As you mentioned, 

there are ways that we can see prices rebound. Whether we have 

some supply side stock in some major producing part of the globe, 

or if we do start expanding trade quickly, those will also push 

prices up. But for right now, relative to 2014, stocks are relatively 

high. 

So back then the farm bill pivoted towards counter-cyclical types 

of Title I programs. This time, as you consider farm bill programs, 

certainly the Title I programs would be one that I would look to, 

in terms of the fact that counter-cyclical programs may have to be 

re-examined when we have flat prices relative to volatile prices. 

Secondly, as you had mentioned, crop insurance programs 

changed quite a bit in the last farm bill. We added whole farm revenue, which has been popular. We added STAX, which is not popular. So as you look forward, to new Title II programs, I think you 

are likely to see the ability to make some adjustments there. 

I will leave land values and financial credit to Dr. Kauffman. I 

will just also mention that on the dairy side, the new program for 

dairy margin protection has not been very popular with the dairy 

sector, and so I imagine there will be opportunities to look at 

changes to the dairy programs as well. 

Chairman ROBERTS. Dr. Kauffman, would you like to add? 

Mr. KAUFFMAN. I will mention two factors from the perspective 

of credit conditions, and I would say first is that we have seen 

some deterioration in liquidity. So we have seen persistent cash 

flow shortages the last several years, demand for financing. As 

profit margins have remained weak we have seen liquidity decline. 

That would be the first, is just monitoring the trend in liquidity. 

We have not seen it turn into an issue of solvency, partly because 

of farm real estate values. Farm land values have remained relatively strong in most areas, although I would cite that as a second 

area where, if we did see more rapid declines, then we could start 

seeing more balance sheet problems for farm options as debt-toasset ratios could rise further from there. 
16 

Chairman ROBERTS. What about—what do you see about the possibility—you mentioned the land values, but if those start to tail 

off, and with the price situation the way it is, and Mother Nature 

not behaving herself, on a whole series of things, and if we become 

stagnant on these efforts with NAFTA and China and other bilateral agreements, I am very worried. 

Back in the 1980s, I just called them the regulators, from our 

Federal Government, came marching into our small community 

banks and they did not practice mark-to-market. They had a certain criteria, and it was that or whatever happened, and it was not 

very good. 

Do you foresee anything like that happening, and if it does, can 

we get some forbearance with regards to the regulators that do 

come in? 

Mr. KAUFFMAN. I cannot necessarily speak to the forbearance 

question. What I will say is that most banks have remained pretty 

well positioned. A lot of banks have taken fairly conservative approaches in recognition of the declines in commodity prices, maybe 

limiting loan-to-value ratios as an example. They have remained 

pretty well capitalized. Returns have been fairly strong. 

So we have not seen delinquency rates on ag loans rise to a point 

where it has gotten to be problematic and, in fact, most banks are 

still doing quite well in that regard. So I would say that it has been 

a gradual increase in financial stress but it has not yet gotten to 

the point where I think it would become a problem. 

Chairman ROBERTS. That is certainly good news. Thank you. 

Senator Stabenow. 

Senator STABENOW. Thank you, Mr. Chairman, and thank you to 

each of you for your testimony today. 

First, Dr. Weber, when we are looking at the massive cuts that 

have been proposed by the administration—21 percent reduction 

across the board at USDA as well as $231 billion in farm bill programs. Food assistance would be cut by $193 billion, and over 40 

different Rural Development service programs would be eliminated—I wonder if you might speak about the impact of those cuts 

on the farm and rural economy? 

Let me first say, I grew up in a Northern Michigan small town 

and know how, as you speak about the broader question of quality 

of life is so important. My mom was Director of Nursing at a small 

hospital that is certainly financially stressed right now, and I know 

if the hospital closes, the largest employer is gone along with all, 

the doctors. There is a whole range of things that relate to our 

quality of life in a small town. Rural development and other investments are part of the way we invest in small towns. 

I wonder if you might describe if anything near the kinds of cuts 

being talked about were to happen, what would be the impact on 

the farm and rural economy? 

Mr. WEBER. Senator Stabenow, I would like to focus on two particular impacts of the kinds of cuts that you have talked about. The 

Rural Development programs, as you know, provide both consistent 

funding and an infrastructure that allows regional development approaches to succeed in rural places, and there is not another agency in the Federal Government that could do that if that agency is 

reduced and eliminated, and if the funds that are available to sup-
17 

port their infrastructure, their workforce, and their programs is reduced. 

You also mentioned SNAP, and the SNAP program provides demand for farm products, as well as providing a safety net for vulnerable people. So cuts in either or both of the safety net programs 

of SNAP and the Rural Development programs would have negative effects on the capacity of rural communities to do the kind of— 

to provide the kind of qualify of life that you experience. 

Senator STABENOW. Well, as you are saying, SNAP—helping people who need temporary help with food is a win-win, because the 

people who make the food—— 

Mr. WEBER. Right. 

Senator STABENOW. —get paid because somebody is purchasing 

food, and the people who need the food are able to get the temporary help when they are in a bad situation as well. So you agree 

that is a win-win situation, for farmers and families. 

Mr. WEBER. Absolutely. 

Senator STABENOW. Thank you. 

Let me turn now to Dr. Johansson and talk about a mutually favorite topic of crop insurance. You may have noticed that we have 

a very strong belief on this Committee and we moved, in the last 

farm bill, away from payments to farmers when times were good 

to risk management tools like crop insurance and conservation. 

Voluntary conservation efforts allow farmers to be able to manage 

the land and water on their operations, which is becoming an even 

greater risk management tool. 

In the last farm bill we expanded insurance options to more 

crops, such as fruits and vegetables which are important in my 

state. We are now seeing a lot of potential for another part of our 

farm economy that insurance providers, and dairy producers to be 

able to receive the help along with other commodities. You indicated 90 percent of our commodities were covered under crop insurance. I would like to see that be even higher, and I join with the 

American Farm Bureau, National Milk Producers and National 

Farmers Union in supporting something we put into the last appropriations bill, indicating that Congress supports expanding crop insurance for dairy farmers. 

So I wonder if you might talk about the impact of crop insurance 

both to the farmers’ bottom line, and its importance in terms of the 

availability of credit in these difficult times. 

Mr. JOHANSSON. Those are great points that I certainly tried to 

get some more research on, in terms of the linkage between a 

strong crop insurance portfolio and availability of credit, whether 

that is better terms on credit or actual primary availability of farm 

loans. So that is something that I think is generally accepted 

across research institutions, and we are just trying to get some 

more data out there to support that, sort of what people take as 

conventional wisdom, that certainly when you go in to seek farm 

loans, bankers often assume that you have crop insurance, and 

most producers do. When we start looking at different coverage levels, we would expect to see higher coverage levels be associated 

with likely better terms on those loans. So that is something we 

are looking at. 
18 

Senator STABENOW. The Chairman is asking me, and I was about 

to ask, as well, when do you expect to have that data in? It would 

be very helpful for us to have that data. 

Mr. JOHANSSON. At the meetings this summer in Chicago, the 

Agriculture and Applied Economics Association meetings being 

held at the end of July, we have a session on that, and hopefully 

we will have some papers coming out from that conference that we 

can share, that will be available online very soon. 

Senator STABENOW. Thank you. 

Mr. JOHANSSON. As you mentioned, we also expanded, or we 

have been expanding crop insurance to other commodities. In particular to your state, we have been increasing coverage for specialty 

crops through different products that we see coming through the 

Federal Crop Insurance Corporation Board. In addition, of course, 

FSA also has the buy-up option now for the non-insuranced crops 

as well. 

In liability last year, 4 out of the top 10 insured commodities 

were specialty crops, including almonds, grapes, nursery, and including whole farm, with a combined liability of $9 billion, so that 

is about 10 percent of total liability in 2016. So that has been growing really well. In addition, the specialty crops also have been buying up on the Non-Insured Crop Disaster Assistance (NAP) buy-up 

option since the last farm bill. 

So improvements in the ability to extend those products to new 

crops. We see new ones coming in all the time. Of course, we will 

see if we see some more livestock and livestock product insurance 

products coming through as well. 

Senator STABENOW. Thank you. 

Chairman ROBERTS. Senator Grassley. 

Senator GRASSLEY. Thank you, Mr. Chairman, and also I would 

like to put a statement in the record, since I had two other committee meetings this morning. 

Chairman ROBERTS. Without objection. 

Senator GRASSLEY. I do not want to take time to read that. 

Senator GRASSLEY. My first question would go to Dr. Johansson 

and Dr. Kauffman. We have read your testimony. It seems that you 

are portraying farmers as holding on right now financially. I am 

particular struck by Figure 2 of Dr. Johansson’s testimony, that 

shows the share of farms, by crop, that are highly leveraged, with 

debt-to-asset ratios between 41 and 70 percent, and the more concerning, very highly leveraged farms with debt-to-asset ratios 

above 70 percent. With that sort of ratios, I would think more pressure would exist for input and land costs to correct for profitability 

to return. 

So two questions. Why do you think land values and cash rents 

are declining so much slower than farm income, and are there any 

specific factors that you can point to? Are outside investors keeping 

land prices high, is just one example? 

Mr. JOHANSSON. That is a great question. I think a lot of people 

are looking at that issue. Obviously we see cash rents and land values being a little bit more sticky on the way down, due to the nature that often times those contracts, certainly on the cash rent 

side, are a little bit longer term, so you have a three-year term on 

your contract. We would expect to see, and we have seen that, cash 
19 

rents to start coming down a little bit more and I think that will 

help the bottom line for a lot of producers that are renting land. 

We have about 50 percent of our crop land that is rented. 

As you mentioned, it is not coming down as quickly, so I think 

there are some reasons for why that is, in addition to the contracting length. There has been institutional investment in land. 

You often find good farmland still securing fairly high returns 

when it comes up. Oftentimes you do not see land coming on the 

market as fluidly as you see other commodities coming on the market, so when something does come up, there are still producers out 

there that do have cash resources, and of course, interest rates are 

very low, to be able to purchase that land. Looking forward into the 

future, it is seen as a fairly good investment. 

Some parts of the country, as Nathan had mentioned, are seeing 

land values continuing to increase. So you do see, in some parts of, 

for example, in Texas, land values continue to increase, perhaps reflecting the strength in the cattle sector. 

So I will stop there and see if Nathan has additional comments. 

Mr. KAUFFMAN. I will mention just a couple of things in response 

to that. I think first is to recognize just the scale of wealth that 

had been generated during the really good times in agriculture. So 

you have had a lot of farm operators that had the capacity to add 

additional land and have really moved that market forward. A lot 

of farmers also recognize that there are limited alternative investment options available to them, and so they have a propensity to 

want to buy land as part of their operation, as they look at the long 

term. 

I think that there has been some outside investment, so the demand side has still been relatively strong. On the supply side for 

land values, there really just has not been a lot of land on the market, because I think most farmers would prefer to try to hold on 

to the land to the extent that they can. We have not seen a lot of 

forced asset liquidations that would push a lot of land onto the 

market. Going back to my previous comment, I would say that is 

probably something that if we did start to see more of that forced 

asset liquidation, it would lead to potentially more problems. 

Senator GRASSLEY. I think my last question would be just to you, 

Dr. Johansson. 

Many crops have seen prices decline since the 2014 Farm Bill. 

Rice and wheat seem to have been hit the hardest, followed by corn 

and soybeans. Of course, we all wish we were as lucky as cotton 

farmers right now, with it being fairly high. 

As we approach the next farm bill, we have a look at numerous 

policy options. The 2014 Farm Bill has PLC and ARC. So my question relates to the nuances in both programs, like really highly referenced prices for few crops under PLC, and county-by-county yield 

variability under ARC, that make comparative effectiveness very 

hard. 

So the question is, which program is better in the long run for 

farmers considering WTO impact, planted acres distortions, that 

create price gluts and a lot of other examples that I could give you? 

Mr. JOHANSSON. So as you mentioned, wheat and rice are good 

examples where we have seen prices appear to have bottomed out 

and start to come back in recovery. Part of that is due to the fact 
20 

that producers have pulled out of those acres and plant fewer of 

them. As you mentioned, we have seen corn and soybeans weakened a little bit, also since the beginning of 2017. As you mentioned, cotton has seen very robust sales this past year, in exports. 

Prices are relatively high. We are seeing producers put in a lot 

more acres of cotton this coming year, so we are expecting to see 

prices reflect that and to come down in the 2017–18 crop year. 

If you look at other commodities where that price response has 

not been what we might expect from just market fundamentals, 

you would have to look at peanuts, for example. So we have seen 

prices for peanuts coming down since the last farm bill yet acres 

have been going up. So there are a number of reasons for that, but 

certainly one might be the fact, as you pointed out, that the reference price for peanuts is relatively high compared to current 

market prices, and the ability of peanut producers to take advantage of generic base acres. So that is one area where we have seen 

that sort of normal price response and acreage response not follow 

what the market fundamentals might be. 

Senator GRASSLEY. So, then, what about the fact of—in regard to 

WTO impacts? 

Mr. JOHANSSON. Well, certainly we are well within our commitment levels for WTO, in terms of our aggregate measure of support. Going forward, we certainly want to respect all of our WTO 

commitments. One of the movements, certainly in U.S. farm policy 

over the previous farm bills, has been a movement away from market distortions, movement towards programs that are decoupled 

from planting decisions and production decisions. 

I would imagine that the committees, as you take into account 

the next debate going into the 2018 Farm Bill, to certainly consider 

keeping to those trends, in terms of moving away from market-distorting policies and towards keeping with programs that are decoupled from planting decisions. 

Senator GRASSLEY. Thank you, Mr. Chairman. 

Chairman ROBERTS. Senator Klobuchar. 

Senator KLOBUCHAR. Senator Heitkamp was here first. 

Senator HEITKAMP. Thank you, Amy. Thank you, Mr. Chairman. 

I just want to follow on a little bit on Senator Grassley’s question, but it is more kind of a request. I think sometimes when you 

look at land prices and land values, the question that I have been 

asking is what percentage of agricultural property is actually 

owned by the producer, whether it is a cattle producer or whether 

it is a commodity producer? We have been trying to get a number 

in North Dakota. We think it is only about 25 percent. Now some 

of that land could be family-held land, where you are farming 

Grandpa’s homestead, or family land. 

But I think that the distance of land ownership from agriculture 

has had an impact on whether people are willing to look at farm 

adjustments. I think if you own an apartment building in New 

York, you do not expect prices—rent to go down, but if you own 

farmland, that farmland has to fluctuate with commodity prices. 

You know, understanding supply and demand, you still have supply. You know, demand for the land out there, eventually that is 

going to reach some kind of equilibrium. 
21 

But I think it is a complicating factor, from when I was growing 

up in my small town of 90 people, watching the adjustments. I 

think it has been a major change. 

I want to just point out, none of you have painted a particularly 

optimistic view of what is going to happen with farm income in the 

next certainly short term, and maybe even long term, as we move 

into maybe a sustained lower commodity price environment. Does 

anyone on this panel want to offer defense of the budget that the 

President just released, saying that is going to really encourage increases in farm income and actually meet the challenges that we 

see going forward? 

[No response.] 

Senator HEITKAMP. Nope. I did not think so. 

You know, obviously, one of the things that we are failing is to 

get people to appreciate and understand that food security is national security, that we have challenging times, and this is the last 

thing we want to do, which is pull the string on crop insurance that 

is going to unravel our opportunities to basically continue to 

produce the highest quality, lowest cost food in the country. 

I am particularly concerned about the average age of farmers, 

and about what we can do, going forward. I guess this is for Mr. 

Johansson and Mr. Kauffman. As you look at the aging of farmers, 

which could lead to consolidation, which could lead to, I think, an 

outcome that none of us would want, can you tell me what additional programs you could recommend for beginning farmers that 

would help them through this patch and encourage them to actually come forward, or stay in the farm business? 

Mr. JOHANSSON. Well, certainly we are seeing, based on the most 

recent survey that NASS put out, called the TOTAL survey, some 

better information coming out regarding transition in farming, in 

terms of types of land that is owned and how that land is turning 

over to the younger generation. We had 2014 Farm Bill provisions 

that provided some assistance to new and beginning farmers in securing crop insurance, also securing some loan—additional loan 

availability for new farmers. 

In terms of new programs that might also target that transition, 

I would suspect that those types of provisions would still be very 

useful to producers as they get into farming or as they take over 

operations from their parents. 

Senator HEITKAMP. Mr. Kauffman? 

Mr. KAUFFMAN. The first thing I will mention, from the credit 

side, is just the demand for FSA guarantees that is out there right 

now. That has been pretty strong the last couple of years, and so 

that is one of the tools that would be in the toolbox for young and 

beginning farmers. 

Senator HEITKAMP. But we have to convince them that they are 

not mortgaging their future. 

Mr. KAUFFMAN. Right. 

Senator HEITKAMP. You know, offering them more credit may not 

be the sole solution here. They need to be offered more income. 

Mr. KAUFFMAN. Sure. So the other area that I would go to, then, 

is from an education perspective. Some of the areas that our lenders have recognized specifically would be in the areas of marketing 

and finances, and also in risk management. More and more lately, 
22 

the past couple of years, lenders have required more well-defined 

risk management practices as part of their lending operation on a 

regular basis. So those things, I think, providing some assistance, 

could be useful. 

Senator HEITKAMP. I think Mr. Weber—Dr. Weber wanted to 

comment. 

Mr. WEBER. Yes. The thing I think is important to recognize is 

that particularly small farmers and beginning farmers get a lot of 

their income from off the farm, and the healthy rural community 

is maybe the best way of protecting incoming and beginning farmers, because the stability that it provides. 

Chairman ROBERTS. Well, thank you, Senator Heitkamp, for 

reading all those questions that I wrote for you. 

[Laughter.] 

Chairman ROBERTS. Just as an observation—and Senator 

Strange, I will recognize you in just a moment—I was trying to remember when we, in the Senate, paid close attention to a President’s budget. I think it was back when Reagan was President. I 

remember we did have a vote in regard to the previous administration’s budget one time. I think it was 100 to zip, not in favor. 

Senator HEITKAMP. Two votes. 

Chairman ROBERTS. Oh, two votes. Okay. Well, they are no 

longer here. 

Now, listen. Do not go running off. 

[Laughter.] 

