[Senate Hearing 114-]
[From the U.S. Government Publishing Office]


 
        A ROUNDTABLE DISCUSSION ON THE STATE OF THE FARM ECONOMY

                              ----------                              


                         TUESDAY, MARCH 1, 2016

                               U.S. Senate,
Subcommittee on Agriculture, Rural Development,      
                                                   
         Food and Drug Administration and Related Agencies,
                                     Committee on Appropriations,  
                                                    Washington, DC.
    The subcommittee met at 2:36 p.m., in room SD-116, Dirksen 
Senate Office Building, Hon. Jerry Moran (chairman) presiding.
    Present: Senators Moran, Blunt, Hoeven, Merkley, and 
Tester.


                OPENING STATEMENT OF SENATOR JERRY MORAN


    Senator Moran. Gentlemen, thank you for joining us. In 
consultation with the ranking member, we concluded that at the 
beginning of this appropriations process, it would be useful 
for us to have an update on the economic conditions that 
agriculture (ag) producers, agribusinesses, and rural America, 
are facing.
    We will begin our normal appropriations process with the 
Food and Drug Administration (FDA) Commissioner, the newly 
confirmed FDA Commissioner, tomorrow, and then we will have 
Secretary Vilsack in front of the committee a week later, as we 
begin our efforts to determine appropriate funding within the 
U.S. Department of Agriculture (USDA) and FDA.
    But as a broader backdrop, we would like to hear what you 
believe is going on in the ag economy. Then we invited some of 
the representatives from a variety of farm and commodity groups 
to join us for any kind of follow-up discussion that we might 
have with you and among ourselves.
    My intention is this is not a hearing. We have described it 
as a roundtable. The goal is to just have dialogue. I noticed 
they gave me a gavel. Maybe that is just psychological, but we 
will use it to try to keep us working in an orderly fashion.
    Again, we appreciate you taking time to bring us up-to-date 
on your latest findings and conclusions in regard to 
agriculture. We have three outstanding--if there is an 
outstanding economist, we have three of them with us. I am 
delighted you could spend the time.
    Senator Merkley, anything you would like to say?
    Senator Merkley. I very much appreciate you bringing your 
expertise. Agriculture is the second-largest driver of our 
economy in the State of Oregon. It is a continuously shifting 
landscape. I know, doctor, you gave the state of agriculture in 
America report last week, and I very much look forward to your 
insights. Thank you.
    Senator Moran. Senator Merkley, thank you.
    Senator Blunt, anything?
    Senator Blunt. I think I am fine.
    Senator Moran. All right. Very good.
    We have with us Dr. Robert Johansson, Chief Economist at 
USDA; Dr. Nathan Kauffman, Kansas City Federal Reserve's lead 
expert in agricultural economics, headquartered, in this case, 
in Omaha; and Patrick Westhoff, the director of the Food and 
Agriculture Policy Research Institute at the University of 
Missouri.
    Senator Blunt has insisted that we both be on our best 
behavior when it comes to Kansas and Missouri.
    Thank you for joining us.
    Dr. Johansson, please tell us what you think we should 
know.
STATEMENT OF DR. ROBERT JOHANSSON, PH.D., CHIEF 
            ECONOMIST, DEPARTMENT OF AGRICULTURE
    Dr. Johansson. Thank you very much for inviting us up to 
talk about the agricultural outlook for 2016 and beyond. I am 
sure our discussion today will take us to many different 
sectors and perhaps past 2016.
    As you mentioned, a lot of the comments I will make today 
are based on the agricultural outlook that the Department put 
together last week at the Agricultural Outlook Forum. I 
summarized a couple of those in the handout that I put together 
for you, so you do not have a statement from me, but you have 
some slides, and I will just talk from those slides, sort of 
walk through them as we go along.
    So last year, the outlook for the ag economy was driven 
mostly by microeconomic factors. If you recall, transportation 
issues were on everybody's minds, energy prices declined, a 
drought in the West. This year, while energy prices and drought 
are still important components of the outlook, the overall 
picture for agriculture in the United States is being driven 
more by macroeconomic factors such as economic growth and 
currency values.
    So turning to slide 2 in the handouts.
    [The information follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Dr. Johansson. We can see that 2015 marked a change in the 
global business cycle. World GDP growth, the blue dashed line, 
is now expected to rise more slowly and to plateau at just over 
3 percent.
    A key component of that slowdown is the slowing economic 
growth in China. We see China's GDP growth slowing to 6.1 
percent in 2016, and edging down over the next 10 years to 
about 5 percent. That means China's economy is now forecast to 
be about 8 percent smaller in 2020 and about 15 percent smaller 
in 2025, compared to last year's forecast.
    Now, by comparison, the United States is expected to be a 
growth leader amongst developed economies in the next decade.
    Slide 3 illustrates the expected 3 percent growth for the 
U.S. economy in 2016 and 2017--that is the red line--before 
gradually moving to a longer term growth rate of 2.3 percent.
    [The information follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Dr. Johansson. Driven by relative strength and safety of 
the U.S. economy, the value of the dollar has increased 
substantially in 2015. That is the blue line. That growth is 
expected to continue through 2017.
    A stronger dollar, as we all know here, means it is more 
difficult to sell our products abroad to countries with weaker 
currencies, such as Egypt and Nigeria, major wheat importers. 
And it is easier for countries such as Canada and those in the 
European Union (EU) to sell their agricultural products abroad, 
making for an extremely competitive trade environment for U.S. 
producers.
    That being said, a strong U.S. economy does help U.S. 
producers in several ways. I have summarized three of them 
here. There are likely more that some of my colleagues may want 
to talk about.
    But first, it is easier for U.S. buyers to import goods 
such as fertilizer from countries with weaker currency, such as 
Canada, Russia, and the Ukraine. Second, a stronger U.S. 
economy provides off-farm income opportunities for a large 
majority of U.S. farm households. And third, 80 percent of ag 
products produced in the United States are sold domestically, 
so a strong U.S. economy likely means more opportunities to 
sell those products and provide value-added here in the United 
States.
    Turning to the outlook for trade on slide 4, U.S. ag 
exports are forecast in fiscal year 2016 at $125 billion.
    [The information follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Dr. Johansson. That is down 10.5 percent from last year, 
and a third of that decline comes from reduced sales to China.
    Slide 5 summarizes some specific categories of exports 
compared to last year.
    [The information follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Dr. Johansson. So for example, we expect grain and feed 
exports to be down $4.4 billion this year. Soybean exports are 
projected down by $6.3 billion. I will note, however, that we 
expect 46 million metric tons of exports of soybeans and 
soybean products in fiscal year 2016. That would mark the 
second highest volume of soybeans exported.
    Cotton exports are forecast $900 million below last year on 
shrinking global demand. Rice exports are forecast down $300 
million, mostly on declines in volume. Livestock products are 
down $2 billion from last year, due to lower prices. And dairy 
has dropped $700 million due to lower prices and strong 
competition from the EU.
    So that is a lot of reductions. I just wanted to point out 
that sales of horticultural products driven by fruit and 
vegetable processing and tree nut exports are up $600 million 
in 2016 relative to 2015.
    So what explains those projections? Turning to slide 6, for 
example, we know that over the past 10 years, ag exports to 
China have increased by more than 125 percent.
    [The information follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Dr. Johansson. However, we project China's imports of corn, 
sorghum, and barley to slow in the near future as they seek to 
lower their relatively high stocks of corn that have been 
fueled by their domestic policies.
    Nevertheless, we expect global trade with China to grow 
about 30 percent over the next 10 years for combined grains, 
oilseeds, and cotton.
    Similarly, for Brazil, we expect their producers to respond 
to high prices for corn and soybeans, given their devalued 
currency. And therefore, we expect them to increase planted 
acreage and increase production. Over the longer term, that is 
likely to translate into a 30 percent increase in Brazilian 
soybean and corn exports, and continued competition for U.S. 
exporters.
    Slide 7 shows the recent history of the U.S. crop prices.
    [The information follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Dr. Johansson. Over the past 3 years, the global stock 
levels have increased on expanded global supplies. As 
mentioned, the dollar has strengthened.
    In addition, more recently, Argentina has taken recent 
actions to be more competitive in world commodity markets. Oil 
prices and fertilizer prices have continued to weaken, and 
China's demand for sorghum has slowed.
    So as a result, we put that into our forecast for the 2016-
2017 crop year, and we show that wheat prices are estimated to 
fall to $4.20 a bushel. Corn prices are projected to fall to 
$3.45 a bushel. Soybeans are expected to fall to $8.50 a 
bushel. The all-rice price is projected flat at $12.90 per 
hundredweight. Cotton prices are projected down to $0.58 per 
pound.
    Slide 8 shows how continued pressure on margins due to 
those falling prices is expected to lower the total area 
allocated to major crops in 2016-2017 by about 2.5 million 
acres from last year.
    [The information follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Dr. Johansson. The eight-crop area is down nearly 8.5 
million acres from the recent peak in 2014, despite falling 
Conservation Reserve Program (CRP) acreage. Along with weather, 
changes in harvest-time prices and import costs between now and 
spring planting will obviously determine final acreage.
    Turning to livestock, dairy, and poultry sectors, we 
project that total meat and poultry production will be at a 
record high of 97 billion pounds in 2016, as production of 
beef, pork, and broilers and turkeys all increase. Milk 
production is also expected to be at a record 212 billion 
pounds in 2016.
    Slide 9 shows how meat exports are expected to increase in 
2016, and that is in volume terms, following declines in beef 
and broiler exports and slow growth in pork exports last year.
    [The information follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Dr. Johansson. Exports are expected to be up as larger 
supplies and lower prices increase the attractiveness of U.S. 
products to foreign consumers.
    Still, a relatively strong dollar, Russia's continued ban 
on imports U.S. meat, and slow economic growth in a number of 
countries, may end up constraining those export growth 
forecasts for meats.
    We see a similar story for dairy. Up until last year, 
exports were growing steadily. However, the confluence of a 
strong dollar, large competitor supplies, and lower imports in 
key markets, resulted in lower exports in 2015, and many of 
those conditions persist into 2016.
    Turning to prices on slide 10, we expect fed steer prices 
to decline to 137 per hundredweight.
    [The information follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Dr. Johansson. Hog prices are expected to fall to $47 per 
hundredweight. Broiler prices are expected to average about 
$0.88 per pound. Although domestic demand for milk and milk 
products provide support for product prices, we do expect milk 
prices to fall to $15.65 per hundredweight for all milk in 
2016. That is down 8 percent.
    We can show how this affects farm budgets and farm incomes 
in a number of ways. I just put one slide on here.
    [The information follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Dr. Johansson. I apologize. I did want to update this for a 
Kansas example, but I do have two examples here from the 
University of Illinois, updated to show more recent prices for 
2016. Of course, these costs are likely to come down in 2016, 
so this just serves to show as an example of what a farmer may 
be looking at right now thinking about planting.
    Revenue to cover such things as rent and salary after 
accounting for other costs is lower than the average cash rent 
value. As a result, producers will likely increase loan demand, 
seek to scale back on the cost side, such as limiting chemical 
inputs, seed purchases, crop insurance, machinery costs, and 
negotiating down cash rents, if they are able. Of course, we 
would also know that government payments are expected to help 
contribute to farm revenues this coming year. For example, 
county-level Agricultural Risk Coverage payments of $30 an acre 
are assumed in this example. That could be higher or lower, 
depending on how benchmark revenues are for that county.
    Just turning to slide 12, for example, that illustrates the 
point.
    [The information follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Dr. Johansson. Those are county payments to corn-based 
acres for the 2014 crop. This is relative to direct payments 
under the 2008 Farm Bill.
    We can see that where county yields and revenues were 
relatively high in 2014 compared to a 5-year olympic average, 
producers received lower payments--those are the red counties--
versus counties where yields and revenues were lower than the 
average. Those would be the green counties. So higher payments 
in the green counties, and lower payments in the red counties, 
compared to 2008 direct payments.
    Overall, government payments are expected up in calendar 
year 2016 by about $3.4 billion relative to calendar year 2015. 
Most of that is due to the new payments for agriculture risk 
coverage (ARC) and price loss coverage (PLC).
    Turning to the next slide, representative farm data 
generated by Texas A&M this past December also show pressure on 
farm finances over the next few years.
    [The information follows:]

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Dr. Johansson. Considering cash and real net worth 
prospects, they find that 45 percent of their representation 
crop farms and 60 percent of their representative cotton farms 
are in poor financial positions. The data suggests that only 20 
percent of cotton farms are in good financial condition. The 
share of representative farms for all crops that are in good 
condition are at about 40 percent.
    The new farm bill also provided producers with more options 
for Federal crop insurance, including new policies like peanut 
revenue insurance and the Stacked Income Protection Plan, or 
STAX, for upland cotton.
    Slide 14 shows some statistics.
    [The information follows:]

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Dr. Johansson [continuing]. On how STAX uptake has been 
higher in some States than others, reaching over 50 percent of 
planted acres in Alabama, but generally well below the purchase 
of traditional crop insurance for revenue protection policies.
    Lastly, slide 15.

