The situation of near-record low prices for major crops and soaring stock levels that underlie the current farm income crisis results from a combination of economic and policy conditions operating in this unique agricultural market. While the recent Asian economic crisis has contributed to a slow down in export demand for some crops, especially cotton, most of the current crisis is caused by excess production rising from the additional acreages made available after the passage of the 1996 Farm Bill and above average yields. Also over the longer-term, it is clear that the projections for export demand growth beginning after the new century from China and other counties that prevailed during the last Farm Bill discussion will not come to fruition. These economic and weather conditions that are contributing to the current farm income crisis are occurring in a policy environment unlike any we ve seen in a long time. Under the 1996 Farm Bill, there are no acreage set aside mechanisms to reduce supply.
Farmers have every incentive to maximize production and no incentive to voluntarily reduce acreage.
The absence of a stock control mechanism pushes stocks onto the market at the point when prices are at the very lowest levels. With the use of marketing loans in place of non-recourse loans, there is no price floor, as there has been in the past. Many have argued that free markets in agriculture allow farmers to take advantage of market signals and adjust their crop mix accordingly. Underlying this argument is the assumption that there s always a better bet, but that may not be the case when all major crops are in excess and all prices are low. A number of suggestions have been brought forward.