Chairman ROBERTS. We were trying to get an OMB economist 

here. The word came back they were afraid that you and I were 

going to hold him hostage, so we did not get an answer here from 

these people here, but that is the only reason. I am sure there is 

an OMB economist that we could find that could defend the budget, 

especially with regards to agriculture. I am not talking about everything else. But I just wanted to let you know that. 

Senator HEITKAMP. Well, I am excited to meet that person. 

Chairman ROBERTS. Well, okay. We will have him report to your 

office. 

Senator HEITKAMP. Thank you. Thank you, Mr. Chairman. 

Chairman ROBERTS. You bet. Senator Strange. 

Senator STRANGE. Thank you very much, Mr. Chairman. I want 

to address my question to Mr. Sheffer, if I could, and I apologize 

for having to step out earlier. 

This is sort of a multi-part question, but it is on a topic of very 

great interest to me. As you look across the sales and service area 

that your company serves, in the Southeast and Alabama, I wish 

you would talk about the role of cotton production as it relates to 

the company you work for. From your perspective, what is the impact of declines in the cotton acreage, the producers that your company serves, and how does that decline affect the industry’s infrastructure? How important is it to have a safety net policy for cotton 

to help producers where there are periods of low prices? 

Mr. SHEFFER. I can speak to the area that I mentioned, in our 

company’s market geography, Georgia, Alabama, and southern Mississippi. In the last few years we have seen commodity prices fluctuate, be very volatile, and our growers are very apt to make a decision on planting at the time they are ready to pull it into the 
23 

field. So planting a crop for inputs has been very hard for our 

growers to do, whether it is cotton, peanuts, soybean, corn growers, 

wheat. 

The cotton growers, as a commodity, are like all our commodity 

growers. They have felt the volatility of these price swings and 

they have an infrastructure on their farm that has been built 

around a cropping system, and it has caused some of our growers 

to make major shifts, to change direction, to become more grain oriented, to put storage facilities in to store grain, where they did not 

have it before. Now, with the uncertainty of pricing, they now are 

looking at having to switch back and make decisions. It also puts 

a burden on the retailer, such as myself, trying to supply inputs 

to those producers. As they are making decision, how do we best 

prepare to serve them? 

So I think the volatility of the commodity pricing for the grower 

has been throughout, and I think safety nets, for some stability in 

the upcoming farm bill, is much needed for all our commodities. 

Cotton, as you mentioned, would be greatly benefitted by safety 

nets. 

Senator STRANGE. Fantastic. Let me ask you, in my remaining 

time, another question relating to an interest that I am sure share 

with you. You are a graduate of a great ag research institution, Auburn University. I would like to know what you think, as we address the upcoming farm bill, are things that we can think about 

to improve ag research to meet the needs of our farmers and ranchers across the country, as we look at our research institutions. 

Mr. SHEFFER. A great question. Our land grant universities provide—have provided for years, and still provide, a tremendous 

amount of information flow for our growers and our producers 

throughout the country. Again, in my geography, Georgia, Auburn, 

LSU, Mississippi State, just to name a few—I am leaving a few 

out—but they are providing good information, current information 

about the new genetics of the seed as we move into the next realm 

of seed development. Our growers depend on land grant institutions for their farming decisions, for their cropping decisions. 

So I think in retail, such as mine, we provide agronomy staff that 

do research ourselves, and working in coordination with the research units at Auburn and Georgia, we can help combine some efficiencies in the future. 

Senator STRANGE. Well, I appreciate your company providing jobs 

to some of these graduates, too, and I know you do that as well. 

Finally, for the benefit of the Committee and the Chairman, if 

you would not mind just giving us your view on how Alabama’s 

farmers have fared over the last several years. The Chairman has 

very clearly described the economic conditions. How have Alabama’s farmers, given our diverse ag economy, fared, relative to 

farmers and ranchers in the rest of the country? 

Mr. SHEFFER. I can only speak to our growers in the area I am 

in, but I would say that we probably have fared equally challenged 

in the marketplace over the last few years, as growers have, I am 

sure, in other areas, whether they be in the Midwest or the West 

Coast, citrus growers, vegetable growers in Florida. It has been a 

very volatile time in terms of trying to access funds for their oper-
24 

ations. Retailers have been put in positions to try to help be a gap 

for some of that, and it has put retailers at risk. 

I think the Alabama farmers, the Georgia farmers, too, have 

been pushed hard, and the retailers as well, over the last few 

years, and we look forward to seeing those times behind us in the 

rear view. 

Senator STRANGE. We do too. Thank you very much, Mr. Chairman. 

Chairman ROBERTS. Good questions. I appreciate that very 

much, Senator Strange. 

Senator Donnelly, I give you a unique choice. 

Senator DONNELLY. That never ends well, sir. 

Chairman ROBERTS. What has happened here on the Committee 

is that we had a celebration of Senator Klobuchar’s birthday, so the 

Chair ignored the seniority rule, or the appearance rule, in terms 

of recognition. I recognized her, and she, being the kind of person 

she was, yielded to Senator Heitkamp. 

Senator DONNELLY. Yes. 

Chairman ROBERTS. So my question—— 

Senator DONNELLY. So let me get this right, sir. So your choice 

is I can either be a really awful person and go, or yield my time 

to Senator Klobuchar. Would that be about—sum up the situation? 

Chairman ROBERTS. I would not describe it in that way, no. 

[Laughter.] 

Chairman ROBERTS. I do not think ‘‘awful person’’ will ever be 

the—— 

Senator DONNELLY. No, I think that is what people would think. 

I think that is pretty accurate. 

Chairman ROBERTS. No, I—— 

Senator DONNELLY. See, my colleague from North Dakota said, 

‘‘That is probably correct.’’ 

Senator HOEVEN. I concur with that analysis. 

[Laughter.] 

Senator DONNELLY. Thank you. So, you know what? I am going 

to yield to my amazing colleague from Minnesota. 

Chairman ROBERTS. Happy birthday, Amy. 

Senator KLOBUCHAR. Okay. Thank you, Mr. Chair. I will do the 

same for Senator Donnelly on his birthday. I promise. 

Thank you for holding this important hearing. I think so often, 

as we focus on the details and the minutiae of the farm bill, we 

forget the overall economic picture, and I appreciated your analysis, Dr. Kauffman, of what we know of the changes, and what 

many of us with the commodity prices, what many of us have seen 

with the poverty issues, with kids in small towns, and what we are 

continuing to see with the digital gap having more and more of an 

impact as we go on, as more and more business is done that way. 

I have met people in small towns with businesses that literally 

are turning business away because they just cannot—they are not 

able to either get the workers or they are not able to have the 

Internet capability to actually do what is required, so I appreciate 

this hearing. 

I share the Chair’s support for crop insurance and concern with 

the elimination of the—some of the crop insurance protections that 

have been discussed. I wanted to focus some on rural development. 
25 

Dr. Weber, in your testimony, you discussed how the programs 

offer some of the most important place-based investments. Where 

should this Committee focus when thinking about support for different types of rural investments, like broadband? 

Mr. WEBER. Thank you, Senator. A couple of places, it seems to 

me. Thinking about the fundamental challenges that rural communities face is the place I would start. The kinds of investments that 

the USDA makes in rural places allow the connections to urban 

places that make them more successful, provide the stability and 

the capacity to generate regional approaches to economic development that support the rural communities in those areas. 

I think it is important to emphasize the infrastructure that is 

created by the workforce in USDA Rural Development, and other 

organizations like the Regional Development Commissions, provide 

both the funding and the deal-making capacity, which allows rural 

communities to thrive. 

Senator KLOBUCHAR. Can you talk about the potential challenges 

of not having an under secretary at USDA focused on rural development, which is the proposal now? 

Mr. WEBER. Right. I think the proposal, basically, to distribute 

the current things that are done by the under secretary to other 

agencies really would make it very difficult to focus on the needs 

of rural communities. The thing that USDA has is the capacity to 

understand these and develop culturally appropriate programs in 

these areas. Other agencies do not have that. Not having an Under 

Secretary for Rural Development would mean that the focus that 

is needed for rural communities would disappear. 

Senator KLOBUCHAR. Very good. I think not very good that would 

happen, but very good in your answer, because I think so many 

times people do not see that interconnection with farming but also 

with all of the other development that goes on in rural areas, and 

especially the interconnection, whether it is making sure there is 

a pharmacy or a hospital, but also making sure that the farm 

equipment repair shop stays in business, or the distributor stays 

in business. 

One last question, Mr. Johansson. By the way, you have the perfect last name for having attended the University of Minnesota. 

Thank you very much for that, in a Lake Wobegon fashion. 

Minnesota poultry producers faced economic losses of $650 million following the 2015 outbreak of avian influenza. As you know, 

we are number one for turkeys in our state, and I will—okay, that 

was unnecessary, Senator Hoeven. It is a fact. It is a North Dakota 

little snide laugh. 

Last September a new poultry testing lab opened in Willmar to 

enhance our state’s ability to more efficiently diagnose and respond. As you know there is some fear of some outbreak occurring 

in other states right now. Can you talk about how we are preparing 

ourselves to reduce the likelihood of economic impacts from livestock disease, in general? 

Mr. JOHANSSON. Well, that is a great question. You know, certainly R&D is one area that I think we have learned that it is important to invest in, regarding livestock diseases, but also our response and producer response has been improved dramatically 

since 2015. We saw that—while we have seen some minor out-
26 

breaks this year, the containment was much more rapid. Producers 

have improved their biosecurity quite substantially on the poultry 

operations, so that has helped from the producer side. On the 

USDA side, certainly we have been quicker about imposing depopulation around those areas. 

So from the poultry side, I think we have learned a lot from the 

2015 experience. Extending that outwards to other livestock diseases, I think there are lessons to be learned as well, and certainly 

when we think about whether it is vaccine banks, that type of 

thing, the Secretary, I am sure, is going to be looking towards that, 

having his background in the veterinary sciences. 

Senator KLOBUCHAR. Okay. Very good. Thank you. 

Chairman ROBERTS. Senator Hoeven. 

Senator HOEVEN. Thank you, Mr. Chairman. For all of our witnesses, I think you have testified and you would agree that with 

low commodity prices and a strong dollar it is tough time for ag. 

Everybody agrees with that; correct? That the projection for this 

year that it is going to be a tough year for farm income as well. 

Does anyone disagree with that, or want to elaborate? 

[No response.] 

Senator HOEVEN. Okay. So the question then becomes, what do 

we do about it, and I want each of you to weigh in, in regard to 

crop insurance, support for crop insurance, the importance of crop 

insurance to our producers; our PLC, the counter-cyclical safety 

net; ag research; and trade, programs like PL 480, Food for Peace, 

and Dole-McGovern. Because my contention is that all of these are 

very important, in terms of supporting our farmers, meaning that 

they have to be funded in the budget and they have to be authorized in the farm bill. 

I would like each of you to weigh in on those four—crop insurance, counter-cyclical safety net, ag research, and trade, in particular, some of the programs like PL 480 and Dole-McGovern. 

Mr. JOHANSSON. So I will take a quick start and leave lots of 

time for my colleagues on the panel. But certainly we understand 

the importance of crop insurance. Going into the last farm bill, I 

think one of the reasons why the Committees moved to more of a 

counter-cyclical Title I programs was due to the success of the Title 

II programs in dealing with the 2012 drought. 

So I think that is a very good illustration of why crop insurance 

is such an important tool for producers. We did not see any requests for ad hoc disaster assistance in that year. We saw despite 

the fact that we had a historic disaster on hand, that the crop insurance program was able to deal with that and provide producers 

with the type of support they needed in getting through that year. 

Moving on to ARC/PLC, we certainly know that the programs 

are, I would say, working as they were engineered in the last farm 

bill. As prices have come down, the ARC program has provided producers with a cushion as those prices have come down, and we 

know that the Olympic year average is going to catch up to the 

ARC program by the end of the farm bill. Whether or not costs 

have come down as much as prices have come down in that time 

period, we will wait and see. Certainly, as you pointed out, the financial conditions are tight for farmers right now. We cannot count 
27 

on a record yield, like we had last year, for years going forward. 

We have to expect trend yields. 

Research and development. Certainly we know that R&D is a 

great investment in agriculture. We know that it has been flat over 

the last five, six, seven years. We know that if we invest more in 

basic R&D for agriculture that it is going to provide larger returns 

in the future. Obviously, R&D expenditures and investments take 

a while to come to fruition. So we know that dollars we invest 

today are going to come back and improve productivity down the 

road, but certainly I think that is an important component. 

Of course, trade is always something that we know is critical for 

the farm sector. We export at least 20 percent of ag production, but 

a lot higher for crops coming out of the Northern Plains, for example. We export about half of our soybeans, globally, and about half 

of those are just going to China. So we know that trade is going 

to be an important focus going forward, and I know that the administration, certainly, at least, the Secretary, has made that a key 

component of his focus going forward, as he takes over at the Department. 

Senator HOEVEN. I would like each of the four of you to finish 

your comments with yes or no on whether we need to strongly support these programs in the budget and the farm bill. Yes or no on 

all four before you—and any other comment you make, but I want 

a yes or no on that one. 

Mr. JOHANSSON. Certainly. I think those are all important components of the farm bill and they should be supported. 

Senator HOEVEN. Thank you. 

Mr. KAUFFMAN. Unfortunately, I cannot make specific policy recommendations but I will respond to each of the four. In the first 

two, for crop insurance and the safety net programs, specifically to 

recognize that when it comes to availability of credit, certainly the 

ability to limit the downside risk that producers have weighs into 

the credit decisions, and I think most lenders would require crop 

insurance in many places, as part of that risk management profile. 

As I mentioned earlier, with a requirement for more well-defined 

risk management strategies, crop insurance and other things are 

certainly part of that. 

Speaking to the ag research side, I think looking at this from the 

supply side and recognizing that we have had several consecutive 

years of really strong yields that has, obviously, improved the productivity, the efficiency, and cash flow for many producers. So it 

has given them opportunities to be able to improve on the revenue 

side. 

But then to the trade piece, as Dr. Johansson mentioned, certainly that is a key component for our demand for agricultural 

products. So recognizing what we can get in terms of the gains on 

the supply side through research, and that can happen in many different ways, but then also recognizing the importance of opening 

at markets and trade from the demand side. 

Mr. SHEFFER. From the retailer point of view, I would say that 

yes is the answer to all four of those different segments. We would 

recommend for you to support crop insurance, ag research, safety 

nets, and the trade. 
28 

From the ag research side, I will mention—I think I mentioned 

it in the written and the oral, but the need to look at improving 

broadband Internet service in rural areas. Precision agriculture, 

over the last several years, has grown the acres for our producers, 

in my geography, in my market area, and the limitations of Internet access is certainly in play in the rural areas, and we need to 

see improvement in that, so more growers could have more access 

to two things, like precision ag and specific application of the fertilizers and seed and those applications that growers in other areas 

are taking advantage of. It would be a huge benefit for us. 

So I would say yes to all four. 

Senator HOEVEN. Thank you. Dr. Weber? 

Mr. WEBER. My colleagues here can speak much more knowledgeably to the effects of these programs you mentioned than I can. 

I would just say that in order for agriculture to succeed in America, 

a strong farm economy is really important, but it is also important 

to recognize that a strong farm economy depends on the rural communities. So some attention and resources to support the rural 

communities in which farms live is also important. 

Senator HOEVEN. So you want to add rural development to that 

mix. 

Mr. WEBER. I would, indeed. 

Senator HOEVEN. I sense that. Thank you, Dr. Weber—and it is 

important. 

Chairman ROBERTS. Are you ready? 

Senator DONNELLY. Ready to go. 

Chairman ROBERTS. Senator Donnelly. 

Senator DONNELLY. Thank you, Mr. Chairman, and I want to 

add on to the Chairman’s comments about crop insurance and how 

incredibly important it is, what a good tool for risk management 

it is. We need to have a strong crop insurance sector in the farm 

bill. I have done a farm bill listening tour around the state, and 

this is a subject that comes up time after time. You are right on 

target with that, Mr. Chairman. 

Mr. Sheffer, you testified about a number of things that I frequently hear, from Hoosiers in rural communities, particularly 

those who are farming or running small businesses. I wanted to 

ask you about the importance of making sure we have got the right 

conditions in place for our rural communities to thrive, especially 

when it comes to broadband, that you have talked about, which is 

critical for our businesses, but the importance of access to health 

care and education, so that people can live in a place where they 

can raise healthy families. 

Can you tell me what it would be like for a small business owner 

to try to operate a business in a community without broadband access, without access to high-quality health care, and without strong 

educational opportunities? 

Mr. SHEFFER. We have that—— 

Senator DONNELLY. Right. 

Mr. SHEFFER. —in Alabama and other areas of my geography, 

that I am familiar with. It is very difficult and it is heart-wrenching to see the disadvantages that are there, and what opportunities—with opportunities, what rewards and investments might 
29 

yield over a period of time, with individuals that certainly have the 

potential to take advantage of the same—— 

Senator DONNELLY. Are not those the kinds of building blocks 

that you look at and say, if this town, if this county had these, it 

could really take off? 

Mr. SHEFFER. You see that, and you see the potential in the 

farming community to be able to take advantage that. Companies 

like mine, and others, we invest—that is one reason we have taken 

the position of investing ourselves in staff that create value for 

those that may not be able to access it themselves. We have 

agronomists on staff that pull information so those that cannot 

gather it themselves, we can provide it to them, a precision ag 

staff. 

So we have made investments and try to take it to those areas 

that have potential. Yes, sir. 

Senator DONNELLY. Mr. Weber, you testified about your research 

into the positive link that exists between the USDA’s Rural Development investments and lowered rates of poverty. Can you talk a 

little bit more about how infrastructure investments in rural communities can create a positive feedback that increases opportunities for residents, can reduce poverty, and makes it a little easier 

for rural communities to grow? 

Mr. WEBER. Senator, one of the things that you mentioned earlier was the importance of rural health care, and I guess what I 

would like to highlight in this response is the regional rural approaches that are taken by such agency organizations as the Delta 

Regional Authority; the finding in the Pender and Reeder paper on 

the more rapid growth in the DRA counties than in the non-DRA 

counties really focused on the impact that investments in health 

care had on that growth. 

So, in part, the capacity of these communities in this region to 

work together and to develop a strategy that was not just focused 

on small businesses but on the infrastructure as well, appeared to 

be responsible, in part, for the differences in the DRA and the nonDRA counties. 