    [The information follows:]

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Dr. Johansson. This suggests that consumer food price 
inflation has slowed. Prices for cereals, fruit, and vegetables 
are currently rising at relatively low levels. Meat retail 
prices have fallen recently, representing a sharp turnaround 
after a period when price changes were more than 10 percent 
year over year.
    So to conclude, continued record global crops for grains 
and oilseeds has contributed to stock building and price 
declines over the past year. High stock levels and the strong 
U.S. dollar contribute to lower export demand. Commodity prices 
are expected to soften. And food prices for most categories are 
expected to show little inflation in 2016.
    Lower commodity prices will lead to reduced planted acres 
and imply lower overall farm incomes. However, debt-to-asset 
ratios remain historically low and the majority of farm 
households are expected to see increases in household income in 
2016, mostly due to off-farm opportunities.
    The new farm programs will benefit many producers. Falling 
energy prices will lower input costs, and new crop insurance 
products will cover more products at higher coverage than in 
previous years, so it is not all bad news.
    So thank you. I am willing to take questions now or after 
the other speakers.
    Senator Moran. Let's hear from Dr. Kauffman.
    Dr. Kauffman, welcome. We are glad to hear what is going on 
in our region. I hope it is better than what Dr. Johansson says 
is true for the country.
STATEMENT OF DR. NATHAN KAUFFMAN, PH.D., ASSISTANT VICE 
            PRESIDENT AND OMAHA BRANCH EXECUTIVE, 
            FEDERAL RESERVE BANK OF KANSAS CITY
    Dr. Kauffman. Thank you, Mr. Chairman. Thank you for the 
invitation to participate. It is a good opportunity for us, and 
this is obviously an important conversation for the Federal 
Reserve Bank of Kansas City, as agriculture is a very 
significant part of our district. We do have a high rural 
concentration in our area.
    My name is Nathan Kauffman. I am assistant vice president 
and economist at the Kansas City Fed. The Kansas City Fed has 
long devoted significant attention to U.S. ag. In our district, 
we cover all of Kansas, Nebraska, Oklahoma, Colorado, Wyoming, 
part of New Mexico, and part of Missouri. As I noted, we do 
have a high concentration of agriculture.
    I lead our efforts at the bank to track agricultural and 
rural economies, both at a regional and national level. 
Primarily, I will be focusing my comments this afternoon and on 
issues pertaining to agricultural credits. I will provide a 
little bit of context as it relates to farm income and what we 
see in that area, but ultimately with the goal of describing a 
little bit more what we are seeing as it relates to credit.
    Let me emphasize before I begin that these are my 
statements. My statements are my views only, which are not 
necessarily those of the Federal Reserve system, or any of its 
representatives.
    I will spend just a few minutes talking about what we see 
on farm income before moving into credit conditions.
    As Rob noted, following multiple consecutive years of 
strong incomes in the farm sector, farm income has steadily 
weakened the past few years and is expected to remain low in 
the coming months. Again, as Rob noted from the USDA, net farm 
income in 2015 was forecasted to be more than 50 percent less 
than 2013, and the forecast for 2016 is for an additional 
modest decline.
    Regional Federal Reserve surveys of agricultural banks, 
both in the Kansas City Fed district and nationally, paint a 
similar picture. Most bankers expect farm income to remain low 
through 2016 and have expressed increasing concern about the 
potential implications of that development.
    The drop in farm income since 2013 has been primarily due, 
both in our district and nationally, to significant declines in 
the prices of major U.S. row crops. Corn prices, for example, 
dropped by more than 50 percent from the peak in 2012 to the 
latter part of 2014.
    Since 2014, prices have fluctuated some, but have largely 
remained flat over the past 18 months. Soybean prices also 
dropped significantly from 2012 to 2014 and have continued to 
fall over the past year. The prices for other major crops such 
as wheat, sorghum, and rice, have experienced similar declines 
in varying degrees.
    Input costs for crop production have declined somewhat over 
the past 12 to 18 months due to lower fuel costs and modest 
reductions in fertilizer prices. However, costs have generally 
remained high, and many producers have continued to report 
negative profit margins with crop prices below their breakeven 
cost of production.
    In the latter part of 2015, sharp losses in some segments 
of the livestock sector--and again, particularly in our 
district--have exacerbated the sense of pessimism in the 
agricultural economy. From peak levels around the beginning of 
2015, cattle prices have dropped by about 25 percent by the end 
of the year. Hog prices have declined by a similar amount. And 
milk prices have also continued to drift lower. Although cow-
calf operations have generally remained profitable, some cattle 
feed lot operators reported losses of up to $500 per head just 
several months ago, and profitability in other segments of the 
livestock sector have generally also worsened over the past 
year.
    So with that glance into farm income, let me turn now to 
agricultural credit conditions.
    The persistent declines in farm income and poor profit 
margins have reduced cash flow and increased short-term lending 
needs in the farm sector. The Federal Reserve's agricultural 
finance data book shows that the volume of new short-term farm 
loan originations at commercial banks increased more than 50 
percent from 2012 through 2015. These loans are primarily 
operating loans used to finance ongoing expenses required for 
production.
    This development is particularly concerning, I would note, 
because it has occurred during a time when farm income has been 
roughly cut in half, raising concerns about the debt service 
capacity of farm borrowers for the coming year.
    Similarly, agricultural credit conditions have also 
steadily weakened over the course of the downturn in the 
agricultural economy. Data from Kansas City Fed surveys of 
agricultural banks in our seven-State region that we cover show 
that loan repayment rates have declined in each of the past 
nine quarters, with the sharpest change reported in the most 
recent survey in the fourth quarter of 2015.
    Moreover, bankers expect repayment rates to weaken further 
in the coming months amid further increases in loan demand and 
increasing demand for loan renewals and extensions.
    Bankers have also indicated that credit availability has 
tightened somewhat in recent months, alongside farm borrowers' 
heightened demand for credit to finance their operations.
    Despite the softening credit conditions, delinquency rates 
for both real estate and non-real estate farm loans have 
remained historically low. In the fourth quarter of 2015, the 
delinquency rate on farm real estate loans was only 1.5 
percent, compared with 3.6 percent just 5 years ago, and was 
significantly less, I would note, than the delinquency rate on 
residential real estate loans, for example, in the fourth 
quarter.
    Similarly, delinquency rates on agricultural production 
loans have declined over the past 5 years from 2.7 percent to 
less than 1 percent.
    Although delinquency rates have remained low, it is 
important to note that many lenders have indicated that it has 
largely been the strong incomes of previous years combined with 
low interest rates that has kept loan performance strong during 
this intensifying downturn in the farm sector.
    However, significant working capital deterioration in 2015 
has placed many borrowers in a more precarious financial 
position this year. If the current environment of low farm 
incomes persists through 2016, lenders generally expect to see 
loan performance deteriorate through the year.
    Although farm income has dropped considerably, farm land 
values have declined at a more modest rate pace. In the Kansas 
City Fed district, for example, the average value of high-
quality cropland has declined in each of the past four 
quarters, but by less than 5 percent in each quarter relative 
to the previous year. Farmland values are an important part of 
the health of balance sheets in the farm sector, and the fact 
that farm land values have remained relatively strong has 
helped support the overall financial position of many farm 
borrowers.
    Nevertheless, our survey data also show that farmland 
values are expected to continue to soften over the next year, 
alongside lower incomes in the sector.
    To briefly summarize the recent downturn, and the ag 
economy has continued to intensify over the past year, barring 
significant increases in agricultural commodity prices in the 
coming months, which seem unlikely based on current market 
fundamentals, the sharp drop in farm income last year appears 
likely to persist through 2016.
    Although outright defaults in the farm sector have been 
limited to date, it is possible that financial stress among 
farm borrowers could increase through the year. This could 
further weaken agricultural credit conditions, and also place 
additional pressure on farmland values. As a result, some 
producers, and I would note here particularly those producers 
who are most highly leveraged, could face difficulty financing 
their operations in the coming year.
    Again, thank you for participating today. I look forward to 
questions.
    [The statement follows:]
              Prepared Statement of Dr. Nathan S. Kauffman
    Thank you, Mr. Chairman and members of the subcommittee, for the 
invitation to participate in today's roundtable discussion on economic 
conditions in the U.S. farm sector. My name is Nathan Kauffman, and I 
am assistant vice president and economist at the Federal Reserve Bank 
of Kansas City, a regional Reserve Bank that has long devoted 
significant attention to U.S. agriculture. The economy of our Reserve 
Bank's district, which includes all or parts of Missouri, Nebraska, 
Kansas, Oklahoma, Colorado, Wyoming and New Mexico, has a high 
concentration of agriculture, and I lead several efforts at our Bank to 
track the agricultural and rural economy at both a regional and 
national level. These efforts include a regional agricultural credit 
survey of commercial banks in our district, the Federal Reserve 
System's Agricultural Finance Databook, which is a national survey of 
agricultural lending activity at commercial banks, as well as other 
research and ongoing outreach efforts. I will be sharing with you 
today, information on recent developments in the agricultural economy, 
with an emphasis on agricultural credit and lending conditions. Before 
I begin, let me emphasize that my statement represents my views only, 
which are not necessarily those of the Federal Reserve System or any of 
its representatives.
                         farm income conditions
    Following multiple consecutive years of strong incomes in the farm 
sector, farm income has steadily weakened the past few years and is 
expected to remain low in the coming months. According to the U.S. 
Department of Agriculture, net farm income in 2015 was forecasted to be 
more than 50 percent less than in 2013, and the forecast for 2016 is 
for an additional modest decline (Chart 1). Regional Federal Reserve 
surveys of agricultural banks, both in the Kansas City Fed District and 
nationally, paint a similar picture. Most bankers expect farm income to 
remain low through 2016 and have expressed increasing concern about the 
potential implications of this development.
    The drop in farm income since 2013 has been primarily due to 
significant declines in the prices of major U.S. row crops. Corn 
prices, for example, dropped by more than 50 percent from the peak in 
2012 to the latter part of 2014. Since 2014, prices have fluctuated 
some, but have largely remained flat over the past 18 months. Soybean 
prices also dropped significantly from 2012 to 2014 and have continued 
to fall over the past year. The prices for other major crops, such as 
wheat, sorghum and rice, have experienced similar declines in varying 
degrees. Input costs for crop production have declined somewhat over 
the past 12 to 18 months due to lower fuel costs and modest reductions 
in fertilizer prices. However, costs have generally remained high, and 
many producers have continued to report negative profit margins, with 
crop prices below their breakeven cost of production.
    In the latter part of 2015, sharp losses in some segments of the 
livestock sector have exacerbated the sense of pessimism in the U.S. 
agricultural economy. From peak levels around the beginning of 2015, 
cattle prices had dropped by about 25 percent by the end of the year. 
Hog prices have declined by a similar amount, and milk prices have also 
continued to drift lower. Although cow-calf operations have generally 
remained profitable, some cattle feedlot operators reported losses of 
up to $500 per head several months ago, and profitability in other 
segments of the livestock sector generally have also worsened over the 
past year.
                     agricultural credit conditions
    The persistent declines in farm income and poor profit margins have 
reduced cash flow and increased short-term lending needs in the farm 
sector. The Federal Reserve's Agricultural Finance Databook shows that 
the volume of new, short-term farm loan originations at commercial 
banks increased more than 50 percent from 2012 through 2015 (Chart 2). 
These loans are primarily operating loans, used to finance ongoing 
expenses required for production. This development is particularly 
concerning because it has occurred during a time when farm income has 
been roughly cut in half, raising significant concerns about the debt 
service capacity of farm borrowers for the coming year.
    Similarly, agricultural credit conditions have also steadily 
weakened over the course of the downturn in the agricultural economy. 
Data from Kansas City Fed surveys of agricultural banks in our seven-
state region show that loan repayment rates have declined in each of 
the past nine quarters, with the sharpest change reported in the most 
recent survey in the fourth quarter of 2015 (Chart 3). Moreover, 
bankers expect repayment rates to weaken further in the coming months 
amid further increases in loan demand and increasing demand for loan 
renewals and extensions. Bankers have also indicated that credit 
availability has tightened somewhat in recent months alongside farm 
borrowers' heightened demand for credit to finance their operations.
    Despite the softening credit conditions, delinquency rates for both 
real estate and non-real estate farm loans have remained historically 
low. In the fourth quarter of 2015, the delinquency rate on farm real 
estate loans was only 1.5 percent, compared with 3.6 percent 5 years 
ago, and was significantly less than the delinquency rate on 
residential real estate loans in the fourth quarter (Chart 4). 
Similarly, delinquency rates on agricultural production loans have 
declined over the past 5 years from 2.7 percent to less than 1 percent. 
Although delinquency rates have remained low, it is important to note 
that many lenders have indicated that the strong incomes of previous 
years, combined with low interest rates, have kept loan performance 
strong during the recent downturn (Chart 5). However, significant 
working capital deterioration in 2015 has placed many borrowers in a 
more precarious financial position this year. If the current 
environment of low farm incomes persists through 2016, lenders 
generally expect to see loan performance deteriorate through the year.
    Although farm income has dropped considerably, farmland values have 
declined at a more modest pace. In the Kansas City Fed District, for 
example, the average value of high quality cropland has declined in 
each of the past four quarters, but by less than 5 percent in each 
quarter relative to the previous year (Chart 6). Farmland values are an 
important part of the health of balance sheets in the farm sector. The 
fact that farmland values have remained relatively strong has helped 
support the overall financial position of many farm borrowers. 
Nevertheless, our survey data also show that farmland values are 
expected to continue to soften over the next year alongside lower 
incomes in the sector.
                               conclusion
    To summarize, the recent downturn in the agricultural economy has 
continued to intensify over the past year. Barring significant 
increases in agricultural commodity prices in the coming months, which 
seem unlikely based on current market fundamentals, the sharp drop in 
farm income last year appears likely to persist through 2016. Although 
outright defaults in the farm sector have been limited to date, it is 
possible that financial stress among farm borrowers could increase 
through the year. This could further weaken agricultural credit 
conditions and also place additional pressure on farmland values. As a 
result, some producers, particularly those who are highly leveraged, 
could face difficulty financing their operations in the coming year.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


