July 28, 1999

Dear Colleague,

I write to provide background for a complex debate on farm income that will soon engage the Senate. I am hopeful that all Senators Will carefully examine the firm economy in the context of world markets, the recent history of farm income, ongoing government Programs, our budget situation and the overall U. S . economy .

Positive not farm income under Freedom to Farm - $43.8 billion in 1999

    United States farm income for 1999 is now forecast to be $43.8 billion, a reduction from $44.1 billion, the preliminary estimate for 1998.

    The average annual U.S. farm income for the years 1990-1997 was $45.7 billion. The high year was 1996 with $53.4 billion and the low year was 1995 with $36.0 billion. Average income for the past five years (1994-1998) was $46.7 billion.

1999 federal payments to farmers are projected to be $16.6 billion

    Senators may recall that 1998 U.S. net form income included $12-2 billion of direct federal government payments. Direct federal payments for 1999 am tow projected to be $16.6 billion The safety not provided by the current farm bill calls for in annual payment (the AMTA payment) of $5.1 billion. Loan deficiency payments for corn, wheat, soybean and other crops eligible fro marketing loans axe estimated at $6.6 billion as provided by the current farm bill, The remaining $4.9 billion of other payments includes conservation and crop loss disaster payments with approximately $2 billion dollars of that authorized by the October, 1998, emergency appropriation bill.

Freedom to Farm has a built-in safety net for farmers

    While much of the farm income debate has focused on low prices, the measure that is more reflective of the financial situation of farms is return per acre. This is figured by multiplying price times yield. It is important to note that there is also a federally set price floor, For example the minimum price guaranteed to farmers is approximately $ 1 .89 per bushel for corn $2.58 per bushel for wheat, $.52 per pound for cotton, or the $5.26 per bushel marketing loan for soybeans. Farmers will receive at least these prices even If the quoted market price is lower.

The Senate debate

    Several Senators have proposed potential amendments to the Agriculture Appropriation bill or other bills which would increase direct federal farm spending by many billions of dollars. All these proposals would be declared emergency spending to avoid budget caps, but they nevertheless would reduce monies otherwise designated for social security, medicate. tax reduction, or reduction of the federal debt Major farm organizations have suggested program totaling an additional $14-16 billion In federal farm spending this year.

    In fact, we will not have any certainty beyond current income projections until the corn and soybean harvests begin and several more months of livestock sales are tallied. The current USDA net farm income projection is based on current low prices and reasonably high yields in this country and around the world. Nevertheless. the current income projection Is $1.9 billion under the eight-year official average in this decade and $2.9 billion less than the average of the last five years. I am now asking for support in the Senate Agriculture Committee for a risk-managament bill that would almost fill that income gap by providing $1.5-2.0 billion to farmers, annually, for the next three years, This $6 billion of spending is covered by the budget resolution and is inside budget caps,

    On the basis of the complex information I have outlined in this latter, I believe that it would be helpful to conduct three days of hearings on August 3, 4. and 5 in the Senate Agriculture Committee to obtain the official views of the Clinton Administration on 1999 net farm income and the views of many other logical participants in the farm income debate. These hearings would be the basis for a Committee  during the first Senate legislative week in September. The resulting authorization bill would provide a clear road-map for the Agriculture Appropriations bill debate in September.

    If Senators choose to debate the farm income issue an the Senate floor before the August recess, we will not have the hearings. But if this issue is taken directly to the floor, a well. informed debates will still be required. This letter is meant to provide possible guidelines for the hearings or the floor debate.  Senators will be called upon to decide an appropriate level of federal assistance to farmers given recent farm income average the often estimated 40 percent decline In Asian demand for U.S. farm exports, and the strong deflationary trends for most basic world commodities at the same time that many other sectors of U.S.  economic activity enjoyed record prosperity. If such assitance is favored by the Senate, payments might be made promptly to farmers using the transition payment (AMTA) records which would expedite cash flow for producers.

    Ultimately, Senators will need to have some reasonable basis to support whatever action is taken on behalf of farmers. The recent income history that I have summarized may be helpful in formulating that basis.
 

Richard G. Lugar
U.S. Senator, Indiana
 

Regardless of how low market prices go, farmers will receive payments to guarantee minimum prices on every bushel or pound produced.

USDA projects total farm payments to farmers of $16.6 billion in 1999, up from 1998's $12.2 billion, and up dramatically from the 1990-1997 average of $8.8 billion.

The farm bill sets minimum prices of $1.89 per bushel for corn $2.58 for wheat, $5.26 for soybeans and $0.52 per pound for cotton

With minimum prices established higher yields will mean higher income to farmers.

USDA projects 1999 Loan Deficiency Payments of $6.6 billion,
up sharply from 1998's $ 1.8 billion. LDPs will make up any
shortfall below farm bill established minimum prices.