I guess that is a long answer to—— 

Senator DONNELLY. No. Thank you. Dr. Johansson, you testified 

a lot about the record crops and production levels coming from reforms. I would like to highlight the growing importance of exports 

for our farmers, especially in a situation where we can help feed 

a growing world. 

Can you talk about how important it is to have consistent and 

predictable rules for farmers when they are looking to export their 

products, especially to markets like China, where they still have 

not allowed imports of poultry products for the last several years? 

Mr. JOHANSSON. Well, yes, we know the importance of trade. We 

have been expanding our trade value since the ’50s, and certainly 

a lot more since NAFTA went into place, and then, again, with the 

advent of clear trading rules under the WTO agreements. So having the ability to both expand our markets into the countries we 

are in right now but also open up new countries and lower our 

trade barriers is certainly one that, as an economist, I would say 

benefits both trading partners, in general. I think evidence backs 

that up, particularly for agriculture. 
30 

As we know, our farms are becoming more productive every year. 

Certainly we can use that production domestically. We have seen 

a burgeoning market for a lot of organic products. But for our general row crop production and livestock production, we need to find 

export markets to sell that additional productivity to. 

So I think it is clear that improving our access to China is an 

administration priority, as well as to try and, as had been mentioned earlier, to go after bilateral agreements with some of the 

other Asian countries that we have been discussing as part of the 

TPP negotiations. Certainly improving access to our trading partners to the north and south is important as well to look at. We certainly can make inroads into dairy, poultry, and eggs with Canada 

and Mexico. 

Senator DONNELLY. Great. Thank you. Thank you, Mr. Chairman. 

Chairman ROBERTS. Senator Daines. 

Senator DAINES. Thank you, Mr. Chairman, and I want to thank 

Chairman Roberts for holding this hearing, and also for joining me 

in Montana next week. I think the Chairman is very well aware 

that within the beltway there is not a lot of ag going on. There is 

not a lot of ag going on within the beltway here in D.C., but there 

is in Montana. 

Chairman ROBERTS. Well, there is quite a bit going on inside the 

beltway with regards to ag, that I am not very happy with. 

Senator DAINES. Perhaps the south end of a cow going north. But 

I—— 

Chairman ROBERTS. Well—— 

Senator DAINES. —but thank you for coming out to Montana next 

week to be part of our ag summit. 

Chairman ROBERTS. We are going to give the reins to Daines. 

Senator DAINES. Thank you. I like it. 

As you all know, the state of the ag economy has declined significantly, relative to where it was during the time the last farm bill 

was negotiated, and unfortunately Montana has not been spared. 

Our commodity prices are low, in some cases historic, inventories 

high. Net farm income has declined about 50 percent over the last 

few years. This makes getting an effective farm bill completely in 

a timely manner all the more important. 

Prior to coming to the Hill, I spent 28 years in the private sector, 

a lot global businesses, and the reality is 95 percent of the world’s 

consumers live outside our borders, and particularly in light of low 

commodity prices, declining farm incomes, the importance of trade 

and the ability to access foreign markets for long-term growth in 

ag I do not think can be overstated. 

In fact, towards that end, six weeks ago I had the opportunity 

to lead a congressional delegation to China. We had four U.S. Senators, two members of the House. I hand-delivered four Montana 

steaks—and not just Montana steaks, from Mile City, Montana, 

steaks, from Fred Wacker’s ranch, to the Chinese premier, Li 

Keqiang, to emphasize the importance of opening that market to 

U.S. beef. 

I was thrilled to hear when President Trump and President Xi 

met in Florida in early April they had U.S. beef for one of their 
31 

meals. They had a chance to talk about the importance of U.S. beef 

and access to China, the world’s second-largest beef import market. 

I am pleased to see the progress. I am optimistic about the substantial progress being made, and we will be finalizing details to 

open the Chinese market to U.S. beef within the next few weeks. 

Dr. Johansson, what impact would opening China’s market for 

the U.S. beef and cattle industry have? 

Mr. JOHANSSON. Well, as you mentioned, it is important to our 

beef sector to have access to that market. We have been trying to 

get back there for over a decade now, and we expect that just from 

a primary beef production perspective it is going to obviously improve the prospects for value-added sales to China. But it also 

opens up the conversation for other products as well. Certainly we 

have some issues with our grain trade into China, and we would 

hope that this would also lead to a more productive relationship in 

terms of trying to reduce some of those barriers. DDGS, corn, 

wheat are products that we would certainly like to sell more of to 

China. 

Of course, we also have important discussions regarding our soybean sales into China. We want to make sure that our progress on 

biotechnology is approved in a timely fashion with our trading 

partners in Asia. I would expect that would also lead to an additional ability to conclude successful negotiations in some of those 

other areas. 

So beef is important to get into China but also has implications 

for some of the other crop sectors, in terms of China being our 

number one trading partner, from an ag perspective, right now. 

Senator DAINES. Thank you, Doctor. Switch gears here to Dr. 

Weber. Access to broadband has the ability to remove geography as 

a constraint for states like Montana. I spent 12 years in the cloud 

computing sector and saw how you can build a world-class company in places like Montana, thanks to technology, where we now 

combine this incredible quality of life we have in a place like Montana, and with now technology at our hands we can bridge that 

geographical gap, and now can compete with anybody in the world. 

So access is increasingly important for ag, and will continue to 

be. I mean, ag is now a high-tech industry. Agencies like the 

USDA’s Rural Utility Service has been critically important for improving and expanding telecommunications infrastructure in rural 

areas. I will tell you that some of the most sophisticated technologists in Montana are now farmers and ranchers. Never, ever 

underestimate how savvy they are with technology. It is very impressive. 

You indicate that access to broadband is an essential building 

block for rural communities. Could you expand upon that, and 

what policies would you recommend to improve access to help these 

rural economies grow? 

Mr. WEBER. Senator, I have also seen that in Oregon, that some 

of the most sophisticated use of technology is in the farm sector, 

and it is really quite amazing what can be done. 

What would I suggest in terms of increasing access to 

broadband? I think both access and adoption are important in 

terms of making the investments in infrastructure effective, and 

some research has been done by economists at Oklahoma State 
32 

University, suggesting it is not just the access, which is important, 

and there is a gap in both access and use, but in addition to providing access to assisting the people in adopting and using it is also 

important. 

I think the risks that exist for keeping that gap large are serious 

and the farm bill ought to make sure that, to the extent possible, 

this gap between access in rural and urban areas is reduced. 

Senator DAINES. Thank you, Dr. Weber. Thank you, Mr. Chairman. 

Chairman ROBERTS. Senator Brown. 

Senator BROWN. Thank you, Mr. Chairman. Dr. Johansson— 

thanks to the whole panel. Dr. Johansson, I wanted to ask—talk 

to you a bit about—you had mentioned the success of ARC, and I 

would like to explore that more, is designed ARC, which Senator 

Thune and I worked on in the last farm bill, adjust with lower 

prices but provide short-term assistance to farmers to help against 

the initial shock of a price drop. Talk through, if you would, how 

ARC has helped farmers manage the financial stress of these depressed prices, and much of this hearing has been devoted to low 

farm prices. It is on the minds of everybody, obviously. Talk about 

how ARC has helped them manage that stress. 

Mr. JOHANSSON. Well, certainly for—obviously, depending on 

which commodity group we are talking about, some commodities 

participated more heavily in ARC relative to PLC. But for corn and 

soybean producers, by and large, I think about 90 percent or so enrolled in the ARC program. 

So as we have seen, corn and soybean prices, and obviously, for 

the other commodities too, like wheat—we have about 50/50 in 

terms of wheat producers being in the ARC versus PLC—as those 

prices have come down from the highs we saw—— 

Senator BROWN. Could I interrupt for a second? Does corn have 

higher participation, because the price drop has been a greater percent, or that is not really the reason? 

Mr. JOHANSSON. I think—no, in terms of participation, we have 

seen corn producers, I think, when they had to make their decision 

going into the 2014 planning year, had to decide what their expected support would be under the two different programs, and at 

the time I think the idea, or the notion was that it was clear that 

corn prices were coming down and that the ARC program would 

probably provide the most assistance in the short term. 

Obviously, looking out five years is a little bit more difficult. 

Some producers opted for the PLC program in higher levels. As I 

mentioned earlier, obviously peanut farmers, for the most part, 

chose to participate in the PLC program. 

But as you mentioned, the design of the program was on an 

Olympic average, so that means that, as you know, from a five-year 

perspective you drop the highest and lowest years. So when we had 

those high years in there, high revenue years of ’12, ’13, and ’14, 

relatively high revenue years. That gave a fairly high guarantee for 

program payments, relative to a falling revenue outlook. 

So as prices have come down, revenues have come down. That 

means that the ARC program has been paying support to producers 

that enrolled in that program. But now we are starting to lose— 

as that five-year average moves forward in time, we are just going 
33 

to start losing some of those higher year revenues that we had 

back in ’12, ’13, and ’14, and that means that the ARC revenue 

guarantee is going to be much lower going forward into the next 

farm bill. That is why, when you look at CBO scores or our expectation for the next 10-year outlay period, that we expect a lot of 

producers to move out of the ARC program into more of a PLC type 

of program going forward. 

So it has been effective, at least from the 2014 to 2018 period. 

I would say, by and large, it has provided producers with support 

as prices have come down. Of course, now that we are in a much 

lower price environment going forward, we expect those ARC program payments to also fall and remain low going forward, without 

a change in the program. 

Senator BROWN. Thank you. Dr. Weber, one question for you. 

Rural areas so often are anchored by institutions that drive the 

local economy, perhaps a university, perhaps a medium-sized or 

larger manufacturer. The Trump Administration’s budget proposes 

reduced funding for ag research and other rural economic development programs. Understanding all this hearsay; it is dead on arrival in both parties. But we also know the priorities are set by this 

administration. 

If rural areas were to lose some of these federal resources and 

institutions like ag research centers, would they be able to adapt, 

or do their economic prospects take a long-term hit? 

Mr. WEBER. Well, I think there would be two negative impacts 

of these kinds of institutions going away. I know in Oregon they 

are located all over the state and they are important in many of 

these rural places. I mean, the first would be the short-term impact 

of the loss of jobs and the multiplier effects in the economies. 

But in the longer term, these research centers also support the 

particular agriculture in those particular areas, which they know 

better than the people than are not in those places, and they work 

with local farmers to create the innovations that allow increases in 

agricultural productivity. 

So I think in both the short term and the long term, there would 

be negative effects of reducing that agricultural research infrastructure. 

Senator BROWN. Thank you so much. Thank you, Mr. Chairman. 

Chairman ROBERTS. Well, Coop. 

Senator THUNE. It is high noon, Mr. Chairman. 

Chairman ROBERTS. It is about nine minutes to high noon. 

Senator THUNE. Well, I will get a little—— 

Chairman ROBERTS. You think you can get down there and meet 

the train and still meet Grace with a buckboard? 

Senator THUNE. I will do what I can, Mr. Chairman. 

Chairman ROBERTS. All right. 

Senator THUNE. I am down here at the tall end of the table, by 

the way. 

Thank you, Mr. Chairman, for having this hearing. You know, 

obviously, this is a critically important issue. We have got an ag 

economy that is in a very tough spot. A few weeks—a few months 

ago, I should say, the Wall Street Journal wrote of the next American farm bust. I would like to point out, too, just the role that 
34 

biofuels has played in many of the states represented on this Committee, a role that is even more important in today’s ag economy. 

Secretary Perdue has spoken, in the last several weeks, regarding the importance of the RFS to the country and the administration’s ongoing support of the policy, and we appreciate that support. In the coming months, there is going to be a clear opportunity 

for the administration to demonstrate that support with a strong 

proposed renewable volume obligation, RVO, that is going to set 

blending targets for 2018. The 2017 RVO got the RFS back on 

track, after years of challenges, so it is imperative that we maintain that progress. 

I appreciate the great group of witnesses that we have here 

today. I would like to just start with perhaps a general question, 

if you could answer it. Based on what you know about today’s ag 

challenges, if you were a farmer that was growing a few commodity 

crops, with a reasonable amount of debt, what would your strategy 

be to survive and sustain your operation for the next few years, assuming that the ag economy stays flat? Dr. Johansson. 

Mr. JOHANSSON. Well, we have seen producers that have looked 

at expected prices and adjusted their planting accordingly, so I 

would imagine that producers are going to continue to do that. For 

example, we have seen a lot of wheat acres go out of production, 

and that is being replaced by corn and soybean acres in a lot of the 

states like your own, but also in some of the other Plains states. 

I would imagine that, going forward, as long as we have the wheat 

surplus we do right now in the world market, that trend might continue. 

Certainly a strong, robust insurance portfolio is one that I think 

all producers would take advantage of. I think if your producers 

are looking at continuing to tighten their belts, one area they may 

do that is through new renegotiation of cash rent contracts. Another area might be to look at their insurance portfolio to see if 

they might be able to save some money by moving to an area coverage versus an individual coverage. That is obviously going to be 

less expensive. 

We have not seen producers backing off on their ability to buy 

high-quality seed, so I imagine that they are going to continue to 

chase those yields going forward, and so I do not imagine that you 

will see a significant change. Of course, Mr. Sheffer may be able 

to talk a little bit more about that. 

I would imagine that securing farm loans, while credit has been 

tightening, will still remain an important aspect of production 

going forward. Certainly as you mentioned, we have seen a tightening situation. Land values have started to decline but producers 

are still able to get loans at relatively low interest rates. So I imagine we will continue to see levels probably increasing in the short 

term, but at low interest rates, or relatively low interest rates. 

Senator THUNE. Would you agree that one of the quickest and 

most effective ways to counter low commodity prices for crops and 

livestock is to increase exports? 

Mr. JOHANSSON. I would agree with that. 

Senator THUNE. Assuming—right now we are talking about, potentially, with Mexico and Canada, having a renegotiation of 

NAFTA. But if you add Mexico, China, and Canada, they are the 
35 

most significant trading partners, accounting for about 46 percent 

of U.S. agricultural exports. 

The question, I guess, is, is there room to grow that, do you 

think, with these three countries, or should the U.S. be looking for 

export opportunities in other countries, and, if so, which countries? 

Mr. JOHANSSON. That is a great question. I think, though, there 

is still room for improving our access to NAFTA countries, in terms 

of dairy, poultry, and eggs. Also, obviously, a robust—you mentioned biofuels—a robust E10 market in Mexico would be very beneficial to the ethanol sector. China is obviously our biggest trading 

partner and there are still plenty of opportunities to improve our 

sales to China, in terms of grains, feed grains, for example. I know 

that Japan is a very attractive market for our meat sector, so we 

are going to be actively pursuing agreements with Japan. 

Then, looking forward, we certainly know that, in the medium 

term, India is going to be a major market for ag commodities going 

forward. They are going to have a tripling of the number of households in the medium income class over the next 10 years, so I 

would imagine that we will be putting some effort into trying to 

open up that market as well. 

Senator THUNE. I am out of time but very quickly, do any others 

see any other countries, or with respect to the whole dynamic as 

it relates to exports and trade, where there might be market opportunities or additional headroom to grow with those we already have 

trading relationships? 

[No response.] 

Senator THUNE. No? 

Dr. Weber. 

Mr. WEBER. But I would say that in addition to the kinds of 

things that you have mentioned, if I were a farmer, which I am 

not, I would want not just the kinds of programs you have talked 

about but also the kinds of investments in the rural community 

which would allow my family to get off-farm jobs, just to help me 

support our family during these rough times, and also allow us to 

live at a higher quality of life while we are there. 

Senator THUNE. All right. Thank you, Mr. Chairman. 

Chairman ROBERTS. Thank you. 

Senator Bennet. 

Senator BENNET. Thank you, Mr. Chairman, and as always, 

thank you for holding such a thoughtful hearing and having such 

a great panel. I consider it an enormous privilege to be on this 

Committee, and I think this Committee functions so much better 

than so many committees in the Senate, partly because of your 

leadership, partly because of our membership. I am hopeful that we 

are going to come together and figure out a better way through on 

this budget and what has been presented from the administration. 

You add up the cuts to the farm bill with the cuts to the Department of Agriculture, we are well over 20 percent of the Department 

of Agriculture, and I view that as an attack on rural Colorado and 

on rural America. When you talk about almost a fifth of the workforce in places like—Sherrod Brown mentioned it, but the Akron 

Research Station on the Eastern Plains of Colorado that has been 

so critical to developing innovations with respect to wheat over dec-
36 

ades and decades and decades. To think about that going away is 

just a vital part of who we are as Colorado. 

So I am glad to be on this Committee and I know this is a place 

where we are going to be able to resist. 

I wanted to ask Dr. Johansson a question about immigration, 

which I think has not yet come up today in this hearing. On top 

of the already horrific economic conditions in farm country, our 

producers in Colorado counties continue to lack a stable and qualified workforce. Just last week I heard from a friend of mine who 

said that he had to disc up his cabbage because he has nobody to 

harvest it. He does not have the workforce that he needs. 

We addressed farm labor four years ago in the Senate, through 

a compromise bill. I was part of the Gang of Eight that wrote the 

immigration bill here in the Senate, which got 68 votes. Both growers all across the country and the farm workers supported it as the 

first ag jobs bill where that has been true. But the House never 

took it up. 

But I wonder if you could talk a little bit about how our inability 

to actually tackle immigration reform is affecting the rural economy and our agricultural workforce. 

Mr. JOHANSSON. Well, it is certainly an issue that producers 

bring up frequently, in addition to trade, as being an important 

component of what producers are hoping can get expanded in the 

new administration. They also are looking to see improvements in 

the stability of the ag labor workforce, and as you mentioned, for 

commodities like specialty crops, vegetable, fruit, and nuts, out 

West, as well as in your state, labor is a much larger percentage 

of the cost of production as compared to row crop farming in the 

Midwest—not to say that labor is not an issue there as well. 

But certainly a lot of ag production that we are seeing coming 

out in this specialty crop area has been improving. It is almost a 

third of our export sales right now. It is a very important part of 

the ag economy, and labor is crucially important to that sector. 

So I know that the Secretary is committed to looking at this 

issue and he has hired some expertise to help shepherd some proposals when they come around, so he is going to be looking at it. 

Senator BENNET. Great. I hope he will take a look at the work 

we did in the Gang of Eight bill. I think there would be some useful things for him to consider there. 