    Senator Moran. Dr. Westhoff, let's see if you can make us 
feel a little bit more optimistic.
STATEMENT OF DR. PATRICK WESTHOFF, PH.D., DIRECTOR, 
            FOOD AND AGRICULTURAL POLICY RESEARCH 
            INSTITUTE
    Dr. Westhoff. I would like to tell you that I have a very 
different story, but I am afraid you are going to find it is 
more of the same song.
    I thank you very much for the opportunity to discuss the 
outlook for the U.S. farm economy. For more than 30 years, our 
institute has developed 10-year projections for agricultural 
commodity markets and analyzed the impacts of various policy 
options.
    Today, I will briefly summarize some key findings from our 
new baseline, which we expect to release next week, probably 
next Thursday. Note that the estimates were not final at the 
time I prepared these remarks, but they should be pretty close, 
and I think the stories will hold.
    Farm commodity prices, as has already been discussed, have 
declined sharply after reaching record highs in recent years. 
For example, the marketing year average price for corn fell 
from $6.89 per bushel back in 2012 to an estimated $3.60 per 
bushel this year. Wheat, soybean, and cotton prices have also 
declined very sharply, as shown in table 1 of my statement.
    The high prices of the 2010 to 2012 period and more 
favorable weather conditions resulted in a large increase in 
U.S. and global crop production, while a variety of factors, 
including the strong dollar, have served to limit demand 
growth, so carryover stocks have increased.
    Crop cash receipts fell by an estimated 17 percent between 
2012 and 2015.
    On the livestock side, prices for cattle, chickens, and 
milk all reached record highs in 2014 because of strong export 
demand, disease outbreaks, delayed effects on production of 
droughts, and high feed costs. So that happened in previous 
years.
    Total meat and milk production rebounded in 2015 at the 
same time a strong dollar helped constrain export sales.
    Prices fell sharply for hogs, chickens, and milk in 2015 
relative to the previous year.
    Fed steer prices peaked in the final quarter of 2014, and 
then declined very sharply during 2015, as you have heard.
    Livestock cash receipts are down 12 percent in 2015.
    Now looking forward, for the crop outlook, our baseline 
projections assume a continuation of current policies and a 
macroeconomic outlook developed by IHS Global Insight, a 
private forecasting firm.
    We recognize that the world is a very uncertain place, so 
we use our models to derive distributions of various 
agricultural sector variables.
    Figure 1 in my handout shows the average of the projected 
corn prices as a way of giving you an idea of what that 
variability might look like in front of us. In 10 percent of 
the model's 500 outcomes for the future, the average corn price 
in most years is above the top line there, about $5 per bushel 
most years. And in 10 percent, it falls below the bottom line, 
about $3 per bushel.
    I should point out that these estimates only consider a 
subset of the factors that cause commodity prices to be 
uncertain. The actual uncertainty around our long-term 
projections may be even longer than what those numbers might 
suggest.
    The story would look very similar for other crops. For the 
next few years, we expect wheat, soybean, and cotton prices all 
to average near their 2015, 2016 levels. We are a little bit 
more optimistic than U.S. standard price projections, but not 
very much. It is the same basic story.
    Population and income growth around the world contribute to 
rising food, feed, and fiber consumption, but global crop 
supplies are projected to be adequate to meet that demand, even 
at prices well below the 2010 to 2012 peaks. The United States 
continues to face strong competition, as you have heard 
already, from Brazil, Argentina, Russia, Ukraine, and many 
other exporters. And demand growth in China may be slowing.
    On the livestock side, beef, pork, chicken, and milk 
production are all expected to increase in 2016, even as the 
strong dollar constrains growth in export sales. The result is 
a further projected decline in prices for cattle, hogs, 
chicken, and milk. Cattle prices could decline further in 2017 
and maybe even 2018 as additional cows in the breeding herd 
today eventually translate into more beef production. In the 
long run, livestock prices will tend to move with beef prices.
    The projected prices and production levels suggest that 
both crop and livestock receipts could decline again in 2016, 
as shown in figure 2. In later years, however, increasing 
production contributes to a moderate rate of increase in 
projected cash receipts.
    However, note that even in 2025, both crop and livestock 
receipts remain below their peak values of recent years. That 
is even in nominal terms, adjusted for inflation being even 
lower than that.
    Just briefly on the farm program side, I will not read all 
of my prepared remarks here, but to say that the 2014 farm 
bill, as you know, significantly reoriented U.S. farm policy. 
Price Loss Coverage payments occur when marketing year average 
farm prices fall below fixed reference prices. County 
agricultural risk coverage (ARC-CO) payments occur when a proxy 
for per county revenues for a particular crop fall below a 
trigger tied to past prices and yields.
    Most corn, soybean, and wheat-based acreage enrolled in 
ARC-CO while most sorghum, barley, rice, and peanut base is 
enrolled in PLC.
    Averaging across our 500 possible outcomes for the future, 
we project that ARC payments will peak in the current market 
year for 2015 crop, as shown in figure 3. Projected ARC 
payments then decline, not so much because of any major 
increase in projected prices or yields, but because the moving 
average of past prices that is used to determine guarantees 
will be declining over time. So that means there will be less 
support provided by these programs as time goes on, especially 
since most corn, soybean, and wheat farmers are enrolled in 
ARC.
    Note that actual payments in any given year can be greatly 
different than levels shown, suggesting that the cost to 
taxpayers of these programs is quite uncertain. Just to give an 
example, in 2018, in about one-third of our 500 outcomes for 
that year, ARC payments are less than $1 billion. But on the 
other hand, in 10 percent of the outcomes, it is more than $4 
billion. There is a lot of uncertainty about the future costs 
of these programs, depending on marketing conditions.
    In terms of crop insurance, the 2014 farm bill creates a 
number of new crop insurance options for producers. Cotton 
producers, for example, can choose to purchase STAX, as was 
talked about already, an area-based policy that supplements 
individual coverage. There is no ARC or PLC program for upland 
cotton.
    Across 500 outcomes, average crop insurance net indemnities 
are a little over $5 billion per year. Projected ARC and PLC 
payments exceed crop insurance in 2015 and 2016, but the 
reverse is true in later years.
    In terms of net farm income, I would like to tell you about 
an optimistic picture, but I do not have one for you today, I 
am afraid.
    The declining crop and livestock receipts have resulted in 
a dramatic reduction in net farm income relative to the record 
level of 2013. Lower fuel, fertilizer, and feed prices help 
reduce production costs by about $10 billion in 2015 and 
another reduction is expected in 2016. But the projected cost 
reductions are not nearly enough to offset revenue losses.
    Given all the assumptions of our analysis, net farm income 
remains below recent peak levels throughout the next 10 years. 
Projected real, inflation-adjusted net farm income is about the 
same in 2025 as it was in 2015.
    As with other projections, there is a lot of uncertainty 
around these numbers. Even modest proportional changes in costs 
or revenues can result in very large proportional changes in 
net income.
    So in summary, and final comments here, if these 
projections prove correct, consistent with previous speakers, 
it suggests an extended period of financial stress in U.S. 
agriculture. Not only are farm incomes expected to remain well 
below recent peaks, but businesses that sell machinery and 
inputs to farmers are also likely to be negatively affected. 
Farm asset values are likely to be under pressure, especially 
if interest rates were to increase.
    However, it is also important to maintain perspective. 
While rising debt is a serious concern, debt-asset ratios 
remain low by historical standards. Even if interest rates 
increase from current levels, they are likely to remain well 
below the levels that prevailed during the farm crisis years of 
the 1980s. While commodity prices are all below recent peaks, 
they remain high by pre-2007 levels.
    You can look for our new baseline soon, probably by next 
Thursday at our Web site. Our baseline briefing book will 
provide detailed estimates for farm commodity markets, farm 
program costs, farm income, and consumer food costs.
    Thank you for this opportunity. I am happy to answer any 
questions.
    [The statement follows:]
               Prepared Statement of Dr. Patrick Westhoff
    Thank you for the opportunity to discuss the outlook for the U.S. 
farm economy. For more than 30 years, our institute has developed ten-
year baseline projections for agricultural commodity markets and 
analyzed the impacts of policy options. Today I will briefly summarize 
some key finding from our new baseline, which we expect to release next 
week. Note that the estimates were not final at the time these remarks 
were prepared, but I would expect the basic ``stories'' discussed here 
to hold.
                    the decline in commodity markets
    Farm commodity prices have declined sharply after reaching record 
highs in recent years. For example, the marketing year average price 
for corn fell from $6.89 per bushel in the drought year of 2012/13 to 
an estimated $3.60 per bushel just 3 years later (Table 1). Wheat, 
soybean and cotton prices have also declined. The high prices of the 
2010-2012 period and more favorable weather conditions resulted in a 
large increase in U.S. and global crop production, while a variety of 
factors limited demand growth, so carryover stocks increased. Crop cash 
receipts fell by 17 percent between 2012 and 2015.
    On the livestock side, prices for cattle, hogs, chickens and milk 
all reached record highs in 2014 because of strong export demand, 
disease outbreaks and the delayed effects on production of drought and 
high feed costs. Total meat and milk production rebounded in 2015 at 
the same time a strong dollar helped constrain export sales. Prices 
fell sharply for hogs, chickens and milk in 2015 relative to the 
previous year. Fed steer prices peaked in the final quarter of 2014, 
but then declined in every quarter of 2015. Livestock cash receipts 
dropped by 12 percent in 2015.

