Financial Burdens Crushing Producers, Infrastructure
By Kara Bishop
On February 14, 2024, Secretary Vilsack addressed the House Agriculture Committee. He looked Rep. Austin Scott (R-GA) right in the eyes and said, “The time period of 2021-2023 represents the highest level of farm income in the last 50 years.”
And, while he may be right, I would argue that gross income doesn’t amount to a hill of beans compared to net. Gross farm income can be as high as it wants to, but profit margins just aren’t there. So what good is income if there’s no profit?
It’s time to stop fighting over the Farm Bill and pass this legislation to save farm country.
The reality: producers are looking at the same commodity price from the 1970s, which is grossly disproportionate to actual production costs.
“In my 29 years in agriculture banking, cotton prices have predominantly stayed in the 65- to 75-cent range,” said Mike Metzig, Market President of Lending for AgTexas Farm Credit Services. “However, the cost of goods, services, labor and equipment has skyrocketed.”
During my interview to become the communications director for Plains Cotton Growers, I asked the officer team to identify the greatest challenge to their livelihoods. They all said input costs — and that was at the end of 2021 (an above-average crop year). Throughout my tenure here, I’ve interviewed farmers of different ages, genders and operations. They all echo the same sentiment. Input costs’ relationship to commodity prices doesn’t pencil.
House Ag Committee Chair Glenn “GT” Thompson (R-PA) agrees, which is why he and the rest of the committee developed a bipartisan Farm Bill addressing the shortcomings of farm income by increasing the safety net and putting more money in the Foreign Market Development Program and Market Access Program.
To determine the validity of arguments made for a bill that increases the farm safety net, the House Ag Committee recently conducted a hearing on the financial conditions of farm country. One of the witnesses at the hearing was American Cotton Producers Chairman David Dunlow, who farms cotton, peanuts, soybeans and wheat in Gaston, North Carolina.
During his testimony Dunlow stated, “I have never known a worse time in my 40 years of farming. The stress alone has led to personal health issues as a I wonder how our operation will survive.”
Dunlow has been forced to refinance all the farmland he personally owns to pay his operating debts. He struggles to find any traditional lending institutions to fund his operation, so he must rely on credit from a private equity-funded institution at a higher-than-market interest rate.
“In 1990, the cost of a new cotton picker was around $40,000 and the price of cotton was 74 cents,” he added. “Today, a new cotton picker is $1.1 million, and cotton on the December 2024 futures market is still trading in the low 70s — nearly 35 years later.”
Production Decline
If you look specifically at the Texas cotton industry, you see two crop years showing devastating production numbers. Punishing drought wiped out the majority of the cotton crop in 2022 — with an abandonment rate of more than 73% according to USDA 578 data. The 2023 crop year was just about the same profit-wise. There was a little more rain, but more money spent on inputs as operations tried to make a crop without subsoil moisture.
Data from the USDA National Agricultural Statistics Service
Data from USDA National Agricultural Statistics Service
Producer and industry stress is high given the financial uncertainty everyone is under. “Just like producers, banks have experienced a ‘mixed bag’ of conditions as well,” Metzig said. “We had some producers that were short on equipment or land notes, but not so many that it exceeded our expectations. Most everyone was able to pay their operating note.”
However, during Dunlow’s exchange with Scott at the House Ag Committee hearing, an anecdote was shared involving a producer and banker. The producer asked, “If farmers have average yields, what percentage of farmers will you be able to finance next year?” The banker responded, “Maybe 80%.”
This leaves 20% of farmers out of business. Scott pointed out that in times past, a farmer would buy or take over the lease of farmland and expand their operation if someone went out of business. “However, in today’s ag economy, you can’t expand if you’re not cash flow positive,” Scott added.
While it may not be as drastic in our area, it’s a concerning trend that may be foreshadowing the demise of agriculture and the nation’s cotton industry as we know it.
Infrastructure Decline
It’s not just producers that need a good crop year. Cotton infrastructure desperately needs a crop. In the past two crop years, five gins closed in the PCG service area. One of those gins reopened for last season, three gins are dormant and one other gin is uncertain. This is not counting the gins that are still viable but didn’t have a crop to process last year. Several are deciding whether they will open this year.
“When your livelihood depends on throughput, and your capacity exceeds your throughput for an extended period of time, then your business is going to be under serious economic strain,” said Mike Cowley, vice president and lead relationship manager for CoBank. “A healthy supply chain starts with a successful farmer. Farmers need a Farm Bill that will help them stay in business. If we’re going to penalize the most efficient producers in the world by not giving them a safety net that protects them, then we’re giving other countries a serious competitive edge — and that’s just one of the concerning ramifications.”
We’re all coming up with more questions than we are answers right now in this economy. Will more gins close? Will more farmers go out of business? When we do have a good crop, will there be enough infrastructure left to process it?
Right now, the future looks bleak. However, as one producer said to me six months after I started this job, “You can’t be a farmer without faith.”
I have faith that Congress will take the state of our ag economy seriously. The Senate needs to take our ag economy seriously. Secretary Vilsack needs to take our ag economy seriously. Telling the nation that farmers are fine because they’ve had the largest income in the last 50 years is irresponsible and damaging to the main sector that the U.S. Department of Agriculture has been charged to help.
If the goal is to protect the nutrition programs, then protect our farmers. They need relief.
Without them, we’re going to have a real hunger crisis on our hands.
P.S. Everyone needs to call their Representatives and Senators to tell them how desperately producers need this farm safety net that was passed out of the House Ag Committee in May. According to many in the industry, including Cowley, this bill does more for farmers than the last several — going back all the way back to 2002.
Rep. Jodey Arrington: (202) 225-4005
Rep. Ronny Jackson: (202) 225-3706
Rep. August Pfluger: (202) 225-3605
Sen. John Cornyn: (202) 224-2934
Sen. Ted Cruz: (202) 224-5922