My other question, actually, was about trade, and I know you 

have touched on that also today. One way to support farming and 

ranching communities in Colorado, in this difficult economy, is to 

make sure we have markets for our products, and this means creating new opportunities in Cuba and China, and other places as 

well. We also need to protect access to the critical Canadian and 

Mexican markets. We hear about this all the time. I hear about it 

in Colorado all the time, from wheat growers on the Eastern 

Plains, potato producers in the San Luis Valley, cattlemen on the 

Western Slope. 

I wonder, in light of the administration’s recent notice of its intent to renegotiate NAFTA, what advice you would give to the U.S. 

trade representative and members of this Committee about how we 

should proceed? I would be happy to have anybody answer that 

question. 
37 

Mr. JOHANSSON. I will just say a couple of words and then let 

other folks chime in, but certainly we know that trade with our 

NAFTA partners is very important. They are the number two and 

number three, respectively, destination markets for U.S. ag producers. Certainly there is room for improvement and I think that 

is what the administration is committed to trying to find, not only 

on agriculture but for other sectors as well. 

I think our job at the Department, and certainly—well, your jobs, 

obviously, as representatives of your states, is to just highlight the 

importance that trade has for agriculture, and I think that is what 

we are focused on doing, just to point out, while some sectors may 

not have the same retrospective return on trade, but agriculture 

has, hands down, benefitted from improved trade access. 

Senator BENNET. Right. 

Mr. WEBER. Could I add to that, that not only is trade demand 

important but also the capacity to deliver the product to the markets. I would reinforce the notion that we need a strong infrastructure in rural communities to actually deliver on the trade. 

Senator BENNET. Thank you, Mr. Chairman. 

Chairman ROBERTS. Thank you. That will conclude our hearing 

today. I again want to thank all of our witnesses for taking time 

to share your views on the state of the ag economy. It is certainly 

clear from your testimony and the questions by my colleagues who 

serve on this Committee that our farm economy is in a rough 

patch. 

This understanding will be valuable as the Committee continues 

to hear, first-hand, from farmers, ranches, other stakeholders, and 

it will be vital as we continue discussions on the next farm bill. 

To my fellow members, we would ask that any additional questions you may have for the record be submitted to the Committee 

Clerk five business days from today, or by 5:00 p.m. next Thursday, 

as of June the 1st. 

The Committee now stands adjourned. 

[Whereupon, at 12:03 p.m., the Committee was adjourned.] 

(39) 

A P P E N D I X 

MAY 25, 2017 
40 

Statement by 

Robert Johansson 

Chief Economist, USDA 

Examining the Farm Economy: Perspectives on Rural America 

Before the Senate Committee on Agriculture 

May25, 2017 

Mr. Chairman and Members of the Committee, I am pleased to have this opportunity to discuss 

the state of agriculture and the rural economy in the United States. 

Last year, the outlook for the agricultural sector was driven by macroeconomic factors, such as 

economic growth both here and abroad and resulting currency adjustments. Those factors 

continue to be important in 2017, as global economic growth continues to be slow, and the dollar 

remains relatively strong. In addition, another year of record or near record crop production has 

maintained large global stocks for many commodities, but has also been supported by growing 

global demand. While we expect global demand to continue to grow, stocks relative to use are 

likely to remain relatively high compared to recent history, keeping pressure on commodity 

prices. As a result, financial pressures on some producers will continue to grow this year as input 

costs including land costs have not fallen as far or as quickly as commodity prices. 

But there are some bright spots heading into 2017 as well. Some commodities have seen 

improving returns in some parts of the country providing opportunities for forward contracting. 

Interest rates and energy prices remain historically low. For U.S. agriculture as a whole, the U.S. 

Department of Agriculture (USDA) forecasts that net cash income will rise slightly in 2017 and 

that median farm household income is likely to rise. Trade volume and value are expected to 

grow in 2017 --- exports are projected up 4.8 percent in value, with volumes of some bulk 

commodities more than offsetting declines in their unit prices. 

However, many producers face pressure from continued low commodity prices. Some may be 

able to rely on capital reserves, but for many, particularly those new to farming, capital reserves 

may not be available. Overall, capital reserves have fallen by 70 percent since 2012. Rclatedly, 

USDA Farm Service Agency (FSA) loan demand increased markedly last year, reaching record 

high obligations of$6.3 billion, including record assistance to beginning and historically 
41 

underserved farmers and ranchers. Demand for USDA loans continues to be close to last year's 

pace. However, as credit availability tightens and producers cut back on costs, the number of 

new operating loans originating from commercial banks has begun to level off and even decline, 

although debt continues to increase in the first quarter of 2017 due to a slower rate of repayment. 

At the same time interest rates are beginning to increase. 

Through this, farm programs have continued to operate as designed. While combined payments 

under Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) are expected to 

increase in 2017, not all producers have experienced the same level of support. Nonetheless, total 

direct farm program payments are projected to decline by 4 percent in 2017 as payments under 

other Federal farm programs are forecast to decline. While forecasts for farm income remain flat, 

median farm household income is expected to continue rising for a third year. Since 2015, 

median farm household income has risen 4 percent, recoveting most of the decline from its peak 

in 2014. Increasing median farm household income is driven by rising off-farm income, expected 

to be 4 percent higher than a year ago and 8 percent above 2015. 

Today, I will direct my comments toward the current farm income situation, the outlook for 

prices and production for the coming crop year, and the competitive trading environment that 

faces U.S. producers. 

Farm income remains flat, while credit tightens. 

The USDA's Economic Research Service (ERS) released its first farm income forecast for 2017 

in Febtuary with the next update scheduled for August. In a reversal of the last two years, we 

expect to see net cash income increase slightly from 2016. Net farm income, a broader measure 

that includes the value and costs of items like home consumption of farm goods, unsold 

inventory, depreciation, and rent and expenses related to a farmer's dwelling, is forecast to fall, 

but the change is modest and is far less than the 25 percent decline of three years ago. 

The aggregate debt-to-asset ratio continues to rise, up from 12 percent in 2015 to 13 percent in 

2016 and an expected 14 percent in 2017 (see figure 1 ), but those levels remain low by historical 
42 

standards and well below the 1985 peak of 22 percent. The continuing strength of farmland 

values underpins that low debt-to-asset ratio. Assets buoyed by strong land values would have to 

drop by almost 50 percent to boost debt-to-asset ratios to levels seen in the 1980s. That said, we 

have seen land values and cash rents decline begin to decline, and evidence suggests that they 

will continue to fall in 2017 with some regions seeing double digit declines in value. The 

Federal Reserve lOth district saw a 3-percent decline for non-irrigated land, but values have 

fallen by as much as 24 percent in the western portion of the district over the last two years. 

Some regions still show some strength in land values, as values remained steady in the 7th 

district, and the value of quality farmland rose 1 0-percent in the 8'h district. Cash rental rates fell 

in all three districts. 

Credit conditions continue to tighten across all three districts. Loan demand remains high and 

loan repayment rates continue to weaken, although there are some regional variations. Debt-toasset ratios vary among farm businesses by commodity specialization, with close to 20 percent or 

more of farm businesses specializing in wheat, cotton, poultry, and hogs showing debt-to-asset 

ratios above 40 percent (see figure 2). Those producers will be most vulnerable to a further 

downturn. 

Looking at USDA's own loan portfolio, through April 30, 2017, demand for Farm Service 

Agency farm loans in fiscal year (FY) 2017 has seen only a small decline of 6 percent from last 

year's record levels. FSA portfolio performance has deteriorated very modestly over the past 12 

months. With interest rates still low and farmland values declining relatively slowly, at this time, 

farm debt presents a lower risk to the sector than in the 1980s. Data indicates interest payments 

on cun-ent debt relative to net farm income is about 20 percent, whereas in 1985 the ratio 

exceeded 60 percent (see figure 3 ). 

Farm budgets continue to tighten, however, with commodity prices expected to remain flat going 

into 2017 and beyond. We expect farm bill programs to continue to help farmers facing relatively 

low farm income. As of May 10, the largest program, ARC, had made payments to date of$5.9 

billion for crop year 2015, with the largest shares going to corn, soybeans, and wheat base. PLC 

payments have totaled to date $1.9 billion for crop year 2015, with the largest shares going to 

rice, peanuts, and wheat base. Recent ERS and Congressional Budget Office (CBO) projections 
43 

indicate payments for crop year 2016, which will begin to be made in October of this year, will 

be around $5 billion for ARC and $3.5 billion for PLC. CBO projects steady declines in ARC 

and PLC program payments for the final two years of the 2014 Farm Bill as commodity prices 

remain fairly stable for many commodities reducing ARC guarantees. 

Dairy producers largely enrolled their production at the minimum catastrophic coverage level of 

$4 per hundredweight under the new Margin Protection Program (MPP) for dairy. While 

producers received $11 million in payments to date for crop year 2016, premiums totaled over 

$20 million. Estimates for 20 17 are for minimal or no payments given expected margins in the 

sector with moderating feed costs and improved milk and dairy product prices. 

Cotton producers have had the option of purchasing supplemental crop insurance coverage 

through the Stacked Income Protection Plan (STAX), but producers have largely chosen not to 

participate. Only 29 percent of cotton acres insured in 2015 and 27 percent of cotton acres 

insured in 2016 carried STAX policies. Cotton producers received just under $330 million to 

date for crop year 2016 through the one-time only Cotton Ginning Cost Share program. Those 

with former cotton base, now classified as generic base, retain the opportunity for additional 

support, as they are eligible to receive ARC or PLC payments on that generic base if they plant 

covered commodities. For crop year 2015, ARC and PLC payments to date on generic base 

totaled $444 million. 

In addition, many producers have the option to purchase crop insurance to manage risk for their 

crop, to help offset any unforeseen losses. Based on historical averages, ERS estimates that 

producers will receive $3.5 billion in net insurance indemnities in 2017. Overall government 

payments, including conservation payments of about $3.3 billion, are expected to fall slightly in 

2017, to $12.5 billion from $13 billion in 2016. 

Outlook for prices remain mostly flat, with mixed production response. 

The backdrop to the 2017 outlook is similar to the last year with general softer commodity 

prices, tighter producer margins,. and a flat farm income picture. The current outlook follows 

the rapid increases in agricultural commodity prices from 2008 to 2013 that boosted farm 

incomes, reaching the highest level in real terms since 1973. Producers in the United States and 
44 

other countries responded to those price signals by increasing plantings and production. 

Roughly a decade later, stock levels for many commodities have risen as a result of four years 

of record or near record global production. Stocks measured by days of use have expanded for 

wheat in particular and remain high for com, soybeans, and cotton, but demand has also 

expanded. 

Given favorable global harvests and ample stocks, we expect crop prices to remain mostly flat 

to lower into 2017/18 (see figure 4). Historically, changes in prices have provided a signal of 

where crop area is likely to head in the coming year. Last year's planting time price rally, 

combined with open planting weather that reduced prevent planted area, boosted the 8-crop 

area planted. For 2017, with an assumption of a more normal prevent planted area, producers 

have signaled an intention to reduce overall crop area along with a change in crop mix. We 

have already observed a decline in winter wheat seedings to the lowest level in more than a 

century, which raises the question of how producers will allocate their crop land, and how may 

this spring's planting weather influenced their decisions? 

We would expect to see some response to the tepid price signals. Based on NASS's survey of 

fatmer intentions in March of this year, U.S. planted area for the 8 major crops is expected to 

decline in 2017, falling to 251.4 million as narrowing crop production margins push some 

acres out of production but also reflecting a return to a more normal prevented planting acreage 

after last year's low number. Even as total acres fall, prospects for better relative returns in 

some crops, notably cotton and soybeans, are expected to cause reallocation of acres to these 

crops and their area is expected to increase year-over-year. 

For 2017/18, total com supply in the United States is projected to be the second largest on 

record at 16.4 billion bushels supported by large carry stocks. Those stocks, the largest com 

beginning stocks since 1988/89 will dampen the production impact of a decline in com planted 

area in 2017, as farmers signaled an intention to plant 4 million fewer acres of com. As a 

result, com prices in 2017/18 are expected to be flat at $3.40 per bushel 

Low wheat prices as a result oflarge domestic supplies and large crops among our competitors 

in the global market resulted in record low winter wheat seedings this year. Those declines in 
45 

corn and wheat area are offset by a sharp increase in soybean area, driven by more favorable 

relative returns. 

One place this can be easily observed is Kansas. The Kansas State Extension crop budgets, 

released in the fall of 2016, illustrate what farmers are facing. Looking at the budgets for 

Northeast Kansas, soybeans offered the best opportunity for a positive return, while wheat 

returns were negative (figure 5). While every producer's cost structure is different, the budgets 

offer insight into producer options and those budgets would indicate, we saw Kansas farmers 

plant a million fewer winter wheat acres than last year, offset by intentions to plant nearly a 

million more acres of soybeans and 100,000 more acres of corn. Elsewhere, relatively more 

favorable cotton prices, buoyed by a strong pace of export sales this year, are expected to result 

in a sharp increase in U.S. cotton area, topping 12 million acres, the highest planted area since 

2006. 

Of course, with the corn planting window closing and soybean planting well underway, 

weather may make the final decision on some acres. 

Coming off a year where we had record corn, soybean and wheat yields--the last time we had 

record yields in all three was the 1970s--we assume a return to normal weather-adjusted trend 

yields. For corn, this would mean a yield of 170.7 bushels an acre and for soybeans we assume 

48.0 bushels an acre, down more than 4 bushels from last year's record-shattering level. 

For corn, we expect domestic use to be relatively flat. Small gains in corn used for ethanol, 

driven by domestic blending and exports, are offset by declines in other uses. With the sharp 

drop in supplies from the decline in acres, stocks are expected to decline but remain above 2 

billion bushels, the highest level since the 2004/05 crop, before the rapid growth in the 

domestic ethanol industry. 

For soybeans, large beginning stocks more than offset a modest production decline in 2017/18. 

An expected return to normal yields will bring production down, despite the sharp increase in 

soybean area to a record 89.5 million acres. As a result, soybean supplies are expected to grow 

by just under 200 million bushels. With a return to more normal yields in South America after 

this year's large crop and continued demand growth in China, we expect U.S. soybean exports 
46 

to grow in 2017/18, moderating the increase in carry-out stocks. Still, with the larger supplies 

and carry-out stocks, prices for soybeans are expected to fall $0.25 to $9.30 for 2017/18. 

While wheat prices are expected to increase in 2017/18, driven by sharply lower area and 

production, this is a bounce from current quite low wheat prices. In addition, global stocks 

remain record large, with larger crops among some of our global competitors, which will 

challenge our exports and constrain gains in prices. 

A sharp decline in rice area in 2017/18 is expected to narrow U.S. ending stocks and support a 

modest price increase to $11.20 per hundredweight. Foreign supplies will offset much of the 

U.S. production decline with global production down fractionally in 2017/18. 

With the sharp increase in U.S. cotton area, production is expected to rise by 2 million bales in 

2017/18. However, the same signal U.S. producers are seeing is also motivating producers 

around the world and broad global growth in output is expected. This will provide us with 

additional export competition and thus much of our expanded production will end up in stocks 

and push prices down a nickel to $0.64 a pound. 

Lower feed costs provide economic incentives for expansion in the livestock sector. 

Turning to the livestock, dairy, and poultry sectors, we project that total meat and poultry 

production will again be record high at 103.1 billion pounds in 2018, as production of beef, 

pork, and broilers all increase. With those increases in production in all categories, prices are 

expected to soften into 2018, but solid domestic demand and export growth are expected to 

moderate the price declines (see figure 6). Fed steer prices are forecast to decline to $118.00 

per hundredweight, down $4.49 from the prior year, as increased cattle supplies move through 

feedlots, but price declines will be limited by strong demand. Recent strong near-term demand 

has supported cattle prices and drawn supplies forward as we have seen sales weights decline. 

However, increased supplies of cattle and expected growth in cattle weights will pressure 

prices later this year and into next year. Hog prices are expected to fall to $43.75 per 

hundredweight, down $1.43 from 2017, but remain supported by solid packer demand as 

slaughter capacity expands. Broiler·prices are expected to average 88.3 cents per pound, down 

fractionally from 2017 as broiler production expands and competition across large supplies of 
47 

protein intensify. 

Milk production is also projected to set a new record at 222.0 billion pounds in 2018 with 

growth in both cow numbers and milk per cow. Export prospects in 2018 should expand along 

with global demand and improved U.S. competitiveness. Although prices for milk will remain 

below the record highs in 2014, they are expected to increase from current levels in 2017 and 

into 2018, despite increased production, as domestic and international demand provide support. 

Cheese and NDM prices gains should more than offset expected declines in butter, where price 

declines are modest. As a result, the all milk price is expected increase in 2018 to just over $18 

per cwt, with margins under MPP exceeding the $8 trigger throughout. Coupled with feed 

prices that are little changed from last year, producer's returns should provide support for 

continued expansion in 2018. 

The global economy and prospects for trade 

More broadly, the outlook for the U.S. and global economy is positive for U.S. agriculture, 

which points to an improved trading outlook for U.S. producers. Prospects for the world 

economy have stabilized in the last I Y, years - growth in China has steadied, commodity prices 

have stopped falling, and economic policies are promoting growth. For the world, the IMF has 

raised its growth forecasts for 2017 to 3.5 percent and 3.6 percent in 2018, with flattened growth 

into 2020 at around 3.7 percent. For emerging and developing countries as a whole, however, 

growth rates continue to rise through 2020, but more slowly than previously. Much of that 

downward shift is due to slowing world trade and slowing investment in emerging and 

developing countries. For the advanced economies, growth is expected to pick up slightly in 

2017, but remain sluggish. The Eurozone will be held back by uncertainty over elections in 2017 

and Brexit. Japan's economy is expected to struggle as fiscal stimulus is cut back. As a general 

rule, growth prospects are significantly better in Asia than elsewhere, led by China, and 

increasingly, by India. 

Driven by the strength and safety of the U.S. economy and by expansionary monetary policies in 

many other countries, the real value of the dollar increased substantially in 2015 and 2016 

relative to competitor and customer cun·encies. Clearly, a stronger dollar meant it was more 
48 

difficult to sell products to countries with weaker currencies, such as Egypt and Nigeria (major 

wheat importers), and it was easier for countries, such as Canada, the EU, Brazil, and Argentina 

to sell their agricultural products abroad, making for an extremely competitive trade 

environment. 