                         TABLE 1. THE DECLINE IN FARM COMMODITY PRICES AND CASH RECEIPTS
----------------------------------------------------------------------------------------------------------------
                                             Peak year      Peak level      Recent year    Recent level*  Change
----------------------------------------------------------------------------------------------------------------
Corn price ($/bu.)......................         2012/13            6.89         2015/16            3.60  -48%
Wheat price ($/bu.).....................         2012/13            7.77         2015/16            5.00  -36%
Soybean price ($/bu.)...................         2012/13           14.40         2015/16            8.80  -39%
Cotton price (cents/lb.)................         2011/12           88.30         2015/16           59.50  -33%
 
Fed cattle price ($/cwt)................            2014          154.56            2015          148.12  -4%
Hog price ($/cwt).......................            2014           76.03            2015           50.23  -34%
Chicken wholesale (cents/lb.)...........            2014          107.60            2015           90.50  -16%
All milk price ($/cwt)..................            2014           23.97            2015           17.08  -29%
 
Crop receipts ($ billion)...............            2012             232            2015             191  -17%
Livestock receipts ($ billion)..........            2014             212            2015             186  -12%
----------------------------------------------------------------------------------------------------------------
* 2015/16 crop prices use mid-point of the reported range from USDA's World Agricultural Supply and Demand
  Estimates, February 2016.

                            the crop outlook
    Our baseline projections assume a continuation of current policies 
and a macroeconomic outlook developed by IHS Global Insight, a private 
forecasting firm. We recognize that the world is a very uncertain 
place, so we use our models to derive distributions of the agricultural 
sector variables.
    Figure 1 shows the average of the projected corn prices as well as 
two more lines to give an idea of some of the uncertainty that 
producers face. In 10 percent of the model's 500 outcomes, the corn 
price exceeds the top line, about $5 per bushel, and in 10 percent it 
falls below the bottom line, about $3 per bushel. I should point out 
that these estimates only consider a subset of the factors that cause 
commodity prices to be uncertain--the actual uncertainty around our 
longer-term projections is probably even greater than the chart 
indicates.
    The story would be similar for other crops. For the next few years, 
we expect wheat, soybean and cotton prices to all average near 2015/16 
levels, but with considerable annual variation. Population and income 
growth around the world contribute to rising food, feed and fiber 
consumption, but global crop supplies are projected to be adequate to 
meet that demand, even at prices well below the 2010-12 peaks. The 
United States faces continued strong competition from Brazil, 
Argentina, Russia, Ukraine and other exporters, and demand growth in 
China may be slowing.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                  livestock outlook and cash receipts
    In 2016, beef, pork, chicken and milk production are all expected 
to increase, even as the strong dollar constrains growth in export 
sales. The result is a further projected decline in prices for cattle, 
hogs, chicken and milk. Cattle prices could decline further in 2017 and 
beyond as additional cows in the breeding herd eventually translate 
into more beef production. In the long run, livestock prices will tend 
to move with feed prices.
    The projected prices and production levels suggest that both crop 
and livestock receipts could decline again in 2016 (Figure 2). In later 
years, increasing production contributes to a moderate rate of increase 
in projected cash receipts. However, note that in 2025, both crop and 
livestock receipts remain below their peak values of recent years.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                              arc and plc
    The 2014 farm bill significantly reoriented U.S. farm policy. Gone 
are fixed annual direct payments and other past programs, and in their 
place are two new programs that only make payments when prices or 
revenues fall below trigger levels. Price loss coverage (PLC) payments 
occur when marketing year average farm prices fall below fixed 
reference prices. County agricultural risk coverage (ARC-CO) payments 
occur when a proxy for per-acre county revenues for a particular crop 
falls below a trigger tied to past prices and yields. Most corn, 
soybean and wheat base acreage is enrolled in ARC-CO while most 
sorghum, barley, rice and peanut base is enrolled in PLC. Few acres are 
enrolled in ARC-IC, an alternative version of the program.
    Averaging across 500 outcomes, we project that ARC payments will 
peak in the current marketing year (Figure 3). Projected ARC payments 
then decline, not so much because of any major increase in projected 
prices or yields, but because the moving average of past prices used to 
compute guarantees declines. The chart only shows outcomes through the 
2018 expiration of the current farm bill.
    Note that actual payments in any given year can differ greatly from 
the levels shown, suggesting that the cost to taxpayers of these new 
programs is quite uncertain. For example, in more than one-third of the 
500 outcomes for the 2018 crop year, projected ARC-CO payments are less 
than $1 billion, but they exceed $4 billion in the 10 percent of 
outcomes with the greatest payments.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                 crop insurance and commodity programs
    The 2014 farm bill also creates a number of new crop insurance 
options for producers. Cotton producers, for example, can choose to 
purchase STAX, an area-based policy that supplements individual 
coverage. There is no ARC or PLC program for upland cotton.
    In any given year, indemnities can differ greatly from premiums, 
but on average, we would expect total indemnity payments to be similar 
to total premiums. Premium subsidies cover more than 60 percent of 
total premiums.
    Across 500 outcomes, average crop insurance net indemnities 
(indemnity payments for losses minus producer paid premiums) average a 
little over $5 billion per year (Figure 4). Projected ARC and PLC 
payments exceed crop insurance net indemnities in 2015/16 and 2016/17, 
but the reverse is true in later years. For years after 2018, we follow 
the lead of the Congressional Budget Office and assume an extension of 
2014 farm bill provisions.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                            net farm income
    The decline in crop and livestock receipts has resulted in a 
dramatic reduction in net farm income relative to the record level of 
2013. Lower fuel, fertilizer and feed prices helped reduce production 
costs by about $10 billion in 2015 and another reduction is expected in 
2016, but the projected cost reductions are not nearly enough to offset 
revenue losses.
    Given all the assumptions of our analysis, net farm income remains 
well below recent peak levels (Figure 5). Projected real, inflation-
adjusted net farm income is about the same in 2025 as it was in 2015.
    As with other projections, there is great uncertainty around 
projections of net farm income. Even modest proportional changes in 
costs or revenues can result in large proportional changes in net 
income.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                             final comments
    If these projections prove correct, it suggests an extended period 
of financial stress in U.S. agriculture. Not only are farm incomes 
expected to remain well below recent peaks, but businesses that sell 
machinery and inputs to farmers are also likely to be negatively 
affected. Farm asset values are likely to be under pressure, especially 
if interest rates increase.
    However, it is also important to maintain perspective. While rising 
debt is a serious concern, debt-asset ratios remain low by historical 
standards. Even if interest rates increase from current levels, they 
are likely to remain well below the levels that prevailed during the 
farm crisis of the 1980s. While commodity prices are well below recent 
peaks, they remain high by pre-2007 standards.
    You can look for our new baseline soon, perhaps next week, at 
www.fapri.missouri.edu. Our baseline briefing book will provide 
detailed estimates for farm commodity markets, farm program costs, farm 
income and consumer food costs.
    Thank you for the opportunity, and I will be happy to answer any 
questions.
Disclaimer:

The projections reported here are based upon work supported by the U.S. 
Department of Agriculture, Office of the Chief Economist under 
Agreement No. 58-0111-15-008 with the Curators of the University of 
Missouri. Any opinion, finding, conclusions, or recommendations 
expressed are those of the author and do not necessarily reflect the 
view of the U.S. Department of Agriculture nor the University of 
Missouri.

                    INTRODUCTION OF OTHER WITNESSES

    Senator Moran. Dr. Westhoff, thank you very much.
    The only thing worse than having three economists who 
disagree each other is having three economists who agree with 
each other when the outlook is bad.
    We have others who are at the table. I probably should 
explain this. We invited three significant and highly respected 
ag economists to have a conversation with us. But as I 
indicated earlier, we thought there might be policy questions 
related to specific farm programs, commodities, regions of the 
country. So we have Colin Woodall from the National Cattlemen's 
Beef Association; Tom Sell, who has a variety of interests in 
different farm commodities, but also a significant interest in 
crop insurance; Reece Langley, cotton; Randy Russell, former 
USDA official with, again, a variety of interests in farm 
commodity groups across the country; and Dale Moore from the 
American Farm Bureau.
    I am going to yield my time to Senator Blunt, who needs to 
get to the Intel Committee. Then I will go to Senator Merkley. 
Senator Hoeven is headed back to Homeland Security, and I will 
yield my time when it comes back to me to you as well.
    Senator Blunt visited with me as I became the Chairman of 
this Appropriations Committee, Dr. Westhoff, to make certain I 
understood the value of the Food and Agricultural Policy 
Research Institute (FAPRI) at the University of Missouri. And 
from my days as a member of the House Agriculture Committee, we 
appreciate the analysis. Senator Blunt was only reminding me of 
something that I already knew.
    Senator Blunt.