The global nature of economic recovery suggests that, although the U.S. dollar will still 

appreciate in 2017 and 2018, it will see nowhere near the sharp increases in 2015, and should 

even decline relative to some currencies. For example, in 2017, the Brazilian real has already 

gained about 10 percent against the U.S. dollar, compared to all of 2016. The Russian ruble has 

picked up 13 percent, thanks in part to higher crude oil prices. 

As a result, U.S. agriculture faces a friendlier macroeconomic environment than in the previous 

two years. The dollar will be less of a headwind, and growing economies, especially in emerging 

markets, will demand more and better quality food and feed. U.S. producers have demonstrated 

their competiveness by continuing to export at high levels despite the difficult economic 

environments in 2015 and 2016. 

The United States is projected to remain competitive in global agricultural markets and to grow 

export values over the next 10 years. U.S. agricultural exports were most recently forecast at 

$136 billion for FY2017. That is up nearly 5 percent from last year, pushed up by larger volumes 

even as unit value declines for some bulk commodities. The top three customers of U.S. 

agricultural products remain China, Canada, and Mexico, which account for 46 percent of U.S. 

agricultural exports (see figure 7). 

The FY 2017 forecast for grain and feed exports is $28.6 billion, down slightly from FY 2016, 

with greater volumes, on larger supplies, offsetting a decline in unit values in aggregate. 

Livestock products are up $1.4 billion from last year, to $17.8 billion, in part due to rising beef 

demand in Asia and strong Mexican demand for U.S. pork. Dairy products increase nearly $1 

billion to $5.5 billion on stronger global prices. Sales of horticultural products, driven by tree nut 

exports, are up by $1.0 billion. 

Expanding export opportunities for U.S. farm products is critical for the agricultural economy. 
49 

U.S. agricultural exports account for about 20 percent of the value of U.S. agricultural 

production, nearly doubling since 1990. For some commodities, exports account for a significant 

share of production - around 50 percent for soybeans, wheat, and rice; 7 5 percent for cotton, and 

nearly 90 percent for almonds. Trade is not only important to U.S. farm incomes, but to the 

broader U.S. economy. USDA estimates that each dollar of U.S. farm exports produces an 

additional $1.27 in economic activity, and every billion dollars in agricultural sales overseas 

supports about 8,000 American jobs. 

Summary 

Our long-run expectations for global agriculture reflect an assumption of steady world economic 

growth and continued global demand for biofuel feedstocks, factors that combine to support 

longer run increases in consumption, trade, and prices of agricultural products. However, over 

the next several years, the agricultural sector will continue to adjust to lower prices for most farm 

commodities both in the U.S. and abroad. We have seen that in the U.S. most recently in the 

decline in winter wheat area of 3.8 million acres, the lowest since 1908. 

In addition, many of the producer's cost-saving farm strategies we have observed over the past 

few years will likely continue, such as reduced purchases of machinery and more aggressive 

restructuring of debt and rental agreements. We would still expect to see demand for operating 

loans to rise accompanied by tightening availability, which will continue to put upward pressure 

on interest rates. Currently, interest rates on loans remain low, so that new debt is still not 

expected to result in a significant increase in operating costs for most producers. 

However, we have seen from recent data from the Federal Reserve Banks that interest rates have 

been increasing on agricultural loans. Also, we expect land value and cash rent levels to continue 

to realign to the lower price environment. Farm bill program payments are expected to start to 

taper off, largely due to the effects of flattening commodity prices on Olympic-averaging in the 

ARC-CO program, which has been responsible for the largest share of payments. The MPP dairy 

program is not expected to provide significant outlays in 2017 or 20 18 due to rising dairy prices 

and low feed costs. Crop insurance net indenmities were low in 2016, but would be expected to 

increase in 2017 with more normal weather patterns. 
50 

Returns to farming are expected to remain flat over the coming decade having already declined 

sharply from recent highs. The net effect over time is difficult to forecast, but certainly we might 

expect consolidation in some farm sectors in certain regions and movement of the most 

leveraged operators out of farming. 

A key component of measuring changes in the agricultural sector will be the upcoming USDA 

Agricultural Census, which will be put into the field this December. The National Agricultural 

Statistics Service (NASS) has been planning for the census for the past few years and will be 

implementing the 2017 survey. That survey costs USDA approximately $264 million over a 5-

year period to implement and provides crucial information for a broad range of activities. We 

expect results to be available at the Agricultural Outlook Forum in February 2019. 

The strength of the agricultural economy has implications for rural America, but also for the 

larger U.S. economy. We know that agriculture, food and related industries contributed $992 

billion to the U.S. gross domestic product in 2015. That translated into about 21 million jobs, or 

about 11 percent of total U.S. employment. Food expenditures comprised about 12.5 percent of 

household expenditures. Food manufacturing accounts for about 15 percent of all U.S. 

manufacturing employees. 

Mr. Chairman, that concludes my opening statement and I am happy to answer any follow up 

questions you might have now or later for the record. 
51 

FIGURE 1. Debt-to-asset ratio rising as net farm income falls, but remains historically low 

Billion ($2009) Percent 

$140 25 

$120 

20 

$100 

$80 15 

$60 10 

$40 

5 

$0 0 0 M 1..0 01 N 1.1'1 00 ..... '<t " 0 M 1..0 01 N 1.1'1 00 ..... '<t ..... 

"' "' 10 "' " " " 00 co 00 C7l C7l 01 C7l 0 0 0 ..... .... C7l C7l C7l en C7l C7l C7l C7l C7l C7l C7l C7l 01 01 0 0 0 0 0 .... " .... .... .... .... .... .... .... .... .... .... .... .... ..... .... N N N N N 0 

N 
52 

FIGURE 2. Financial stress varies by commodity specialization 

Share of farm businesses 

18% 

16% 

14% 

12% 

10% 

8% 

6% 

4% 

2% 

0% 

Data: USDA-ERS (February 2017). 

Highly leveraged (dta 0.41-0.70) 

111 Very highly leveraged (dta >0.70 

II II 
53 

FIGURE 3. Interest payments remain modest relative to income 

60% 

! 

,so% 

l 

I 

140% 

l 

i 

130% 

!20% 

I 

ilO% 

I 

<E--- lnt:(NFI+Int) 

I O"A. 

I I rot::> ro, roro ro"> ~'\- ~c, ~'*' !0.., ~ ~ ~<:::> ~, ~ro ~o, ~'\- ~c, ~'*' ~.., ~ I~~~~~~~~~~~~~~~~~~~ 

' Data: USDA-ERS. 
54 

FIGURE 4. Corn, cotton, and soybean prices soften, but wheat and rice to turn up 

2012 2013 2014 2015 2016 2017 %A 

Wheat ($/bu) 7.77· 6.87 5.99 4.89 3.90 4.25 9.0 

Corn ($/bu) 6.89• 4.46 3.70 3.61 3.40 3.40 0.0 

Soybeans ($/bu) 14.40• 13.00 10.10 8.95 9.55 9.30 -2.6 

Cotton (centsllbs) 72.50 77.90 61.30 61.20 69.00 64.00 -7.2 

All Rice ($/cwt) 15.10 16.30 13.40 12.20 10.40 11.20 7.7 

Source: USDA-OCE World Agricultural Supply and Demand Estimates, May 9, 2017 

• denotes record high 

FIGURE 5. Kansas State University Extension, Northeast Kansas Crop Budgets, 2017 

Wheat 

(rotation) Corn Soybeans Sorghum 

Price $ 4.02 $ 3.60 $ 9.00 $ 3.44 

Yield 56.0 137.0 47.0 90.0 

Sales Receipts $ 225.34 $ 492.75 $ 423.00 $ 309.53 

COSTS 

Fertilizers $ 50.59 $ 66.41 $ 28.17 $ 46.62 

Herbicides $ 10.68 $ 34.15 $ 33.07 $ 42.02 

Seed $ 27.00 $ 82.89 $ 56.00 $ 11.68 

Crop Insurance $ 11.08 $ 17.77 $ 11.13 $ 13.06 

Custom Field Operations $ 87.58 $ 125.60 $ 82.44 $ 118.64 

Other $ 59.05 $ 49.45 $ 45.98 $ 46.61 

Total Direct Expenses $ 245.98 $ 376.27 $ 256.79 $ 278.63 

Cash Rent $ 101.00 $ 101.00 $ 101.00 $ 101.00 

Returns on specified 

expenses $ (121.64) $ 15.48 $ 65.21 $ (70.10) 

Source: Kansas State University Extension 
55 

FIGURE 6. Cattle, hog, and broiler prices to come down in 2018 

2013 2014 2015 2016 2017 2018 

dollars per cwt. 

Steers 125.89 154.56* 148.12 120.86 122.49 118.00 -3.7 

Hogs 64.05 76.03* 50.23 46.16 45.18 43.75 -3.2 

Broilers 99.70 104.9* 90.50 84.30 89.10 88.30 -0.9 

Milk 20.05 23.97* 173.12 16.24 17.60 18.05 2.6 

Source: USDA-OCE World Agricultural Supply and Demand Estimates, May 9, 2017 

* denotes record high 

FIGURE 7. U.S. agricultural exports dominated by China, Canada, and Mexico 

140 

120 

100 
56 

Statement of 

Nathan S. Kauffman 

Assistant Vice President, Economist, and Omaha Branch Executive 

Federal Reserve Bank of Kansas City 

Before the 

U.S. Senate Committee on Agriculture, Nutrition, & Forestry 

May 25,2017 
57 

Chairman Roberts, Ranking Member Stabenow, and members of the committee, thank you 

for the opportunity to testifY today. My name is Nathan Kauffman, and I am an economist and 

Omaha Branch Executive with the Federal Reserve Bank of Kansas City, a regional Reserve 

Bank that has long devoted significant attention to U.S. agriculture. In my role, I lead several 

Federal Reserve System etTorts to track the agricultural economy, with a focus on fann finances 

and agricultural credit conditions. Our Bank is committed to including perspectives from rural 

America in discussions on the national economy, and I am here to share recent developments in 

the U.S. fann sector. Before I begin, let me emphasize that my statement represents my views 

only and is not necessarily that of the Federal Reserve System or any of its representatives. 

At a high level, the U.S. fann economy has weakened notably over the past several years. 

The primary cause of the downturn that began in2013 was a sharp drop in agricultural 

commodity prices, and this remains a top concern in the agricultural community. In a recent 

survey of agricultural banks conducted by the Kansas City Fed, about 85 percent of lenders in 

our region in the central United States identified the current environment oflow commodity 

prices as a leading concern. In addition, while agricultural commodity prices have dropped 

sharply and remain low today, fann sector input costs have declined only gradually, and profit 

margins generally have remained weak. 

Reduced profitability has gradually intensified the level of financial stress among fann 

borrowers. Nationally, debt-to-asset ratios and farm loan delinquency rates have edged higher 

over the past year, but only slightly. Federal Reserve data also show that the rate at which fann 

loans are being repaid has fallen steadily in each of the past four years alongside persistent 

increases in borrowers' financing needs. 

The degree of financial stress in the fann sector, however, has varied regionally. In the first 

quarter of this year, nearly 60 percent of agricultural bankers surveyed in Colorado and the 

western portions of Nebraska, Kansas, and Oklahoma reported that loan repayment rates had 

fallen from the previous year. This is a region that is highly concentrated in cattle and wheat 

production. In contrast, only 25 percent of respondents in the eastern portion of our District, a 

region that is more concentrated in com and soybean production, reported lower repayment rates. 

Other measures of agricultural credit conditions in our region tell a similar story and are 

consistent with other parts of the country. This is to say, financial stress in the fann sector has 

increased more significantly in regions where cropland is generally less productive and in 
58 

regions concentrated in markets that have been particularly weak, such as cattle and wheat. In 

other areas, strong crop yields last fall resulted in cash flows that were better than expected, and 

financial conditions have been more stable recently in those regions. 

In a similar vein, farm real estate values have also declined the past few years, but only at a 

modest pace, and regional disparity has also been notable. Federal Reserve surveys show that the 

average value of high quality cropland has fallen by about 10 to 20 percent since 2013 in states 

with a high concentration of crop production. Since the beginning of2015, however, farmland 

values have decreased more significantly in regions where the land is considered to be less 

productive or where the local farm economy has weakened more dramatically. 

Despite regional variation, the relative strength in farm real estate markets has likely shielded 

the farm economy from potentially more severe financial stress, since farmland accounts for 

more than 80 percent of the value of farm sector assets and is an important source of collateral 

for other farm loans. The strength in land values has given agricultural lenders some 

opportunities to work with borrowers by restructuring loans and requesting additional collateral 

in response to heightened risk in their loan portfolios. 

To briefly summarize, the U.S. farm economy is in the midst of a prolonged downturn, and 

financial stress in the farm sector has risen gradually over the past few years. Despite recent 

signs of stabilization in some areas, farm income has continued to decline overall due to 

persistently low agricultural commodity prices and elevated production costs. Alongside the 

reductions in farm income the past four years, agricultural credit conditions have weakened 

steadily and fann real estate values have trended lower. In general, I expect these downward 

trends to continue in the near term as global supplies are likely to continue to weigh on 

agricultural commodity prices and profit margins. Although a farm crisis does not appear 

imminent, some regions appear to be notably weaker than others, and there are still risks that 

could lead to more widespread challenges in the coming years. 
59 

Federal Reserve Bank of Kansas City: Survey of Ag Credit Conditions (May 2017) 

"Regional Farm Sector Stress Intensifies" 

By Nathan Kauffman, Assistant Vice President and Omaha Branch Executive 

and Matt Clark, Assistant Economist 

Summary 

The farm economy in the Tenth District weakened in the first quarter of 2017, but 

conditions varied from cast to west. Farm income, loan repayment rates and the value of most 

types of farmland all trended lower in each of the District's seven states. However, the 

deterioration in the western portion of the District was more severe than the moderate weakness in 

the eastern portion. Although agricultural credit conditions were weaker throughout the region, 

much of the recent weakness has been driven by intensifying challenges in the western portion of 

the District. 

Farm Income 

Farm income in the Tenth District continued to decline in the first quarter, but at a slightly 

slower pace than in recent quarters. According to the survey, 73 percent of bankers reported farm 

income was lower than the year before. The decline in the first qumter marked the fourth 

consecutive year that District bankers reported farm income was lower than a year earlier (Chart 

I). Despite the persistent decline, the pace of softening appeared to slow in the first quarter. For 

exa!Uple, 24 percent of bankers indicated farm income remained unchanged from the previous 

year, the largest share since the third quarter of 2015. Bankers expected farm income to decline 

further in the coming months, but also at a slower pace than in recent quarters. 

Similar to a year ago, bankers indicated that farm income had declined in each state in the 

Tenth District. Despite a recent rebound in cattle prices, a prolonged downturn in cattle and wheat 

markets caused bankers in regions with a strong concentration in those markets to express concerns 

about the local farm economy. In particular, farm income remained subdued in Kansas and the 

Mountain States, regions with relatively more cattle and wheat production (Chart 2). Although 

farm income continued to decline in western Missouri, bankers were slightly more optimistic in 

their assessment for farm income in that region, where crop yields were particularly strong last 

fall. 
60 

180 

160 

140 

120 

100 

80 

60 

40 

20 

0 

200 

180 

160 

140 

120 

100 

80 

60 

40 

20 

0 

Chart 1: Tenth District Farm Income and Spending 

Diffusion Index * 

Farm Income 

-capital Spending 

...,..Household Spending 

Index* 

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 

10\n:!: chat or liH" san:e m 

barl.ken 11·ho ~·es?onded 

Chart 2: Tenth District Farm Income, First Quarter 

Diffusion Index * 

2011 2012 

Kansas western 

Missouri 

2014 

Mountain 

States** 

Diffusion Index* 

1112015 2016 2017 

Nebraska Oklahoma 

"Bad-::en responded to i~en: b:,· i:1dicating'ti·hetl1er c01!ditions duri!1gthe current 

180 

160 

140 

120 

100 

80 

60 

40 

20 

200 

180 

160 

140 

120 

100 

80 

60 

40 

20 

0 

lo\1-et than or the sa:r.e as in the :-ear-ea1lier pe::iocL TI:e index 11Un:bers oi ba..n.ke:rs 

;;;·ho responded 

""' :Jlou:lta.i.n 
61 

More generally, farm income has declined at a stronger pace in the western part of the 

District Since 20 J 4, following a drop in the prices of major row crops, farm income has fallen 

more sharply in the Mountain States and the westem portions of Nebraska, Kansas and Oklahoma 

(Chart 3 and Map). According to the survey, the gap in the performance of the farm sector between 

the District's eastem and western portions widened in the first quarter. Alongside persistent 

weakness in cattle and wheat markets, more than 80 percent of bankers indicated farm income was 

lower than a year ago in the westem part of the Distlict versus about 60 percent in the eastem part. 

100 

East 

80 

60 

40 

20 

0 

2010 

Chart 3: Tenth District Farm Income, First Quarter 

Share of Bankers Reporting Lower Farm Income 

2011 2012 2013 2014 2015 2016 

100 

80 

60 

40 

20 

0 

2017 
62 

Map: Tenth Federal Reserve District 
63 

Credit Conditions and Lending 

A prolonged downturn in the farm economy continued to weigh on agricultural credit 

conditions in the District, but also at a softer pace than in recent quarters. Loan demand remained 

high in the first quatter and was expected to continue to rise in the coming months (Chart 4 ). 

Bankers also reported fann loan repayment rates continued to weaken, but not as sharply as in 

2016. In fact, similar to fann income, 49 percent of bankers indicated loan repayment rates were 

unchanged from a year ago, a larger share than the previous two quarters. 

Chart 4: Tenth District Credit Conditions 

160 Diffusion Index * Diffusion Index * 160 

140 140 

120 120 

100 100 

80 80 

Farm Loan Demand 

60 ....-Loan Repayment Rates 60 

-.Loan Renewals or Extensions 

40 40 

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 

"'Ba:1kers responded ro ::ad: ite:11 ~; ir:dicati.ngwhet11er cond.itiom 

of 

Despite some signs of optimism in the eastern portion of the Distlict, agricultural credit 

conditions worsened more significantly in the west. Over the past several years, the share of 

bankers reporting higher rates of loan renewals and lower repayment rates had been similar 

throughout the Tenth District (Chart 5). Since mid-2016, however, the rate of deterioration in these 

two metrics has increased in the west, but generally has softened in the east, reflecting an emerging 

regional divide in agricultural finance conditions. Whereas bankers throughout the Distlict have 

expressed ongoing concerns about the state of the farm economy, concerns from bankers further 

west have been elevated and were reflected in the recent survey data. 
64 

Chart 5: Tenth District Credit Conditions 

Share of Bankers Reporting 

Higher Renewal/Extension Rates 

2010 2012 2014 2016 

0 

2010 

Share of Bankers Reporting 

Lower Repayment Rates 

East 

2012 2014 2016 

80 

The pace of carry-over debt also quickened in the western portion of the District, but 

declined in the east. In 2016, about 29 percent of farm borrowers carried over more debt from the 

previous year (Chait 6). In the first quarter of 2017, however, more than 40 percent of bankers in 

the west noted that carry-over debt increased, while less than 20 percent in the cast reported an 

increase in borrowers with carry-over debt. In addition, the share of agricultural loans that involved 

debt restructuring in response to persistent shortages in cash flow increased again in the west, but 

generally remained stable in the east (Chart 7). 

Alongside ongoing difficulties in the District fam1 economy, bankers continued to raise 

collateral requirements and interest rates for farm borrowers at a modest pace. In the first quarter, 

nearly 40 percent of bankers noted that collateral requirements increased from the year before, 

reflecting a steady increase from recent years (Chart 8). Interest rates remained historically low, 

but increased 24 basis points, on average, for variable rate operating loans and 15 basis points for 

fixed rate operating loans from a year ago (Chart 9). 
65 

Chart 6: Borrowers with an Increase in Carryover Debt, First Quarter 

50 * * 50 

2012 

40 2013 40 

2014 

1112015 

30 2016 30 

2017 

20 20 

10 10 

0 

East West 

Chart 7: Share of Agricultural Loans Originated Involving Debt Restructuring 

35 35 

30 Ill 2016 30 

2017 

25 25 

20 20 

15 15 

10 10 

5 5 

0 0 

East West 
66 

Chart 8: Collateral Requirement Changes Relative to One Year Ago 

Percent Percent 

100 100 

90 Increased !II Decreased 90 

80 80 

70 70 

60 60 

50 50 

40 40 

30 30 

20 20 

10 10 

0 0 

2008 2012 2014 2015 2016 2017 

Chart 9: Tenth District Average Interest Rates, First Quarter 

Variable Interest Rates Fixed Interest Rates 

Percent 6.oo r-=-==~-------------·--·---, Percent 6.25 -,----------------------------, 

5.75 

5.50 

1112012 

2013 

11112014 

2015 

2016 

Operating Machinery Farm Real 

Loans Loans Estate Loans 

6.00 

5.75 

5.50 

5.25 

5.00 

11112012 

2013 

112014 

2015 

Operating Machinery Farm Real 

Loans Loans Estate Loans 
67 

Farmland Values 

As expected, based on recent surveys, District farmland values trended lower in response 

to conditions in the regional farm economy. The value of nonirrigated cropland declined 3 percent 

in the first quarter, following similar declines in 2016 (Chatt 10). The value of irrigated cropland 

and ranchland also decreased in the first quarter. Although farmland values continued to trend 

lower alongside ongoing weakness in the fatm economy, the declines have remained relatively 

modest in comparison to the crisis of the 1980s. 

Chart 10: Tenth District Farmland Values 

Percent change from the previous year * 

40 ,-------~--~----~--------~~-~-------··------·----·---·--·----, 

30 

20 

10 

0 

-10 

-20 

-30 

1980 

-Nonirrigated 

Irrigated 

Ranchland 

1985 1990 1995 2000 2005 2010 2015 

w Percent changes a::e calcc::ared min? responses onl; t'ro:r: tl:ose bJJ.:ks report.ir:g in both the pJst ::md the curre!lt quarters.. 

40 

30 

20 

10 

0 

-10 

-20 

-30 

The recent declines in farmland values in the Tenth District, however, also have been 

sharper in the west. The value of nonirrigated cropland began to soften in 2013 throughout the 

District, but recent declines have been more substantial in the west (Chart 11 ). In fact, according 

to the survey, nonirrigated cropland values have fallen only 3 percent in the east since the first 

qumter of2015, but have dropped 24 percent in the westem portion of the District. 
68 

Chart 11: Tenth District Non irrigated Farmland Values 

Percent 

5 5 

0 0 

-5 -5 

-10 -10 

-15 -15 

West 

-20 -20 

-25 -25 

2016 2017 

ar·e calu.:l:ated u'ing ::-espocses ody imm those banks reporting in 3oth the past :md the current quarters. 

Conclusion 

In the first quarter, bankers throughout the Tenth District indicated that profit margins and 

cash flow remained tight. However, financial stress among agricultural producers and concems 

among lenders have become more regional as economic conditions have worsened more 

significantly in the westem portion of the District than in the east. As the farm economy remains 

under pressure, it is possible that challenges may intensify in some regions even as conditions may 

begin to stabilize in other areas. 
69 

Statement of 

Alec Sheffer 

Director of Retail Sales 

Agri-AFC 

Before the Senate Committee on Agriculture, Nutrition, and Forestry 

Hearing on: 

Examining the Farm Economy: Perspectives on Rural America 

May 25,2017 
70 

Introduction 

Good Morning Chairman Roberts, Ranking Member Stabenow, and distinguished members of 

the Senate Committee on Agriculture, Nutrition, & Forestry. Thank you for allowing me to 

testify in regards to America's farm economy today. 

My name is Alec Sheffer and I serve as Director of Retail Sales for Agri-AFC headquartered in 

Decatur, Alabama. At Agri-AFC, our roots have been firmly planted in the Southeast since 2003. 

With offices in Georgia, Mississippi, Florida, and Alabama, we have made a name supporting 

crops of all varieties. From cultivation to harvest, our goal is to provide an abundance of 

information and resources, to help guide farmers. We take pride in equipping our clients and 

communities with the knowledge and resources required for a successful harvest. 

I also appear before you today on behalf of the Agricultural Retailers Association (ARA). ARA is a 

trade association based here in Washington, DC. ARA advocates, influences, educates and 

provides services to support its members in their quest to maintain a profitable business 

environment. 

America's retail farm suppliers have been hit hard by the downturn in the agricultural economy 

over the past decade. There are a growing number of factors that have led to this decline 

including a steep drop in farm commodity prices, increased regulatory burdens, and market 

uncertainty. As an agricultural retailer, we have seen this firsthand with our customers 

spending and declining revenues. 

However, we are confident these winds are beginning to shift. We believe Congress will make 

changes in the upcoming farm bill to help strengthen the safety net provided by crop insurance 

programs and assist in improving conservation efforts. Secretary of Agriculture Sonny Perdue, 

testified before the House Agriculture Committee last week and I was heartened to hear that, 

despite the steep drop in commodity prices and market uncertainty, he was hopeful rural 

America will strengthen in the coming years as the United States Department of Agriculture 

looks to improve existing safety nets for farmers and ranchers. 

Farm Income Outlook 

A recent forecast from USDA's Economic Research Service reported a dim outlook for farm 

profits. 

"Relative to 2016 levels, farm sector profitability measures forecast for 2017 range from nearly 

flat to declining. Net cash farm income, one measure of profitability, is forecast at $93.5 billion 

($82.2 billion after adjusting for inflation) for 2017, up 1.8 percent compared to the 2016 

forecast. Net farm income, a broader measure of profitability because it includes noncash 

values such as inventory flows and economic depreciation, is forecast at $62.3 billion ($54.8 

billion after adjusting for inflation) for 2017, down 8.7 percent compared to 2016. The calendar 

year 2016 net cash farm income and net farm income forecasts are $91.9 billion and $68.3 
71 

billion, down 12.2 percent and 15.6 percent from their respective 2015 levels." (United States 

Department of Agriculture Economic Research Service, 2017). 

Other indicators of a weakening farm economy include a decline in farm credit access while the 

demand for loans remains strong. As noted in Secretary Perdue's testimony last week, "since 

2009, USDA has provided approximately 243,000 loans totaling over $35.2 billion to farmers 

and ranchers. The recent increase in demand led to full utilization of the program level for farm 

operating loans for fiscal year (FY) 2016, with record loan levels at $6.3 billion." (Perdue, 2017) 

A decrease in loans while demand is high creates a strong uncertainty level among America's 

farmers. 

In addition to declining revenues USDA ERS predicts a decline in crop cash receipts. In this kind 

of economic uncertainty for farmers and the retailers supplying them, safety nets through 

USDA are crucial in making sure their industry is supported by the government. I fully expect 

your committee will work swiftly to ensure these gaps are filled when crafting the upcoming 

farm bill authorization. I strongly urge the committee to review this forecast as it informs a 

broader outlook than allowed in my testimony this morning. 

We also feel it is necessary to push for comprehensive tax reform to help agricultural retailers 

and their farmer customers. In addition to a full repeal of the estate tax, we believe it is equally 

important for Congress to preserve policies which help keep farm businesses in-tact and 

families in agriculture. 

U.S. farmers and ranchers understand and appreciate the role of taxes in maintaining and 

improving our nation's infrastructure but believe the most effective tax code is a fair one. For 

this reason, we respectfully request that any tax reform legislation considered in Congress will 

strengthen the business climate for farm and ranch families while ensuring agricultural 

businesses can be passed to future generations. 

The ag community also understands the need for infrastructure improvement, especially in 

rural America. Roads, bridges, ports, and lock and dam systems all play crucial roles in our 

delivery of important farm inputs like seed, fertilizer, and equipment. Additionally, expansion of 

broadband infrastructure throughout rural America is sorely needed. From precision agriculture 

technology to rural healthcare needs, a greater and more robust broadband network will mean 

more effective, efficient, and safer farm communities. 

Regulatory Burdens 

First, I would like to address several regulatory burdens affecting our industry. The legislative, 

regulatory and judicial landscape is vastly different from what the agricultural retail industry 

experienced decades ago. In the past eight years, federal regulators completed hundreds of 

major rules that impacted many sectors, including agriculture. 

Our industry would like to prevent excessive expansion of federal regulations such as EPA's Risk 

Management Program (RMP), the current Waters of the U.S. (WOTUS) rule, remove duplicative 
72 

permit requirements, delay and amend the new Worker Protection Rule (WPS), pull back and 

reform the new Certification & Training Applicator rules, and resetting the process, science, 

transparency and predictability to the registration and review of pesticides. 

Additionally, the Environmental Protection Agency (EPA) has targeted several important crop 

protection products over the years attempting to remove these important compounds from the 

marketplace. This creates a great amount of uncertainty for farmers struggling to determine 

which products will be made unavailable to them in the coming growing seasons. Our industry 

asks that the new administration and EPA reset the process by which crop protection products 

are assessed and help preserve risk-based regulation of pesticides based on sound science and 

a predictable registration and regulatory review process. Agricultural retailers employ 

commercial pesticide applicators that receive extensive education and training to apply 

pesticide products in accordance with the Federal Insecticide, Fungicide, and Rodenticide Act 

(FIFRA) laws and regulations. Ground pesticide applicators treat about 80% of all U.S. 

commercial cropland while aerial applicators treat just under 20%. Certified commercial 

pesticide applicators participate in EPA financially supported state training programs that cover 

Best Management Practices (BMPs) for safe pesticide use as well as environmental issues such 

as endangered species, human health, and water quality protection. 

Another regulatory burden for ag retailers has been the EPA's assessment of National Pollutant 

Discharge Elimination System (NPDES) pesticide general permits under the Clean Water Act 

(CWA). In 2009, the U.S. 6th Circuit Court of Appeals drastically expanded the enforcement 

reach of the Clean Water Act into pesticide policy. The court ruling invalidated decades of 

precedent and an EPA regulation that had exempted pesticide applications made into, over or 

near water from the numerous requirements of CWA's NPDES permits. 

Numerous aerial applicators nationwide have shut down their mosquito and invasive species 

control efforts due to the paperwork cost and threat of lawsuits associated with the NPDES PGP 

requirements. EPA estimated the paperwork costs alone to be $50 million per year. State and 

local officials advised EPA that the costs would far exceed that estimate. Currently, mosquito 

control programs are vulnerable to lawsuits for simple paperwork violations of the CWA where 

fines may be up to $35,000 per day for activities that do not involve harm to the environment. 

In order to attempt to comply with this potential liability, these governmental agencies must 

divert scarce resources to CWA monitoring. In some cases, smaller applicators have simply 

chosen not to engage in vector control activities. Requiring NPDES permits for the discharges of 

mosquito control and other pesticide products provides no additional environmental 

protections beyond those already listed on the pesticide label, yet the regulatory burdens are 

potentially depriving the general public of the economic and health benefits from the use of 

important pest control products. 
73 

The court ruled that such applications require compliance with NPDES discharge permits 

whenever they occur "into, over or near" one of the many types of "waters of the U.S.," though 

the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) already regulates pesticide use. 

FIFRA requires demonstration that registered pesticides can be safely applied per product 

labels in a manner that poses no unreasonable risk to humans or the environment. Therefore, 

this duplicative regulatory requirement has put an undue burden on American farmers and 

pesticide applicators. 

Additionally, we support the administration's plan to review and restructure the Waters of the 

U.S. (WOTUS) rule promulgated under the last administration. Farmers continue to be 

America's best stewards of land conservation and work diligently to follow best management 

practices when applying pesticides and fertilizer ensuring the quality of land and water is 

uninhibited allowing improving farm production. 

Earlier this year, the U.S. House of Representatives passed a regulatory reform bill. It is now 

time for the U.S. Senate to take action. S. 951, the Regulatory Accountability Act of 2017 (RAA), 

introduced by Senators Rob Portman (R-OH) and Heidi Heitkamp (D-ND), is bipartisan 

legislation that would modernize the rule-making process so that agencies would have to 

implement laws as Congress intended and requires the agencies to get the rules right. 

I would also like to address the commercial driver shortage in our industry. Commercial truck 

traffic is a vital component to our nation's economic prosperity. Virtually every industry 

segment depends on truckers and commercial drivers to deliver billions of tons of commodities 

used and consumed annually in the United States. The nation is experiencing a shortage of 

truck drivers that is worsening each year. The American Trucking Associations (ATA) estimates 

that the current shortage of drivers is roughly 35,000 to 40,000, but because of retirements and 

individuals leaving the industry, trucking companies will need to recruit nearly 100,000 new 

drivers a year over the next decade to keep pace with the country's freight needs. 

Many of ARA's agricultural retail members operate near state lines with their farm and ranch 

customers located within 150 air mile radius of the facility. Their drivers spend significant time 

on the job during the peak seasons primarily in the fields applying product, not driving on public 

roads, and typically return to their own home to sleep at night. Only allowing employees over 

the age of 21 with a CDL to deliver product to certain customers, due to current federal 

regulations, places undue restrictions on employees under the age of 21 and limits their work 

opportunities. 

Historically, young workers (ages 16 to 24) face considerably higher unemployment rates than 

prime age workers (ages 25 to 54). The youth unemployment Rate in the United States 

increased to 12.30 percent in March of 2015 from 11.90 percent in February of 2015. 

According to the U.S. Bureau of Labor Statistics, youth unemployment rate reached an all-time 

high of 19.50 percent in April 2010. Unemployment early in a young person's career can have a 
74 

lasting negative effect on their earnings, productivity, and employment opportunities. It is 

important to provide our nation's youth with the skills necessary to obtain an important job in 

the labor market. 

ARA believes it is time for this outdated federal age requirement regulation to be reformed due 

to the growing driver shortage and high young adult unemployment rate. Without truck 

drivers, America's economy and major industries like the agricultural sector will be adversely 

impacted. We have seen what minor and major disruptions to the trucking industry have 

caused due to natural disasters such as Hurricane Katrina and Sandy, from food and fuel 

shortages to medical supply shortages. The current federal regulations will cause a man-made 

disaster unless Congress and the Administration take steps to modernize outdated COL federal 

age restrictions. 

Another regulatory burden plaguing our industry is the lack of a North American Industry 

Classification System (NAICS) code that truly represents our businesses. The NAICS system was 

developed as the standard for use by Federal statistical agencies in classifying business 

establishments for the collection, analysis, and publication of statistical data related to the 

business economy of the U.S. NAICS was developed under the auspices of the Office of 

Management and Budget (OMB), and adopted in 1997 to replace the old Standard Industrial 

Classification (SIC) system. There is no central government agency with the role of assigning, 

monitoring, or approving NAICS codes for establishments. Individual establishments are 

assigned NAICS codes by various agencies for various purposes using a variety of methods. The 

U.S. Census Bureau has no formal role as an arbitrator of NAICS classification. 

The NAICS categories and definitions were not developed to meet the needs of regulatory 

applications. However, certain federal agencies such as OSHA and EPA are using the NAICS code 

to try to capture certain types of agri-businesses such as agricultural retailers (i.e. farm supply 

retailers) under regulations designed for manufacturers even though it does not fit the original 

intent of these regulations established by Congress. Farm Supply Retailers do not manufacture 

fertilizer at their facilities. Farm Supply Retailers are primarily engaged in the retail distribution 

of farm supplies, such as animal feeds, fertilizers (including custom blended products), 

agricultural chemicals, pesticides, plant seeds, and plant bulbs to agricultural producers (i.e. 

farmers and ranchers). However, because there was not a good definition under the NAICS 

code for farm supply retailers, most facilities I businesses have been using the code 424910: 

Farm Supplies Merchant Wholesalers as it was the closest to describe the products they sold to 

farmers. There is not a code classification under 44-45 Retail Trade that adequately covers the 

sale of farm supplies. The NAICS code needs to be immediately fixed to prevent OSHA, EPA and 

other federal agencies from attempting to treat farm supply retailers as manufacturers or it will 

have far reaching, adverse financial ramifications for the agricultural industry. 
75 

Creating a new NAICS code for Farm Supply Retailers would be a great way to resolve this issue. 

This industry comprises establishments primarily engaged in the retail distribution of farm 

supplies, such as animal feeds, fertilizers (includes custom blended products), agricultural 

chemicals, pesticides, plant seeds, and plant bulbs to agricultural producers (e.g. farmers, 

ranchers) and other end users. 