                     LONG-TERM AGRICULTURAL OUTLOOK

    Senator Blunt. I would say, Chairman, things were a lot 
better when I was the Chairman, whenever I was the top 
Republican on this Committee.
    There are very few days when the option of going to Intel 
might look like a little bit of a relief. This probably is 
still not one of them.
    One of the things I have been wondering about, and I do 
hope that you all have left plenty of room for optimism to 
change some of these projections, but one of the things I have 
been thinking about, even in the most optimistic scenario with 
what we believe, from the lowest estimate of world food demand 
to the highest estimate, it is still a big estimate. I have 
been wondering what we do that helps farm families have some 
sense of how those two things come close to evening out. I can 
certainly see 3 decades, where 1 year we are low and the next 
year we are high, and the challenge is just to meet the demand 
that is going to be growing in what all of us would see as an 
exponential way based on anything we have ever seen in world 
food.
    Now, clearly, if you have less money to spend, that demand 
for better food might not be what it otherwise would be.
    But, Mr. Russell, do you have a sense, and then Mr. Moore--
and this will be my only question, and anybody else can weigh-
in that wants to. Do you have a sense of what farm families 
need to be looking at and anticipating as many of us are 
excited about what can happen in agriculture, but agriculture 
being what it is, trying to figure out how these things happen 
at the right time is I think a challenge that I have not been 
able to quite figure out yet. I have been saying recently to 
the Missouri Farm Bureau, Blake, yesterday and others, it is 
going to be a great 35 years for agriculture, but that does not 
mean the next 2 or 3 years are going to be great, and it does 
not mean there will not be some years in the middle.
    I am just trying to figure out myself how we can look at 
this in a way that can be helpful. Hopefully, we can stop doing 
foolish regulatory things. Just the law of averages you would 
think would eventually catch up with us on the regulatory 
front.
    But let's go to the two of you.
    Mr. Russell. Thanks, Senator Blunt.
    And thanks, Senator Moran, for holding the hearing. I think 
it is important to have a good backdrop as to what the farm 
income situation is this year, as you start your appropriations 
process, because so many of those items are dependent upon the 
farm economy.
    Senator Blunt, I would just say that this is a very tough 
economic period, 2015 was tough. We had a precipitous decline 
in cash and farm income. As we just heard, we have another 
decline in 2016. I would suspect we'll probably have a rough 
year in 2017 as well, before we get out of this.
    I would also say, prior to that, and I am not talking to 
any specific sector or subsector, we had 5 good years. Our 
equity is strong. Our debt-to-asset ratio, debt-to-equity ratio 
in agriculture, we go into this downturn in pretty good shape.
    I think what we really have to do is focus on the longer 
term. I personally am very optimistic about ag and food over 
the long term. All of you have talked about it many times. I 
mean, we are going to grow the world's population to 9.3 
billion by 2050. Eighty percent of those people are going to be 
in developing countries.
    We have a situation where we are going to have to produce 
more food in the next 40 years than we did the last 10,000 
years combined. That is an amazing kind of situation that we 
are facing. Now, does that mean we will not go through some 
upturns and downturns, because agriculture is cyclical? We 
understand that.
    But the future is very, very bright. Also, we are going to 
have to produce probably twice as much food in the next 40 
years as we have previously. That is a huge challenge for our 
sector, but I think we are up to the challenge. But we are 
going to have to do certain things in order to get it right. 
Let me just tick off four things, then I will yield to others 
who may want to comment.
    First, we have to have a macroeconomic policy that fuels 
growth. What do I mean by that? You look at a situation where 
the Congressional Budget Office (CBO) just came out and said 
the difference between 2 percent growth and 3 percent growth 
over the next 10 years is $4 trillion to the economy. That is 
job creation. It leads to lower deficits. And it leads to more 
demand. As we just heard here, still 80 percent of farm 
production is consumed in the United States, so that is 
critically important.
    So I think we are in a situation where we need a strong 
economic policy to fuel our growth.
    Second of all, I think we are in a situation where we need 
to have aggressive trade agreements. Look, I would love to sit 
here and say we are going to get a World Trade Organization 
(WTO) global trade round, and it is probably not going to 
happen in the rest of my professional career, and I do not plan 
on retiring anytime soon. So I think we have to put our 
emphasis on regional trade agreements and bilateral trade 
agreements. And I am not going to comment specifically about 
the Trans-Pacific Partnership (TPP) or the Trans-Atlantic Trade 
and Investment Partnership (T-TIP), but that is really the 
future of our growth, in trade agreements. And it is focusing 
on nontariff trade barriers. The phytosanitary areas are the 
things we really have to aggressively pursue to grow things 
like meat and poultry exports and others in the future.
    Third, as Senator Blunt talked about, we have to have a 
more rational regulatory policy and system in this country. You 
go out and talk to farmers, as people do around here all the 
time, and what you hear about are Department of Labor standards 
and Environmental Protection Agency (EPA) and other things. It 
is not one particular reg. It is the cumulation and impact of 
those regs on farmers and agricultural supply companies and 
people in agribusiness that is really serving as tax on many of 
them.
    Finally, I would say, and something that this Committee has 
been deeply involved with, we need to more effectively reinvest 
in what I would call the seed corn of agriculture, and that is 
research. You look at the National Institutes of Health (NIH). 
And, Senator Blunt, you have been a leader, and others here, on 
NIH funding. They stand at $32 billion. The National Science 
Foundation (NSF) is at $7.5 billion. USDA ag research is $2.3 
billion. Its peak was $2.9 billion in 2003.
    So clearly, if we are going to meet this global food 
demand, we have to do a better job of reinvesting and doing it 
in the right way, in the manner that NIH and NSF do in a more 
competitive fashion to ensure that we have investments in basic 
and fundamental sciences so that we can meet these food 
challenges.
    So like I said, I think we are in a very tough period. I 
think that period is going to continue for probably another 18 
months or so. But overall, I am very optimistic about the 
future.
    One last point, who knows this best? Our young people. Look 
at enrollments at land grant universities. For most of them, it 
is going up. They are building new dorm space. They are going 
into ag sciences, ag marketing, ag communication, ag 
engineering. Why? Because they can get jobs. They see the 
future. They see the trendline. And there is a great 
opportunity to get jobs in these professions.
    So I think investment in the right way, done properly, 
leads to a very bright future in ag.
    Mr. Moore. Thank you, Senators, for this opportunity. One 
of the great things, when you go next to a really smart guy, 
you can say ``ditto'' a lot. Randy covered the waterfront. I 
want to start kind of from the last point he made about the 
young people. It is one of the things that we are picking up. I 
have family that is in the banking business. The big concern 
that is out there for us when it comes to the credit side of 
the equation is the new generation, the youngest generation 
that has just gotten started in farming in the last decade. 
This is going to be their first downturn, and there is a lot of 
concern among our members, whether it is those just getting 
started, those who have established, those who finally got 
their feet on the ground and now are learning that agriculture 
is not always in an upswing.
    I am not pessimistic, but more pragmatic than optimistic 
because, again, as Randy pointed out, agriculture goes through 
these peaks and valleys. We talked about it, day in and day 
out. This is why we write farm bills. This is why we need a 
safety net that is secure out there. This is why in the rewrite 
that has gone through, there are certainly some dollars that 
are going out. But we are also spotting some things that are 
posing challenges, depending on what part of the country and 
which options a producer may have selected when he or she goes 
down through the process at their Farm Service Agency (FSA).
    We also look across the sector, whether it is the largest 
farmers, the smallest farmers, this regulatory creep issue is 
something that we really wrestle with. Because, again, you can 
deal with Mother Nature and with the protection tools we have, 
crop insurance, the safety net, and the farm program. You can 
deal with the vagaries of the market cycles. But when you start 
getting the margins nicked year in and year out with one more 
thing that I have to check the box on, and it is not just on 
the potential economic cost of having to comply with the 
regulation, but it is time that farmers and ranchers spend away 
from managing their operations in terms of the productive side 
of it to essentially be paper pushers, checking all the boxes 
to make sure they are in compliance so they do not lose out 
when that next roll comes around and I have to deal with 
somebody looking over my shoulder and telling me I am out of 
compliance, and now I am facing penalties, now I am facing 
fines, whatever that may be.
    We are in a time when we are seeing a lot more bears than 
bulls. I look down and think about, when you look at where some 
of these prices have been, we talk about historic highs, a lot 
of the infrastructure has built in and invested to respond to 
that, whether it is in the cattle industry, the row crops, 
specialty crops, and a number of things that are now pushing 
these numbers down, giving us that much more of a challenge in 
terms of having to borrow operating credit and making sure we 
get that paid back.
    Some of us are old enough to remember when we went through 
credit reforms back in the mid-1980s, trying to get that all 
lined out. We do not need to go through another cycle like 
that. And our hope is that we can get some sort of evening out 
of these troughs, get some of the issues, figuring out the 
careful way to say this, but those that would like to help us 
rearrange parts of the farm bill by chopping things out or 
adjusting the numbers in some way, we appreciate the steadfast 
support for keeping the farm bill intact and giving us a chance 
to make sure it works.
    Let's talk about some of those areas where we think we can 
see some improvements without having to open up the farm bill.
    Senator Moran. Very good. Let me turn to Senator Merkley.

                     AGRICULTURAL IMPORTS BY CHINA

    Senator Merkley. Thank you.
    Dr. Johansson, I wanted to ask you about your figure 6, in 
your chart. First of all, you have a chart that shows China's 
total import of grain, soybeans, and cotton. Is that 
specifically from the United States? Is that the import of U.S. 
products?
    Dr. Johansson. No, these are global imports.
    Senator Merkley. Okay, those are global imports.
    I found it interesting that the total amount had dropped, 
given that while China's growth rate is not as high as it was, 
it is still a very positive 5 percent to 6 percent.
    Dr. Johansson. That is right.
    Senator Merkley. So what do you attribute that? Is that 
more domestic production of Chinese grains and soybeans?
    Dr. Johansson. This chart actually goes out for 10 more 
years. Unfortunately, it was truncated just to make it fit 
here, but it does show the upward growth. But in the most 
recent period that we are showing here, where you see this 
downturn, this adjustment down, that is primarily due to the 
fact that, as you mentioned, the Chinese have supported their 
domestic producers using support prices for a variety of 
products, corn, cotton, wheat, and rice, for example. As a 
result, their producers have responded with increased 
production. But on the other hand, their prices now sit above 
global prices for most commodities, so they need to protect 
their markets with quotas.
    As a result, they want to bring down the stocks of their 
maize, for example, as well as their cotton, not so much for 
rice and wheat. That is still projected to continue increasing. 
But they have extremely high shares of global stocks. I think 
the percentage right now--we are estimating they hold about 60 
percent of global stocks of cotton and about 50 percent of 
global stocks of corn.
    We have known from our experience in the United States that 
using those types of policies to support farm income are fairly 
inefficient and are very expensive. So they are trying to 
unwind those stock levels, as a result. That is why we are 
seeing them drop off in terms of the global imports that they 
are demanding from other countries.
    Senator Merkley. If we had subcategories of the imports of 
various countries into China, would we also see specifically a 
drop in the U.S. share as a result of that? I think you 
referred to appreciation of 18 percent over the euro.
    Dr. Johansson. Yes, the major exporters to China--for 
example, soybean is their largest import commodity. The United 
States has typically been the major supplier to China for 
soybeans. That is falling in recent years and being replaced by 
increasing exports coming out of Brazil and Argentina, so we 
are seeing an increase in South American exports. We expect to 
see that intensify this year slightly due to the fact that, as 
Senator Moran said, we might expect things to change over time, 
but Brazil has seen 4 excellent years right now. They have 
essentially rolled sixes on the dice for the last 4 years when 
it comes to weather, so they have been producing increasing 
amounts of soybeans.
    And due to the fact their currency has been depreciating 
relative to the dollar, they can be more competitive on the 
global market. As a result, they are sending a lot more of 
their stocks to China than before, and that has taken over some 
of the U.S. share of that.
    Senator Merkley. So just to wrap up this particular point 
here, you mentioned that you have projections that go out 
another 10 years.
    Dr. Johansson. That is correct.
    Senator Merkley. When you look at the Chinese process of 
eating more meat, requiring more grain input and so forth, do 
we anticipate that over the 10 years to come that the exports 
of U.S. commodities to China will go back up?
    Dr. Johansson. I do not know, for example, if U.S. exports 
specifically to China are going to go up by a certain 
percentage rate, but I can say that, over the 10 years, we 
expect China's imports of these commodities to increase by 30 
percent over the next 10 years. And that is the majority of 
soybeans, soybean products, although they are going to continue 
to increase, increasing quantities of grains and cotton as well 
over the 10-year period.
    In the short term, though, as I mentioned, their stock 
levels are extremely high, so they are moving to limit those.
    Going forward as far as U.S. exports to the global economy, 
which would include China as well, we expect U.S. exports to 
continue to increase over time, move up. We expect to maintain 
our dominant share of the corn export trade as well as the 
cotton export trade over the next 10 years. But we would expect 
Brazil to take over the number one place from us in terms of 
soybean exports over the next 10 years, and the EU to remain 
the number one exporter of wheat over the next 10 years.
    Senator Merkley. Thank you.
    Senator Moran. Senator Hoeven.