Conclusion 

While my testimony this morning highlights some of the negative effects the rural economy has 

had on the agriculture community recently, I am encouraged by the new administration's goals 

and priorities for the coming years. I am keenly aware of the terrific job Secretary Perdue and 

his staff have already done at the helm of USDA. Likewise, I know the honorable members of 

both the House and Senate Agriculture Committees and their staffs will work tirelessly to 

promote and protect America's farmers. 

These men and women are some of the most resilient people on the planet and they should be 

commended for their hard work and dedication to feeding a growing world population. As a 

farm supply retailer, I am confident that improvements to safety nets in the upcoming farm bill, 

free and fair trade amongst agriculture producers and customers, and changes to the 

regulatory landscape hindering farm production will all contribute to a once again burgeoning 

farm economy. 

Thank you for your continued commitment to supporting America's agriculture industry and I 

look forward to your questions. 
76 

ru r1 

RURAL POliCY RESEARCH INSTITUTE 

Written Statement for the Record 

Dr. Bruce Weber 

Professor Emeritus, Oregon State University 

and 

Senior Economist, Rural Policy Research Institute 

Before the 

United States Senate 

Committee on Agriculture, Nutrition, and Forestry 

Washington, D.C. 

May25,2017 

The Rural Policy Research Institute provides objective analysis and facilitates public dialogue 

concerning the impacts of public policy on rural people and places. 

University oflowa College of Public Health 

145 North Riverside Drive • Iowa City, IA 52242 

www.rupri.org 
77 

Good morning, Chairman Roberts, Ranking Member Stabenow and other Committee 

members. My name is Bruce Weber. I am professor emeritus of applied economics at 

Oregon State University and a senior economist at the Rural Policy Research Institute. I 

am here today to provide an economic perspective on rural America, informed by recent 

research. 

Rural economics literature offers two important conclusions: 

( 1) Healthy rural communities are important for both rural and urban people in this 

nation, and the well-being of farm households is directly affected by the infrastructure 

and jobs available in their rural communities. 

(2) Federal rural development investments of the kind made through the Farm Bill (in 

utilities, broadband, small businesses, for example) have enhanced employment and 

reduced poverty in rural communities. 

Below are four empirically-based realities which support these conclusions. I hope these 

provide useful background for this Committee as you develop the Farm Bill. In this 

discussion, I use the federal metropolitan/ nonmetropolitan classification to define rural 

counties. 

Farm prosperity, rural community vitality and urban prosperity have become 

tightly linked, as farm households have become more dependent on off-farm income 

and as rural and urban areas have become more interdependent. 

Farm household well-being is very dependent on rural community prosperity. Most farm 

households earn the majority of their income off the farm. For the 85 percent of U.S. 

farms that are small family farms, with less than $350,000 in sales, the Economic 

Research Service/USDA estimates that "Virtually all of these farms' income comes from 

off-farm wage/salary jobs and unearned income (dividends, interest, rent, Social Security, 

other public programs, private pensions, etc.) rather than farm or off-farm selfemployment."1 Even the largest farms have substantial off-farm income. Overall, "wages 

from off-farm jobs accounted for more than half of off-farm income across all farm 

households. "2 

Economic and social shocks over the past centwy have blurred the boundaries and 

increased the links between urban and rural areas. Lichter and Brown identity 

technological change, globalization and governmental devolution as drivers of the 

increased linkages between urban and rural places, and articulate the key role of 

technology: "Technological advances have brought most aspects of rural life into the 

1 Economic Research Service, America's Diverse Family Farms 2016 Edition EIB-164 December 2016. 

This 85 percent could include some farms that reported gross cash farm income of more than $350,000 

whose operators report being retired or report a major occupation other than fanning. 2 USDA ERS website, Farm Household Income and Characteristics page, updated February 07, 2017; 

accessed May 19.2017 
78 

urban fold and linked rural people and communities directly to the global economy. "3 

Itwin et al., based on their reading of recent research, conclude that "ongoing economic 

restructuring, caused by falling transportation costs, new communications technologies, 

and increased global competition, has simultaneously strengthened urbanization and 

spurred urban decentralization" and that "urban growth has penalized more remote rural 

areas in terms of lower job and population growth. The exceptions are amenity-rich rural 

areas, particularly those in the United States that have grown rapidly as a result of rising 

real incomes and changes in transportation and technology. "4 (p. 453) 

Connections between rural and urban places have been strengthened as a result of new 

technologies that have reduced the cost of moving goods and people and that have 

allowed new forms of communication that have enhanced connectivity. However, while 

rural regions are better connected to urban regions than in the past, it is not clear that 

improved connectivity will lead to better economic outcomes for rural regions. 

Rural growth or decline also affects urban communities. Most studies of rural-urban 

interdependence focus on how changes in the fortunes of urban centers spread out to 

surrounding rural communities. 5 This literature finds that the effect of urban growth 

extends far into the hinterland, through trade in goods and services, and through 

commuting ofworkers.6 But other studies have examined the reverse relationship: how 

rural growth affects urban centers. One study ofthe region centered on Portland Oregon, 

for example, found that in 2006 the effect of an increase in rural exports on the urban 

economy was three times as large as the effect of core region exports on the surrounding 

rural economy. 7 This same study also found that the share of the Portland economy's 

output based on the exports of the surrounding rural region was larger than the share of 

the surrounding region's economy that was based on Portland exports. The health of the 

regional economy around Portland was more important to the urban economy than vice 

versa. 

3Lichter, Daniel T. and David W. Brown. 2011. Rural America in an Urban Society: Changing Spatial and 

Social Boundaries. Annual Review of Sociology. 37:565-592. p. 567-8. 4 Irwin, Elena G., Kathleen P. Bell, Nancy E. Bockstael, David A. Newburn, Mark D. 

Partridge, and JunJie Wu. (2009). "The Economics of Urban-Rural Space." Annual 

Review of Resource Economics.(!): 435-462. 5 For a recent review of this literature, see Bruce A. Weber and David Freshwater. The Death of Distance? 

Networks, The Costs of Distance and Urban-Rural Interdependence. Chapter 13 in International Handbook 

of Rural Studies. Mark Shucksmith and David L. Brown, co-editors. New York: Taylor and Francis. 2016. 6 See Joanna P. Ganning, Kathy Baylis, and Bumsoo Lee. 2013. Spread and Backwash Effects for 

Nonmetropolitan Communities in the U.S. Journal of Regional Science. 53 (3): 464-480. See also Mark D. 

Partridge, Ray Bollman, M. Rose Olfert, and Alessandro Alasia. 2007. "Riding the Wave of Urban Growth 

in the Countryside: Spread, Backwash, or Stagnation," Land Economics, 83(2): 128-152. 7 Lewin, Paul, David Holland and Bruce Weber. 2013. "Core-periphery dynamics in the Portland Oregon 

Region: 1982-2006." Annals of Regional Science. DOl I 0.1 007/s00168-0 13-0552-6 .. See also Edward C. 

Waters, David W. Holland, and Bruce A. Weber. 1994. Interregional Effects of Reduced Timber Harvests: 

The Impact of the Northern Spotted Owl Listing in Rural and Urban Oregon. Joumal of Agricultural and 

Resource Economics. 19(1): 141-160. 
79 

America's rural economy is now very diverse and, while agriculture remains 

important, it is no longer predominant. 

Farm income and employment is a primary driver in many rural counties in the U.S. Onefifth (391) of the 1976 nonmetropolitan counties have been identified byERS as fmmingdependent. But faJID eamings and employment account for only 4.4 and 5.7 percent, 

respectively, of all nonmetropolitan earnings and employment8 and most rural counties in 

the U.S. are driven primarily by nonfaJID sectors. Half of the rural counties in the U.S. are 

specialized in something other than farming: there are 351 rural counties specialized in 

manufacturing, 238 whose major employment or income is in federal and state 

govemment, 228 specialized in recreation, and 183 mining-dependent. And the 

remaining 30 percent (585) of the rural counties have a quite diversified economic base 

(the "nonspecialized" counties in the ERS classification). 

Not surprisingly, there are strong regional concentrations of different economic bases. As 

can be seen in the map below, "farming-dependent counties are concentrated in the Great 

Plains, the manufacturing-dependent counties are found more often in the Rust Belt and 

Southem Piedmont, while Federal-State Govemment-dependent counties are clustered in 

the West."9 

Again, these are groupings by primary income and employment, and most rural counties 

are further diversifYing, over time. For example, one innovation worth noting is the 

growing interest and investment in bio-based manufacturing. 

8 Estimate provided by USDA Economic Research Service based on 2015 data released in 2016 from the 

US Department of Commerce Bureau of Economic Analysis website. 9 Timothy Parker. 2015. Updated ERS County Economic Types Show a Changing Rural Landscape. Amber 

Waves Issue 11. https://www.ers.usda.gov/ .. ./updated-ers-county-economic-types-show-a-changing-rural... 
80 

Twenty percent of all nonmetropolitan counties are farming-dependent over 2011).12• 

'Based on a 3-year weighted average of !arm income and employment between 2010 and 2012. 

Source: USDA Economic Research Service. 

Rural Communities face unique challenges related to small populations, low-density 

settlement patterns and remoteness from urban centers 

The challenges facing mral areas due to small populations, low-densities and distances to 

urban centers are well understood. Small and sparsely settled places can't take advantage 

of economies of scale in production and marketing, leading to higher production costs 

and smaller retail markets, with fewer choices and higher prices. Nor do they support 

agglomeration and the resulting innovative, cost-reducing technologies and processes. 

Remoteness from urban centers increases transportation and communication costs, and 

the provision of, and access to, government services. 

Research on the challenges of small population size suggests that smaller communities 

are more at tisk of population decline than larger ones, with communities with less than 

I ,250 being most at tisk. Other things equal, geographic isolation from large cities and 

low wage rates provide some protection from net out-migration for the smallest 

communities, but even for the smallest places, a larger population base lowers the risk of 

net out-migration. 10 

10Yong Chen, Lena Etuk and Bruce Weber. "Are small communities at risk of population loss?" Annals of 

Regional Science. DOIIO.I007/s00168-012-0541-1 Published online: 17 October 2012. 
81 

Research on urban agglomerations has found that employment concentrations do appear 

to increase productivity, and that these effects attenuate sharply with distance, suggesting 

that distance to urban centers is a barrier. Partridge, Rickman, Ali, and Olfert have 

focused on the cumulative effect of distance for successive tiers in the urban hierarchy. 

They investigated the relationship between distance from the closest urban center in six 

successive tiers and county job growth using U.S. county data and found that job growth 

in a county is positively related to proximity to urban centers and that this relationship 

has become stronger over time. 11 

All this research establishes that smaller populations, sparser settlements and the relative 

remoteness of some rural places create economic disadvantage. 

Place-based Federal investments in rural development enable rural communities to 

overcome some of these inherent challenges, enhance employment, encourage 

growth, and reduce poverty in rural areas. 

Investments in rural communities create inherent public and private wealth in these 

communities. This strengthens the farm economy and links rural areas to urban 

communities. Improvements in transportation infrastructure and the rapid adoption of 

information and communications technology by businesses have greatly expanded the 

linkages between urban and rural regions. 

However, proximity remains important and remote rural regions remain at a 

disadvantage. But distance is also not destiny. Public policies can enhance the links 

between urban and rural places, support the development of remote rural communities 

and support the evolution of local institutions, drawing on the unique strengths of 

individual places. 

There is clear evidence that place-based public investments can encourage employment 

growth and reduce povetty in urban and rural areas. 

Compelling evidence favoring policies designed to encourage employment growth in 

targeted "enterprise zones" has recently been provided. (Ham, et a1. 12,and Busso, eta!. 13). Incentives that carefully reward firms that hire additional employees from among 

locals who have been residing in the targeted area do appear to raise local wages, as well 

as local employment rates. Partridge and Rickman (2008) provide evidence that "Higher 

rural poverty does not appear to be a simple result of the poor self-selecting to live in 

remote areas. The results suggest that place-based anti-poverty policies may be 

11 Mark D. Partridge, DanS. Rickman, Kamar Ali and M. Rose Olfert. 2008. "Employment Growth in the 

American Urban Hierarchy: Long Live Distance." Berkeley Journal of Macroeconomics-Colltributions. 8 

(2008, Issue 1) 12John Ham, Charles Swenson, Ayse Imrohoroglu and Heonjae Song. Government programs can improve 

local labor markets: Evidence from State Enterprise Zones, Federal Empowerment Zones and Federal 

Enterprise Community" Journal of Public Economics, 2011, vol. 95, issue 7, pages 779-797 13 Busso, M., Gregory, J., and Kline, P. (2013) "Assessing the Incidence and Efficiency of a Prominent 

Place Based Policy" American Economic Review, 103(2):897-947. 
82 

beneficial." (p. 131)jl4 And Pender and Reeder (2011), in their analysis of the impact of 

mral development projects funded by the Delta Regional Authority (DRA) in distressed 

Mississippi Delta counties, found that "Per capita income, net earnings, and transfer 

payments grew more rapidly in DRA counties than in similar non-DRA counties, and 

those impacts were stronger in counties in which DRA spending was higher .. " (p. i)" 15 

Similarly, I am currently collaborating in ongoing research which offers preliminary 

evidence that the USDA Rural Development grants and loans for business and economic 

development may have reduced poverty rates in counties in which these investments were 

made. Over the past four decades, the business and economic development programs of 

USDA have generated more than $30 billion (in 2009 dollars) in investments in rural 

communities. In this research, Kathleen Miller and I analyze the relationship between 

USDA Rural Development business and economic development grants and loans in the 

early 2000s and 2009 county poverty rates. We find that counties that received more in 

USDA RD business and economic development loans during 2000-2009 had lower 

poverty rates in 2009, controlling for initial poverty rates and other economic and 

demographic factors that affect poverty. Research currently underway with colleagues 

Stephan Goetz and Meri Daviasheridze also shows a positive effect of the RD program 

spending on employment growth over time. 

In closing, I would suggest four guideposts should frame your considerations, in crafting 

the Rural Development Title of the next Farm Bill. 16 

(l) Remote mral places may benefit from the protection from competition that distance 

provides, and remote places may find that place-based policies can create jobs for local 

unemployed workers and reduce poverty. In many of these regions natural resources are 

likely to be the main source of economic growth, but must be utilized in new ways that 

increase local value-added by identifying new uses, new customers and new marketing 

approaches. The bio-based manufacturing sector is but one example. 

(2) Good broadband connections are now essential for rural economic development. The 

internet provides a way to reduce the costs of distance, allowing rural firms to have a 

presence in urban markets, either as purchasers or sellers. Policies that support 

improvements in productivity, marketing and procurement for mral firms can also help 

them take advantage ofnichemarkets. 

'

4 These two studies are reviewed in Bruce Weber and Maureen Kilkenny, "Rural Policy in the United 

States" Chapter 3 in William Meyers and Thomas Johnson, editors, Volume 1: Policies for Agricultural 

Markets and Rural Economic Activity in the International Handbook of Agricultural and Rural Policy. 

(forthcoming) 

'

5 Pender, John, and Richard Reeder. Impacts of Regional Approaches to Rural Development: Initial 

Evidence on the Delta Regional Authority, ERR-119, U.S. Department of Agriculture, Economic Research 

Service, June 2011. 16These guideposts draw heavily on Bruce A. Weber and David Freshwater. The Death of Distance? 

Networks, The Costs of Distance and Urban-Rural Interdependence. Chapter 13 in International Handbook 

of Rural Studies. Mark Shucksmith and David L. Brown, co-editors. New York: Taylor and Francis. 2016. 
83 

(3) It is useful to think about mral communities as belonging to networks. Individual 

places are linked to other places through physical connections- roads, rail lines, the 

Internet and the power grid. Firms in mral regions are linked through supply chains that 

have a local component but also have external connections. People and firms are linked 

through a variety of strong and weak ties that provide contacts, information and context 

for decisions. Policies that target individual firms or individual places without 

recognizing the interrelated nature of this development process are likely to be less 

effective than policies that encourage these linkages. 

(4) In summary, Federal rural development investments are critical in overcoming the 

challenges many rural regions face. The Farm Bill Rural Development Title offers some 

ofthe most important of these place-based investments, which provide a foundation for 

mral regional innovation. And access to affordable, high speed, broadband is an essential 

building block in this foundation. 

Thank you Chairman Roberts, Ranking Member Stabenow, and members of this 

Committee, for the oppmtunity to testifY before you today. I would be pleased to answer 

any questions you may have. 

(85) 

QUESTIONS AND ANSWERS 

MAY 25, 2017 
86 

Senate Committee on Agriculture, Nutrition & Forestry 

Examining the Farm Economy: Perspectives on Rural America 

May 25,2017 

Questions for the Record 

Dr. Robert Johansson 

Senator John Boozman 

1} Dr. Johansson, the agricultural economy is struggling. Market prices are down for most 

commodities, and net farm income is projected at half the level of just a few years 

earlier. Cotton is a commodity that is unique in the current economic situation simply 

because cotton producers currently do not have access to the same farm bill programs as 

most other crops. Has USDA conducted any analysis to compare the net returns (market 

revenue plus government payments) to the total costs of production across the various 

crops that have access to the ARC/PLC programs relative to cotton? If so, will you please 

share with us what the comparison shows? If you have not done this analysis, then I would 

ask that you please conduct this analysis and provide it to this committee. 

Response: Analyzing returns to production for crops eligible for ARC/PLC programs is not 

straightforward. Because ARC/PLC payments are paid on historical base acres rather than 

planted acres, farms receiving ARC/PLC payments may not be producing the same crops as their 

historical base. 

To compare the contribution of government payments to farm income associated with 

production of ARC/PLC covered commodities and cotton, we have used two data series from 

USDA's Economic Research Service (ERS). These two series together allow for comparison of 

net market returns across commodities and an estimate of the value of government payments 

going to operations specializing in those commodities. 

First, we show average returns per acre for corn, soybeans, wheat, and cotton from the ERS 

Costs and Returns data series, comparing value of production (price times yield) with total costs 

of production, including operating costs, opportunity cost of land, and allocated overhead 

(except for value of unpaid labor). 

These are national average returns; actual costs and returns per acre will vary by individual 

producer, based on management decisions and on agronomic characteristics and weather in 

different regions. In some regions costs of production are higher and in others, lower; which 

would drive expected returns down or up, respectively. In addition, the total costs of 

production provided here include some overhead costs that are not immediate cash costs, such 

as depreciation of machinery and equipment, building and equipment maintenance, and 

opportunity cost of land. Removing just the opportunity cost of land brings average returns per 

acre for most of these commodities out of the negative in both years; removing additional 

overhead costs will make average returns per acre for all commodities positive in both years. 
87 

Producers can continue to operate in the short term without accounting for these longer term 

costs, and can even continue when returns to annual operating costs are negative, depending 

on savings and assets accumulated during higher price years to meet expenses or secure credit. 

However, over the longer term, these strategies will be less viable. For example, in the current 

farm economy we have seen debt levels begin to increase, rising 5 percent between 2015 and 

2016, with an additional 5 percent forecast in the next year. Debt-to-equity and debt-to-asset 

ratios are also increasing and working capital has fallen by around 70 percent (between 2012 

and 2017). The rate of return on farm equity has been negative since 2015 and rate of return 

on farm assets turned negative in 2016 and is expected to remain negative in 2017. 

Second, we show government payments per acre for farm businesses specializing in those same 

commodities. The data in those calculations come from the ERS Agricultural Resources 

Management Survey (ARMS) and are for the calendar year. Farm businesses are defined as 

having greater than $350,000 in gross cash farm income or having a full-time operator. They 

account for about 40 percent of U.S. farms and more than 90 percent of U.S. value of 

production. A farm business's production specialization is classified by the commodity that 

accounts for SO percent or more of the farm's value of production. 

Net market returns and government payments per acre 

for selected ARC/PLC commodities and cotton 

2015 2014 

Corn market returns per acre -$37 -$62 

Corn farm gov't pymts per acre $32 $9 

Soybean market returns per acre -$48 $39 

Soybean farm gov't pymts per acre $19 $15 

Wheat market returns per acre -$77 -$51 

Wheat farm gov't pymnts per acre $13 $11 

Cotton market returns per acre -$57 -$239 

Cotton farm gov't pym nts per acre $12 $20 

Government payments for calendar year 2015 included crop year 2014 ARC and PLC payments, 

marketing loan program benefits (marketing loan gains and loan deficiency payments), some 

carry-over payments under the ACRE program and the 2014 Cotton Transition Assistance 

Payment (CTAP) program, conservation programs, the Biomass Crop Assistance Program 

(BCAP), and disaster assistance. 
88 

These results should be considered illustrative, since payments and income vary substantially 

with the prices, weather, and other conditions in any given year. These two years will not 

reflect the range of what could be expected under a given set of program provisions in other 

years. 

In addition, both 2014 and 2015 were transition years during which 2008 Farm Bill programs 

were closing out and 2014 Farm Bill programs were not yet implemented, except in the case of 

cotton transition payments. Thus, farms with commodity specializations likely to have ARC/PLC 

eligible base would have received little if any payments from commodity programs in calendar 

year 2014, sharpening the increase in payments between 2014 and 2015. Conversely, cotton 

farm businesses likely received CTAP payments in calendar year 2014, amplifying the decline in 

payments in 2015. 

Ranking Member Debbie Stabenow 

(1) Since Congress wrote the 2014 Farm Bill, prices for many commodities have fallen 

significantly, especially in late 2014 and 2015. While some commodities like wheat have 

remained low and continue to see farmers reduce the acres planted, other crops have seen a 

recovery in prices and increased plantings. Please provide an analysis of price trends for all 

major commodities since the passage of the 2014 Farm Bill. Which commodities have 

experienced price declines or recovery, and how have prices impacted farmers' prospective 

plantings for this year? 

Response: All major crops saw record highs in crop years 2011 or 2012, but prices have fallen 

steadily since then under pressure from large global supplies and increasing export 

competition. All major field crops constituting the majority of acres in the United States have 

seen prices decline substantially from 2012/2013, and expectations are for those prices to 

remain mostly flat in the coming year. Despite largely flat price changes overall, some crops are 

expected to see improved prices as a result of lower acres and production while other crops are 

expected to see prices decline as area expands. 

Wheat prices in particular have fallen sharply and only recently begun a modest rebound, the 

result in part of producers shifting significant acres out of wheat this year, generating 

expectations that smaller planted acreage will reduce future supplies. While the shift of 

acreage out of wheat in the United States is part of a larger trend, this year's decline pushed 

winter wheat area to its lowest level in over 100 years. Other crops have seen acreage expand, 

including corn, soybeans, and cotton. For instance, based on 2017 planting intentions, 

combined corn and soybean area is expected to reach a record at 179.5 million acres. 

However, the primary driver is that relative returns for those crops are more favorable, not 

that there are substantially improved prospects for corn and soybean prices for the coming 

year. 
89 

(2) Similarly, have any other factors other than price such as the requirement to plant a 

covered commodity on generic base led to increased plantings of some commodities? If so, 

which ones and why? 

Response: Weather at planting can always lead to increased plantings of some commodities 

due to growing season concerns, and relative cost of production can also affect planting choices 

in the face of low price expectations across crops. Generic acre provisions appear also to have 

been a factor in increased plantings of some commodities by providing an incentive based on 

expected government payments, although some shifts in plantings on generic acres may be the 

result of other factors. The prospect of becoming eligible for ARC/PlC payments by attributing 

plantings of covered commodities to generic base more closely ties the ARC/PlC payment to 

the planting decision for those acres. As a result, expected program payment rates that look 

attractive relative to current market prices can lead to additional plantings of eligible crops and 

potentially to less cotton planting. 

For example, with falling commodity prices, some commodities might be expected to generate 

PLC payments, increasing their attractiveness. A recent University of Illinois and Ohio State 

University analysis of Farm Service Agency program data 

(http:l/farmdocdaily.illinois.edu/2017/04/beneath-the-label-a-look-at-generic-base-acres.html) 

showed that about 60 percent of generic base acres were attributed to covered commodities in 

the first 3 years of the 2014 Farm Bill. Accounting for some variations from year to year, in 

roughly descending order, the generic base acres were planted to soybeans, corn, wheat, 

sorghum, peanuts, and other crops. Additional analysis by the same team 

(http:l/farmdocdaily.illinois.edu/2017/05/generic-bases-impact-on-planted-us-acres.html) 

found that changes in generic acre plantings can be explained largely by the increase in net cash 

returns provided by program payments. Because cotton is not an eligible commodity under the 

ARC/PLC program, planting decisions on generic acres may encourage less cotton planting--only 

about 7 million acres out of approximately 17 million acres of generic base have not been 

attributed to plantings of covered commodities. 

(3) There is a desire to cover cotton either as a fiber like it was covered previously or as an 

oilseed under the ARC/PLC safety-net in the next farm bill. Can you discuss the price and yield 

data that is available for cotton fiber and cottonseed with respect to which is a more robust 

data set (e.g. number, frequency and reliability of data availability over time) and less likely to 

exhibit excess variability? 

Response: Price data for cotton lint are much more extensive than price data for cottonseed. 

Cotton lint price data are available from domestic and foreign futures markets for various 

delivery months and years, there is an established "world" (Far East) price published daily, the 

National Agricultural Statistics Service (NASS) produces a national average U.S. price each 

month and for the crop year, and AMS reports spot prices for 7 cotton producing regions on a 

daily basis. Readily accessible price data from NASS for cottonseed are only available on an 

annual basis and monthly from August to February each marketing year. The Agricultural 
90 

Marketing Service (AMS) also has weekly spot prices for whole cottonseed for several regions, 

but it is unclear how robust the data are in any given week. 

The National Agricultural Statistics Service (NASS) tracks production of both the lint fiber and 

the cottonseed. NASS provide estimates of production for both lint and seed periodically in its 

monthly Crop Production report. It is further able to refine both series as it also collects data 

on the ginning of lint as well as the crushing of cottonseed, where it can use such 

disappearance to evaluate its initial production estimates. In the case of lint, NASS collects field 

measurements (area and yield) as well as a backup measurement at the gins, thus providing 

crosschecks on production estimates. 

NASS estimates cotton planted and harvested area and estimates lint yield directly; cottonseed 

yields can also be calculated. However, the production of lint and seed is not in fixed 

proportion and can vary from year to year based on agronomic factors. 
91 

Senate Committee on Agriculture, Nutrition & Forestry 

Examining the Farm Economy: Perspectives on Rural America 

May 25,2017 

Questions for the Record 

Dr. Nathan Kauffman 

Chairman Pat Roberts 

1. I understand there are a number of economic factors today different from the 1980s, such 

as low interest rates, low debHo-asset ratios, and higher land values that are playing an 

important role in helping farmers weather the current economic conditions. In your 

discussions with bankers, are there specific Farm Bill programs, like crop insurance, that 

bankers rely on to determine whether they are able to issue loans to farmers, particularly 

new and beginning farmers? 

There are many factors that may affect a bank's decision to extend credit to a potential 

borrower, but the primary factor is an assessment of the borrower's ability to repay the loan. 

Increased profitability, gains in wealth, income earned away from the farm, or any form of 

support that improves a borrower's ability to repay their debt can affect banks' lending 

decisions. Within the Farm Bill, crop insurance is a significant form of support because it 

increases the likelihood that farmers, particularly those with limited equity in their operations, 

will be' able to continue to meet their loan obligations even if revenue from crop sales declines 

substantially during the year. However, there are many components of the Farm Bill that may 

also support farm producers, directly or indirectly, by enhancing revenue in other ways, 

improving education and access to information, or providing other opportunities for investment 

and growth. 
92 

Senate Committee on Agriculture, Nutrition & Forestry 

Examining the Farm Economy: Perspectives on Rural America 

May 25,2017 

Questions for the Record 

Mr. Alec Sheffer 

Chairman Pat Roberts 

1. From the retail perspective, what trends have you seen regarding input costs? 

Are there any notable trends or continuation of trends on the cost side of the ledger to 

your customers? 

Yes, there are notable trends and they are: 

1) Operating cost are volatile 

2) Product availability 

3) Lack of availability of COL drivers 

4) Continued increase in Precision Ag 

2. In your testimony, you highlighted some of the oftentimes unseen costs that impact our 

rural businesses and communities regulatory costs. Could you provide the costs 

associated with some of these regulations that you mentioned from your written 

testimony? Additionally, how do you manage the costs your cooperatives incur complying 

with any regulations relevant to your business? 

Rising regulatory cost concerns determine what line of products my company stock and 

sell. The uncertainty created by the volatility of markets and regulatory costs eliminate 

options for our producers. 

3. You discuss several regulatory challenges facing your business and rural America. 

Specifically you mention challenges associated with EPA, the Clean Water Act, pesticide 

reviews and registrations, and other issues. The Administration has taken some steps 

through executive order to scale back some burdensome and costly regulations, most 

notably the WOTUS final rule. However, not all regulatory challenges will be able to be fully 

solved through agency rulemaking alone. Would you be supportive of Congress addressing 

any of the challenges you mention through legislation? 

Yes, I would be supportive of this. 

1) Comprehensive Tax Reform- Repeal Estate Tax 

2) Regulatory- WOTUS, NPOES Permits, COL driver expansion 

3) EPA Regulatory Reset 

a. Sound science 

b. Transparency 

c. Stakeholder engagement 

d. Predictable registration process 

4) Infrastructure overhaul 

5) Establish reliable, legal workforce for the ag sector 
93 

ru r1 

RURAL POLICY RESEARCH INSTITUTE 

Questions for the Record 

Dr. Bruce Weber 

Senior Economist 

Rural Policy Research Institute 

In Response to Testimony Delivered Before the United States Senate 

Committee on Agriculture, Nutrition, and Forestry 

The Rural Policy Research Institute provides objective analysis and facilitates public dialogue 

concerning the impacts of public policy on rural people and places. 

145 North Riverside Drive• Iowa City, lA 52242 

www.rupri.org 
94 

Senate Committee on Agriculture, Nutrition & Forestry 

Examining the Farm Economy: Perspectives on Rural America 

May 25,2017 

Questions for the Record 

Dr. Bruce Weber 

Chairman Pat Roberts 

1. In your testimony, you cite the successes of "enterprise zones" as a model for encouraging 

private sector investments in rural areas. Given the current budget conditions that we face, 

what ideas have communities undertaken to encourage rural economic development? 

Chairman Roberts, federal programs that encourage leveraging and regional planning and 

investment address the four structural realities I mention in my testimony, which challenge 

the future of all rural communities. These dynamics have driven RUPRI's long time 

commitment to regional rural innovation approaches, which enhance the critical links 

between urban and rural places that foster innovation and strengthen value chains across 

rural and urban areas. 

The "enterprise zones" study I referenced examines one such set of programs. But for this 

Committee's purposes, the Delta Regional Authority study, and the ongoing research I am 

pursuing regarding the impacts of USDA RD investments, have greater rural relevance. (Both 

are discussed in my written testimony). 

Over the past decade, mayors, county commissioners, economic development organizations, 

and regional and community foundations have all begun the journey to far greater 

collaboration in shared investment approaches for rural economic and community 

development. This is a critical dynamic, which your Committee would be wise to continue to 

support. Broad regional investment collaboration is the goal of a number of programs that 

were passed in the 2014 Farm Bill. Section 6025- Strategic Economic and Community 

Development, is one example. As you may recall, this provision enables USDA to prioritize 

projects that support the implementation of regional economic development plans, through 

four major RD program areas. All of those areas are important, but the rural business 

development grants program offers the greatest flexibility in furthering these ends. 

Unfortunately, this program is over subscribed and under funded in its current form. 

I would mention one challenge with Strategic Economic and Community Development as 

executed by RD. This program must be solely carried out in a rural area. This is a challenge, 

as it is also designed to support multi-jurisdictional strategic economic and community 

development plans. Often these cross rural and urban geographies. 
95 

In any case, the movement toward greater regional and leveraging dynamics via RD 

programs should continue to be encouraged. These will achieve better outcomes if state 

directors and senior career staff enhance their interaction with local mayors and county 

commissioners to further deal flow and investment leveraging. This should also be strongly 

encouraged. 

Ranking Member Debbie Stabenow 

1. Dr. Weber, this Committee is aware that RUPRI has worked closely with USDA Rural 

Development leadership and career staff over several administrations, to address the 4 

structural realities outlined in your testimony. As you know, President Trump's budget 

proposal will severely reduce or eliminate many of the programs and agencies with which 

RUPRI has worked to build more regionally innovative, place-based rural approaches. Some 

argue these investments are either no longer necessary, or duplicative of other, more 

effective federal programs. Would you please expand, in detail why you disagree? 

Ranking member Stabenow, as I discuss in my written testimony, this Committee must 

address four fundamental structural realities that drive the future of rural people and places 

as well os the farm economy, which is prevalent in many rural areas but far from 

economically significant to many others. 

Because this great rural diversity is not well understood in Congress, many argue the mostly 

urban-based one size fits all approach, nearly universally evident in most federal policies and 

programs, also works well in rural America. It does not. In fact, the regionally innovative, 

place-based rural approaches that RUPRI has sought to encourage over many years are 

finally taking hold across the face of rural America, and they matter greatly to the success of 

rural communities. 

USDA RD programs under this Committee's authority provide three unique advantages that 

must be sustained. First, they are culturally appropriate and sensitive to the unique 

characteristics of our very diverse states, specifically their rural communities. This reflects 

the wisdom of those in prior service who created the USDA RD State Director appointees. 

These presidential appointees, as well as senior career staff, are the federal government's 

outreach and marketing corps to rural mayors, county commissioners and economic and 

community development professionals. In these intersections rural deal flow, investment 

leveraging and regional collaboration begins. If this face-to-face, rural federal outreach goes 

away, those rural communities with the greatest capacity, population and grant writing 

acumen will probably not be harmed. But the majority of rural communities definitely will 

be. 
96 

Secondly, the USDA Undersecretary far Rural Development serves as an 

ambassador/advocate for rural policy and programing across the federal establishment. 

Regardless of the current structural dynamic concerning the senior political leadership for 

this portfolio, it is absolutely critical that this leadership is not lost. Over the past three 

administrations, multiple innovations in rural development policy emerged from the Office 

of the Undersecretary for Rural Development. 

Finally, the programs and agencies currently targeted by the Trump Administration for 

either reduction or elimination currently provide some of the most innovative, rural regional 

collaboration within the federal infrastructure of community and economic development. 

Should these programs be eliminated, their return is questionable, given rural America's 

declining political power. This committee has long recognized the federal mandate to assure 

equity to smaller population centers, with lower density and more remoteness. The 

remarkable USDA RD programing portfolio reflects a continuing commitment, regardless of 

party or geography to sustain our rural populations, in the places they choose to call home. 

Your wisdom in doing so has significantly enhanced our nation's cultural assets, natural 

resource stewardship and economic and community vitality. Your continued commitment is 

critical to our nation's rural communities. 

2. Dr. Weber, in your written testimony you emphasize the critical importance of broader rural 

economic prosperity to the success of farm households, and the evidence that USDA RD 

programs are effective in sustaining these rural communities. The role of off-farm income is 

critical to most producers, as you state. What should this Committee specifically do to 

broaden this structural appreciation and what specific decisions should we take, in light of 

your testimony, to assure we continue to support these critical ag and rural development 

linkages? 

Ranking member Stabenow, it has never been more clear that America's farm households 

are dependent upon the incomes they derive off the farm. These resources sustain the family 

farming enterprise in our country today. It was refreshing in this hearing that even the 

staunchest advocates for the agricultural sector among your colleagues have come to 

acknowledge this reality. 

There are several reasons for this growing recognition I believe. The bio-based opportunities 

emerging, the renewable energy possibilities before us - many agriculturally-based, and the . 

sheer overpowering strength of these three-decade trend lines, all converge to force this 

acknowledgement. Also, it appears farm organizations have finally decided it will not be 

viewed as a lack af support for the agricultural sector if a senator acknowledges his or her 
97 

support for brooder rural economic development. This has definitely not always been the 

case. 

Given all this, your Committee has o unique opportunity, given this current budget 

challenge, to reach out and seek the support of your long-time agricultural advocates for 

broader rural development support. Truthfully, many will also receive significant benefit to 

their producer members. Enhanced rural investment in broadband, affordable healthcare, 

broader infrastructure- including roads and bridges-- and ongoing economic and 

community development all accrue to the significant benefit of rural producers. 

In this current moment, with a common adversary in the Trump budget proposal, this 

committee could significantly enhance the potential for these connections to be clearly 

stated and supported. If our nation's agricultural organizations chose to significantly 

advocate for the major rural policy and programming outcomes most rural development 

advocates seek, they would be achieved. 

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