                FARM BILL PROGRAMS--HOW ARE THEY WORKING

    Senator Hoeven. Thank you, Senator Moran.
    Thanks to all of you for being here today. My question 
relates to the farm bill and maybe start with the industry 
representatives, maybe with Dale.
    But for each of you, is the farm bill working, specifically 
ARC and PLC? Is it working like it is supposed to? And if there 
are things we need to adjust or address, what are they, 
particularly given this current downturn in commodity prices?
    Mr. Moore. Senator, it is a little hard to say exactly 
that, yes, the farm bill is working the way we hoped it would 
work. We basically have one data set to work from, the 2014 
crops. Those payments were just going out. We know that in 
certain parts of the country, I am talking particularly like on 
the ARC payments, talk to producers in Kansas, the youngsters 
that are farming mom's ground. They farm in four different 
counties, and those counties are all adjacent to each other, 
but their corn ARC payments, for example, vary dramatically 
from county to county.
    I talked to a producer just last week in the panhandle of 
Texas. The county to the south of them got an $85 corn ARC 
payment. They got zero, just right across the county line. Now 
we understand part of that is due to some of the data sets that 
they have to work with in those counties where those crops may 
not be as productive.
    Certainly, I am going to shut up and let Reece talk, 
because the cotton experience has been more than a little 
challenging from the standpoint of the STAX program and how 
that has not worked as well as we had hoped. It is probably 
working the way the Brazilians hoped it would, but not the way 
we hoped it would.
    Senator Hoeven. Well, for starters, right on. We need to 
address that issue in the ARC payment and have flexibility 
where the ag survey does not provide enough information, so 
that like counties are treated consistently, and farmers are 
treated consistently and fairly. I mean, that is exactly the 
kind of thing that can help right now, some flexibility from 
USDA to fix that. That is something we need to work on. So you 
are off to a good start.
    It is tough to follow there, because that was dead on.
    Mr. Russell. I will not try.
    Senator Hoeven. With Dale, not that we are surprised. But 
that was a bull's-eye.
    Mr. Russell. I know you have a couple counties in North 
Dakota that have had problems because of lack of data. I think 
that points to a problem though underlying some of this and 
that is the data itself. Rob can talk about this far better 
than I can. But you talk to the National Agricultural 
Statistics Service (NASS) folks, we were down there a week ago, 
talking with them. And the number of farmers who are actually 
providing information via surveys is declining. I think that is 
part of the challenge. What we are facing now in North Dakota 
are a couple of these counties, there is not sufficient data.
     Now, is there a solution to that? I am sure there is.
    Senator Hoeven. In a sense, almost it would be used against 
them, adverse to their interests.
    Mr. Russell. Right.
    Senator Hoeven. This needs to be fixed.
    Mr. Russell. Yes, I am not questioning that. Absolutely, 
when you have contiguous counties, in one you are getting large 
payments, and some are getting zero payments because of lack of 
data, that is a problem.
    I do think though, the point I want to make, we need to 
look at these surveys and why it is that we are having a 
decline in some of the participation in them. I think we have 
to look at that because a lot of our information that we gather 
are off of these surveys.
    Also, while I have the mike and then I will be quiet, I 
think we need to take a hard look at the agencies and who they 
report to. In the case of NASS, the World Board and Economic 
Research Service (ERS), those are all economic and statistics 
related agencies. I think they all ought to report to the chief 
economist.
    They had previously. They were moved. I think that was a 
mistake. And I think all the major statistical and economic 
agencies ought to be under the Chief Economist. That is a 
natural fit. They were removed several years ago, and I think 
it was a mistake, and I think they ought to be moved back.
    Mr. Langley. Senator, for the cotton industry and specific 
to the Stacked Income Protection Plan that was developed for 
the 2014 Farm Bill, as you know, that was put together by the 
industry working with Congress. Really, that effort started in 
2011 in the lead-up to this farm bill. The STAX policy had to 
be developed as an alternative to the traditional price and 
revenue support programs because of the WTO case that the 
United States had lost that Brazil brought where they 
challenged some of our cotton policies in previous farm bills.
    The difficulty is that STAX was developed at a time when we 
had high commodity prices generally, and high cotton prices 
specifically. So like any crop insurance policy, it can provide 
adequate price and revenue protection at higher prices.
    But the situation we are in now is, in the summer of 2014, 
just after this farm bill was approved, we saw cotton prices 
start to decline. And cotton prices are now 47 percent lower 
than they were just a few years ago.
    With prices at that level, no crop insurance policy is 
going to provide a producer with adequate price or revenue 
protection. So that is the situation we are in today. The 
original STAX proposal that the council developed did include a 
reference price of $0.65 a pound. If that had been included, 
that would make a huge difference today, given where we are 
with cotton prices. But without that reference price, we are at 
the mercy of the futures market, and so it really has left us 
without much of a safety net.
    Senator Hoeven. Anyone else who wants to weigh in here?
    Mr. Sell. This is the kind of question I love. Senator 
Hoeven, thanks for asking.
    Really, as a backdrop, I thought Senator Blunt's opening 
question was great. We had this great long-term, optimistic 
view for agriculture. We are going to have to double our 
production by 2050, and so everything should be rosy. But we 
have these temporary, no one knows how long, swells in the 
agricultural economy.
    Obviously, every time we go into a downturn, things look 
pretty good at the start. We are coming from a good place. We 
just do not know how long and how deep this is going to last.
    The answer to Senator Blunt's question, what do we have as 
tools to get through these things, the answer is the Farm Bill. 
To your question, how is the farm bill working? I think we can 
say definitively, there are farmers--and let me just say it is 
a great honor to get to represent production agriculture and 
family farms across this Nation. The work they do is a 
tremendous blessing to all of us, so it is a great honor to 
represent them. I can say with confidence there are farmers 
that will be in business this year, this spring 2016, planting 
because of the 2014 Farm Bill.
    So judged on that, there is definitely success, and we are 
grateful to the Senate, to Congress, to those of you in the 
production agriculture world for taking the lead to promote a 
strong farm bill.
    Is it perfect? Certainly not. I think what Dale and Randy 
pointed out, and certainly the whole of cotton that Reece 
pointed out, it points out some of the difficulties.
    But I know one of the challenges you all face, and one that 
we as representatives of the agricultural industry face, is 
that we always have these wolves at the door. I can pull out 
two studies that have been published in the last couple weeks, 
one from the Heritage Foundation and one from EWG. These are a 
dime a dozen, just tearing us all a part.
    So there is a real fear of reopening the farm bill for this 
reason. We would love to be able to fix some of these 
incongruencies and problems like across county lines, but it is 
a real problem that we all have in this great congressional 
body, where issues are debated and subject to amendment, the 
downside risks of tearing open the farm bill right now look to 
be fairly daunting, relative to the upside potential.
    Mr. Woodall. Senator, from the cattle perspective, we use 
the farm bill a little bit differently than our colleagues 
here. But two programs in particular have been very successful, 
very useful. The permanent disaster program kept a lot of 
producers in business while we went through the drought that we 
have finally broken through.
    Another program is the Environmental Quality Incentives 
Program (EQIP). EQIP is one that I think the vast majority of 
cattle producers have utilized at some point in time.
    Senator Hoeven. Do you mean livestock indemnity on the 
first one?
    Mr. Woodall. Livestock indemnity is a part of the permanent 
program, yes, sir. EQIP, I actually have a member of ours from 
Texas over at the House Ag Committee right now talking about 
how he used EQIP in consultation with the Natural Resources 
Conservation Service (NRCS) to actually expand his herd in the 
middle of the drought. I think that is a great example of how 
these programs have been very successful in the cattle 
industry, and we are going to want to continue to work to 
protect them as we look at future farm policy.
    Senator Hoeven. Thank you, Mr. Chairman.
    Senator Moran. Yes, sir.
    Senator Tester.

                      FARM BILL PROGRAMS--TITLE I

    Senator Tester. First of all, I want to thank you all for 
being here. I am an actively engaged farmer. I signed the 
papers at the FSA office just about 2 weeks ago.
    I wanted to give you a little history. Back in the 1930s, 
if it would not have been for FDR's work with the farm program, 
I would not be on the farm today. It has been critically 
important.
    In the 1960s when I was growing up, my folks, I remember 
them specifically saying that they were going to sign up for 
the farm program because it was the patriotic thing to do.
    And now we have a farm program that has changed over the 
years, and rightfully so. I guess what comes to my mind is, 
what are the goals of the farm program? I would like to ask it 
to the Chief Economist of the USDA, since you are a big part of 
implementation. What are the goals of the farm program?
    Dr. Johansson. I think, as Senator Hoeven mentioned 
earlier, and as you are asking right now, we have seen a shift 
in the way that we meet the goal. I would describe the goal as 
providing a safety net for producers to help get through times 
like right now, or sort of adverse economic conditions, whether 
it be environmental through weather conditions, or whether it 
be economics, to sort of smooth out those peaks and valleys 
over time.
    We saw big movement in that from the last farm bill, the 
2008 Farm Bill, to this farm bill, in the sense that we moved 
toward a more countercyclical way of thinking about the 
Commodity--Title I Commodity Programs, in the sense of they are 
expected to provide a safety net when times are bad, but not 
necessarily pay out when times are good. You all were debating 
this during record farm income and at a time when Congress was 
looking for savings. So it made sense to sort of move to this 
ARC/PLC regime where you say, well, if your revenue is high 
this year, you do not get as big a payment. That is consistent 
with the sort of safety net notion. I point to that as the 
overarching goal of the farm bill or farm programs, in addition 
to providing technical assistance on the conservation side, to 
provide those kind of resources to producers to implement 
conservation programs, as well as obviously the food 
assistance. Eighty percent of the farm bill is food assistance, 
relative to 20 percent that is going to the farm.
    Senator Tester. Yes. And having adequate food for the 
populace, too.
    Dr. Johansson. Of course, yes.
    Senator Tester. I certainly do not want to open up the farm 
bill for any reason, because I share the same concerns you do. 
But I guess the concern I have is, I graduated high school in 
1974. And by the way, my community is no different than any 
other rural community in the State. There were 165 kids in high 
school when I graduated, basically 40 kids to a class. Now 
there are 12 kids to a class, the same community. That was a 
long time ago, 1974. It should not be, but it is.
    All that reduction, actually, is due to agriculture. It is 
grasslands, flat, wheat, and cattle. What we have seen is, we 
have seen nothing short of a mass exodus. So now the community 
is to a point where, if we lose Wells Fargo and we lose our 
medical center, that community is going to become a ghost town, 
which rips my guts out. But that is where we are headed.
    The question is, when we are doing the farm program here in 
Congress, and we are doing a nationwide farm program, is that 
the best way to approach it? Or should we be in some way maybe 
dealing with regions, or may be dealing with crops 
specifically? We do irrigated, nonirrigated, that kind of 
stuff.
    I guess the bottom line is, are we getting out of the farm 
program what you said? I agree with what you said. This year, 
there are people who are going to be in business because of the 
farm bill that would not have otherwise been. But looking at 
the overall thing, are we really doing anything for rural 
development with the farm bill, considering what has transpired 
over the last 40 years?
    Dr. Johansson. I mean, rural economic development, 
obviously, our Secretary has been extremely focused on that.
    Senator Tester. This is not to point a finger at anybody.
    Dr. Johansson. No, no. It is a tough nut to crack.
    Since the 1980s and going forward, and certainly, if we go 
back even further another 80 years to the beginning of last 
century, we know that the number of people working on farms, 
the number of farms, have been consolidating over time. Now we 
have seen that flatten out over the last 10 or 15 years, so we 
do not really see the number of farms going much below 2.1 
million farms right now. It has been pretty constant over the 
last couple censuses.
    But that being said, commercial farms are getting bigger, 
so there is a lot more retirement farm, residential farms. You 
mentioned actively engaged, so I would imagine they are 
actively engaged, but they are not certainly producing the 80 
percent of the food that we see in the country.
    Senator Tester. Right.
    Dr. Johansson. How to provide innovation, support and how 
to get those rural communities sustainable over a long period 
of time, there are a lot of different ways to do that. I do not 
know if anybody has settled on the right way to do that, but I 
think you have built some of those into the new farm bill. I 
would say, give it some chance a chance to work, and we will 
see what happens.
    Senator Tester. Good.
    Dale.
    Mr. Moore. Senator, I would say that the parts of the farm 
bill--you shared this with folks, it is kind of like the 
Olympics. Everybody tunes in to watch the 100-meter dash or 
220-meter dash or whatever, the hot-button thing, but they kind 
of do not really tune in for curling or when something like 
that is going on.
    But the rural development title in the farm bill, there is 
a lot of work, time, and effort that goes into it. You all 
spend time on that every year in appropriations because a lot 
of that, having worked for an authorizing committee, I am very 
familiar with the phrase ``subject to appropriations.''
    Senator Tester. And Senator Moran and I try to get every 
nickel we can out of it.
    Mr. Moore. Exactly. But one of the things the Farm Bureau 
and I know a number of groups--we work with in coalitions and 
partnerships on this. For a lot of our young farmers and 
ranchers, if you sit in the Farm Bureau's young farmer and 
rancher committee, they are focused on how they get started in 
agriculture and how they grow their operations. But they also 
want to live in these communities.
    My high school graduating class was nine kids. With the 
exception of myself, everybody else is still back in the 
hometown area. They want that quality-of-life. They are looking 
for ways on how do they grow that local economy that entices 
somebody, not just in the ag sector, but some other business 
enterprise. The work you all do on broadband funding, for 
example, how that expands opportunity.
    Senator Tester. You are exactly right. But here is the 
problem. As population decreases, and correct me if it is not 
happening in every rural community in this country, then we are 
looking at putting money--and I will fight for it until the 
last dog is hung, and so will Moran and so will Merkley--but we 
are putting it into a larger, more expensive area with fewer 
and fewer people, so it makes it harder and harder to justify. 
And when we are dealing with a $19 trillion deficit, it becomes 
a real problem.
    I will give you a real-life example. They are talking about 
shutting down a border station in Raymond, Montana, the 
northeast corner of the State, just reducing it by 6 hours. 
Why? There used to be a lot of trucks going through, and now 
there are three a night. I am fighting like hell to keep that 
border station open, but, man, it is tough to fight.
    If you are fiscally responsible, it really is a conflicting 
thing. So that becomes the point.
    Go ahead, Randy.
    Mr. Russell. Just a couple of observations. I am probably 
one of the older people on the panel here, so I have been 
through seven farm bills. I can just make an observation about 
that.
    We spent an enormous amount of time, and rightfully so, on 
what I would call Title I, the farm program. Of course, now 
crop and revenue insurance are the basic tenet of our farm 
program, very important. And I would urge Congress not to do 
anything to undermine crop insurance.
    We are now in the third year of the 5-year farm bill, and 
we need to maintain that and let it work.
    But what happens is we spend an enormous amount of time on 
Title I, an enormous amount of time on things like crop 
insurance, and we have 13 or 14 other major titles in the farm 
bill.
    Senator Tester. That is true.
    Mr. Russell. It is a fact of life, but we do not spend 
enough time on things like research and rural development, and 
many of the other areas, conservation, that we really need to 
focus more time on.
    I would hope when we get to the next farm bill that we can 
do a little better job of allocating time, energy, effort, and 
prioritization to some of these other titles, because it is not 
one program that is going to be the silver bullet.
    Senator Tester. Yes. Thanks, Randy.
    I just wanted to say one thing. In relationship to the 
surveys, I bet I get a survey every 2 weeks. The reason people 
quit filling them out is because you just get sick of the damn 
surveys. They get pretty specific on how much income you made 
and what your net value is, some of them, not all of them. 
Quite frankly, farmers are pretty libertarian, generally 
speaking, and they do not like letting their neighbor know how 
much money they got or how many cattle they got or anything 
else about their operation. So that is why.
    You were going to say something, Tom?
    Mr. Sell. I think it is a great question. The thing is that 
the technology and research has allowed the American farmer to 
become so incredibly efficient. The fact is, one man can do the 
work today that in 1974----
    Senator Tester. There is no doubt about that.
    Mr. Sell. So it is a problem, in that sense. But I would 
say, I think the general ag economy is where we need to focus. 
When there is money to be made in agriculture, people will be 
creative and come to those areas where there is money to be 
made.
    I would say even in Title I and crop insurance, we do not 
talk about crop insurance this way, but it has been a great 
rural development tool. You look at communities across this 
Nation and the local independent or farm credit agency is one 
of the drivers of the local economy. They are employing people. 
These are good jobs in rural communities.
    Ethanol is another one that has been a big driver in many 
rural communities, in the creation of new, value-added plants. 
Value-added is a term we used to throw around a lot kind of in 
ag policy debates back when I was a staffer on the House side. 
Maybe we need to get back to those times.
    But it is a tough nut to crack, as Dr. Johansson said, 
because of that great efficiency of the American farmer. It is 
a blessing in so many ways.
    Senator Tester. A blessing and a curse.
    I would just tell you this, and then I have to go. I thank 
you all for being here. Public education, family farm 
agriculture, if we lose either one, this country is changed and 
not for the better.
    So I appreciate all your work in making sure that people in 
production agriculture get a fair shake. They need to get a 
return for their investment, too.

                     LONG-TERM AGRICULTURAL OUTLOOK

    Senator Moran. Senator Tester, thank you. I am going to 
yield now in just a moment to Senator Merkley, who also has to 
depart, and then I will have all of you to myself.
    That was my plan from the beginning.
    But in response, while Senator Tester is here, you all 
responded to Senator Blunt's question about the future of 
agriculture and the bright, long-term opportunities. But does 
that translate into success in the communities that Senator 
Tester described, his hometown, my hometown? Can we take 
comfort in knowing that the economy is going to, I guess the 
way we would say it is that, so many more mouths to feed, so 
much more demand for agriculture products, does that then 
translate into a revival of rural communities across the 
country? Or is that not a given?
    Dr. Johansson. I will just point out a couple things.
    Looking out into the future, certainly we know that demand 
is going to be increasing dramatically, and we know the 
challenges to producers are also going to increase dramatically 
too, whether it is water availability or changing climate, or 
what have you. Producing that amount of food is going to raise 
some obstacles, so I think the R&D component is certainly one 
that we should keep in mind.
    But just thinking back over the last 5 years or so since 
the recession, we know that farm households have generally seen 
a rebound in their household income much faster than the 
overall U.S. household incomes have. So that is some indication 
that, while we are seeing a lot of issues that Senator Tester 
just brought up, there are opportunities out there, and off-
farm income opportunities have been growing for the average 
farm household much more quickly than they have been for the 
U.S. household in general.
    So looking forward, I think that we still look at that 
trajectory, and it is looking like one of the more positive 
aspects of the farm economy right now.
    Senator Moran. Again, I will go to Senator Merkley in just 
a moment, but one of the points I would make is that there has 
been an effort to highlight the importance and the phrase ``do 
not open the farm bill,'' crop insurance has value. I would 
remind ourselves that while we started down the path of a 
bright future, in the absence of that opportunity to hold 
things together in down times, the ability to take advantage of 
the great times that may follow disappears.
    So you lose a farmer today, you lose a farm family, another 
young man or woman decides it is not the time to come home to 
the farm. When things get good, if we have not sent the right 
message and had the necessary safety net today, the chances of 
getting them to come then, or those who have experienced 
difficult times who have left to come back, disappear.
    So if we do not do our correct policy decisions now, and we 
do not keep the policies in place that we describe as a safety 
net, our ability to take advantage of what was described 
earlier as a robust future, mouths to feed around the globe, it 
will mean a lot less for the communities that we all represent.
    Jeff.

                   NON-TRADITIONAL FARMING PRACTICES

    Senator Merkley. Just to continue this conversation, what 
we have seen in a lot of the farming communities in Oregon is a 
declining population. It is driven, as was pointed out, by the 
change in technology. There was a documentary down on the east 
side wheat farming called ``Dryland'' in Washington State, 
which is very similar to Oregon State.
    It partly tracks the community through 10 years, and each 
year revisiting the big event of the year, which is the combine 
destruction derby. Not only is that a lot of fun and the kids 
have a helluva time welding up the machines to destroy each 
other, but it represents that they have all these combines, 
because combines just get bigger and bigger and fancier and 
fancier, so there are these old ones lying around to be used.
    As those combines have gotten bigger and the amount of 
labor needed goes down, then the cafe disappears, and then the 
school merges with the next school over an hour away, so the 
schoolteachers are gone. Then the gas station starts to 
thinking about closing up business, and so forth.
    I am not sure there is much we can do about that change in 
technology, but it does change the character of our towns.
    The types of questions that I want to follow up with, which 
I will save for another time, are a range of things that are 
less macro, but things like we have a new biogas plant going in 
that is going to take advantage of a huge range of feed stocks, 
from potatoes, the fluids that I guess coming out of the potato 
plant, leftovers from the onions, and some local manure, all in 
the same place.
    I am interested in how much use of agriculture waste is 
finding more beneficial use and adding to the local economy.
    The aging of the ag economy, we are seeing in Oregon, a lot 
of the traditional economy, a lot of aging.
    We are seeing a huge influx of nontraditional or organic 
farmers, in terms of younger folks getting involved. I was 
shocked by the Department of Agriculture's numbers for the 
number of new farms in Oregon, but they are not in the 
traditional sector.
    Mobile slaughter facilities, which is something I hear 
about a lot as I rotate through the State in my town halls. I 
go to every county every year, and it comes up all the time. We 
have one mobile slaughter facility that Oregon State helped 
generate, and then one private one for chickens, but nothing on 
the cattle side. The economics of that, people are just 
spending a lot of money shipping their cattle a very, very long 
way to be slaughtered.

                        OPENING TRADE WITH CUBA

    I am also curious about your thoughts about trade with 
Cuba, given that we have this opening and kind of a new market. 
So I am excited to see what might develop there.
    But I am not going to take the time now, because I have to 
depart as well. But those are some of the different chapters of 
evolving changes in the agriculture world. I thank you very 
much for your expertise. Thank you.
    Dr. Johansson. Senator Merkley, if I might just point out 
one quick thing on the Cuba issue. I just put this slide 
together for the outlook last week. I will just mention it 
right now.
    On average, we export about $300 million worth of products 
to Cuba each year, a pretty limited set of products. If you 
compare that to the Dominican Republic, which is a country of 
roughly the same gross domestic product (GDP) and population 
size, we export about $1.2 billion, with a much wider variety 
of ag products to the Dominican Republic.
    So that just gives you a good point of comparison in terms 
of what the potential is. Obviously, it could be bigger or 
smaller, depending on a lot of other factors. But we could 
conceivably multiply our trade there by four times, if we get 
normalized relations.
    Senator Merkley. I believe that the biggest share is 
chicken fryers?
    Dr. Johansson. Yes.
    Senator Merkley. Chickens. I went down with Secretary 
Vilsack's first agricultural visit, the first trip since 1961. 
The Cubans are very, very interested in expanding. They do not 
have much money to spend, which means we have to provide 
credit, which we are not willing to do right now. So they are 
buying from other countries that are willing to extend better 
credit terms.
    So maybe that is a piece of the thawing that we can 
rethink, how to match other countries on the credit side.

                     FARM INCOME AND CROP INSURANCE

    Senator Moran. Jeff, thank you very much.
    Thank you all for joining me here this afternoon.
    I have just a series of questions that are not necessarily 
at the moment directed to anyone, in particular, but I want to 
start with the economists.
    What in your projections do you include as far as farm bill 
or program payments and revenue or crop insurance protection? 
So when we talk about falling crop prices or commodity prices, 
that does not include the safety net features of the farm bill 
or crop insurance. Is that true? We are talking just commodity 
prices in the broad sense, correct?
    So in the reductions that you all are predicting, what 
percentage of those reductions will be made better, made whole, 
by increasing farm programs or crop insurance payments to 
farmers?
    Dr. Johansson. Well, we do know that in the farm income 
numbers that I mentioned earlier, we are seeing a drop in farm 
income, farm cash income to the $90 billion level. We are 
expecting this coming calendar year, calendar year 2016, to see 
an increase in government payments by about $3 billion over 
last year. I have the numbers here, so I can pull this up in a 
second, Pat, if you want to talk about what you have in your 
numbers?
    Senator Moran. Did you say $90 billion?
    Dr. Johansson. There is net farm income and net cash income 
that are little bit different, so let me just pull up that 
exact statistic for you.
    Senator Moran. Okay.
    Dr. Westhoff. So if you look at crop years 2014 and crop 
year 2015, the actual payments for crop year 2014 were about 
$5.5 billion for ARC and PLC, so part of the drop that occurred 
was in cash receipts. To put that in context, the drop in 
overall cash receipts in the crop sector was $232 billion in 
2012 to $191 billion last year, so a $40 billion drop in 
overall cash receipts.
    Yes, ARC and PLC is making up part of that. It is not 
making up all of it, by any stretch of the imagination.
    Senator Moran. When you say not making up all, it is making 
up a very modest amount.
    Dr. Westhoff. Making up a modest share of the overall drop 
in overall cash receipts for the entire crop sector. For 
certain subsectors, it is far more important.
    Senator Moran. How would you describe that gap being 
filled? I supposed it is not with traditional crop insurance 
but with revenue protection. That would be even a smaller 
number than the farm program payments, I assume?
    Dr. Westhoff. Right. In fact, in terms of crop insurance, 
it is going to depend on the yield obviously in a given year 
what sort of payments will be occurring.
    One important aspect of crop insurance, it is not actually 
countercyclical in terms of pricing prices. It is actually 
procyclical in terms of prices. The higher the value of the 
crop insured, the more the premiums and the more the premium 
subsidies. So the actual benefit of the crop insurance program 
tends to be higher in dollar terms when prices are high than 
when prices are low.
    Dr. Johansson. And the way we would count that, certainly 
we count expenditures that the producer puts out-of-pocket 
toward purchasing crop insurance, but we do not count the 
government subsidy as a receipt to him, since we are 
essentially just covering the rest of that premium for the U.S. 
Government to provide the crop insurance subsidy.
    This figure, for example, gives you an indication of how 
farm cash income has changed over time, and the light green is 
the percentage provided by government payments.

                          AGRICULUTRAL EXPORTS

    Senator Moran. Thank you.
    Similarly, in determining the crop prices, what percentage 
of crop prices in the aggregate--I realize it would be 
different from commodity to commodity--are determined by 
exports? So when a farmer tells me, why don't we just take care 
of our own selves, take care the United States, kind of my 
standard reaction sometimes is, what 40 percent of acres in 
Kansas do we no longer want to farm?
    But I am not sure that those numbers are really realistic. 
What percentage of the commodity prices in the overall 
agricultural economy is driven by exports as compared to 
domestic consumption?
    Dr. Johansson. We have a ballpark figure of about 20 
percent to 80 percent.
    Senator Moran. Twenty percent to 80 percent?
    Dr. Johansson. So 80 percent----
    Senator Moran. And you describe that as a ballpark figure?
    Dr. Johansson. No, no, no. Meaning that 20 percent of the 
ag economy is exported, so our value-added ends up being 
exported to other countries, versus 80 percent sold within the 
United States.
    Senator Moran. Oh, I am sorry. I may end up apologizing to 
another USDA ag economist again for rudeness. I have done it 
before.
    Dr. Johansson. No, what I mean to say is that has been 
moving around a little bit in terms of whether or not it is 20 
percent or 19 percent or 21 percent.
    Senator Moran. Is that the same thing as saying that 
exports account for 20 percent of on-the-farm income?
    Dr. Johansson. I would defer to Pat on this, but I would 
say prices are sort of a nonlinear function, which is 
determined somewhat by how many stocks you have out there. So 
if you are in a very tight situation, a very small movement 
could translate into a relatively large movement in prices, 
versus the place we are at right now, we have a lot of stocks 
out there. So we can see a big movement. Whether we see 
disruption in, for example, European corn production or U.S. 
wheat production, that is not going to move prices by all that 
much right now just because we do have a lot of reserves out 
there.
    If you guys want to add to that?
    Dr. Westhoff. If you think about the corn market as an 
example, the amount of corn we feed to livestock in this 
country does vary from year to year, but it is not likely to 
change by 20 percent from 1 year to the next very often, where 
export numbers can go up and down a lot from 1 year to the 
next.
    Seeing exports are relatively small share of the overall 
market, that may help account for a large variability in 
prices.
    Senator Moran. Because of the margins.
    Dr. Westhoff. Right.
    Senator Moran. The last sale becomes more important.
    Dr. Westhoff. The last sale is the one that matters. And if 
that sale tends to vary more, it will be more important in the 
grand scheme of things.
    Mr. Sell. Mr. Chairman, I think it does vary a lot by 
commodity. Reece can talk about cotton, but I think we mill 
about 3 million bales a year in the United States. That means 
we have to export about 10 to 12 million. So you could say 
cotton is very export-dependent. The same with rice. The same 
with some other commodities. So it probably varies a lot by 
commodity.
    Mr. Woodall. Mr. Chairman, one thing I would add from the 
cattle perspective is, even though we export roughly about 15 
percent to 17 percent, the value is tremendous on what we get 
from just trying to maximize the value of the carcass. We all 
know that beef is what's for dinner. Beef tongue is not what's 
for dinner in the United States.
    So we take something that is worth a few cents a pound and 
would otherwise be used as dog food here, we can put it on a 
container and send it to Japan and create a premium product 
that the Japanese consumer is willing to pay a premium for.
    Senator Moran. What you all are trying to point out to me 
is that I cannot simplify it into this phrase that I am looking 
for.
    Mr. Moore. It is way important.
    Senator Moran. Way important, that I can say.
    I remember, Colin, in the days of trying to open the 
Japanese market to all meat products that the argument, the 
explanation, the insistence for getting that accomplished was 
that our highest quality is in great demand to Japan.
    Mr. Woodall. Those are good tongues, you know?
    But it is not just that, Senator. We are sending a lot of 
our high-quality beef around the world as well, because there 
is a demand for our beef. As we see the increasing middle 
class, we see people who have more disposable income. They want 
to eat better. They want protein. And we want to make sure we 
have the opportunity to put U.S. beef in front of them as an 
option.
    That is one of the reasons why we have spent so much time 
pushing TPP, the Trans-Pacific Partnership. For the cattle 
industry, it is an extremely good deal.
    Right now, all the product that we are sending into Japan 
is subject to a 38.5 percent tariff. TPP takes that down to 9 
percent on most cuts. And on cuts like tongue, it takes it down 
to zero.
    So when you look at the issue we have right now with the 
strong dollar, that all three of our economist friends talked 
about, we are seeing a hidden value. But if we can take that 
tariff down, that helps recover some of that cost.
    That is why we are really pushing to get TPP done sooner 
than later because Australians currently have a 10-percent 
tariff advantage over us. So we had a high of $1.6 billion in 
2014. That has eroded by about $300 million just because the 
Australian product is cheaper. When TPP is put in place, we 
will be on the same level playing field as they are, and we can 
regain some of that market access.

                      ETHANOL AND COMMODITY PRICES

    Senator Moran. Thank you.
    It was Tom who indicated that ethanol, and he is seated 
next to Colin, so I understand what circumstance I now found 
myself in, but, again, going back to commodity prices, is there 
a ballpark number that tells me what percentage of commodity 
prices--I suppose, in this case, it is grain, sorghum, and 
corn--is determined by ethanol production, is a significant 
component in determining the price of corn and grain sorghum?
    Dr. Johansson. Well, the grind right now for corn going 
into ethanol is about 5 billion bushels, give or take a couple 
100 million bushels on that. That translates into roughly 14 
billion gallons of ethanol right now.
    If we increase that by a couple 100 million gallons here or 
there, it is going to move prices of corn around by a nickel or 
less. It is not moving around by anything more than what you 
would see in a regular market fluctuation based on some report 
of dry weather in part of Brazil right now.
    So that does not move prices around all that much at this 
point, because it is a relatively mature market. You go back 5 
years ago when we were really ramping up production, and that 
was again leading to a situation where we were pulling corn out 
of stocks. Stocks-to-use was relatively tight at that point 
time.
    It goes to my point about, at certain times, you see a 
small change in demand that is going to have a big impact on 
prices. Right now, I would not characterize us as being in that 
situation.
    Mr. Moore. Mr. Chairman, I would also point out, coming 
back to something--Senator Merkley mentioned how things change. 
I am glad I am sitting all the way down from Colin.
    When corn prices shot up when they had the drought in 2012, 
soybean prices followed. We were talking with livestock 
producers. And given everyone we represent, how do we address 
this and how we keep peace within the family? We had a number 
of our producers in poultry, beef, and pork, all indicate to us 
that we would like you to get those prices down, but do not get 
carried away to the point that you screw up how we have 
changed--``we'' depending on what part of the country, but the 
dried distillers' grains (DDGs). The byproducts from the 
distilling process had essentially become an important part of 
their feeding infrastructure, their component in their feed 
sources.
    So as these things change, farmers and ranchers adapt. If 
the weather changes, Mother Nature changes, demand for labor 
changes, they are going to figure out a way to solve it. They 
get kind of cranky when you start turning around and saying we 
are going to fix this, this, and this, and throw another wrench 
into something that they sort of figured out how to deal with 
one way or the other.
    But back to what the doc was saying, when you look at these 
numbers, you are moving prices up and down a nickel or a dime 
in markets where we have lost dollars.

                        COTTON SURPLUS IN CHINA

    Senator Moran. Okay.
    Reece, in cotton, a significant part of the challenge that 
we face in cotton is a significant amount of surplus stocks in 
China, in particular, true?
    Mr. Langley. Yes.
    Senator Moran. And is there any policy decisions made by 
the United States that contributed to that circumstance? Or is 
this totally a Chinese issue?
    Mr. Langley. It is largely a result of policies that China 
has put in place over the last 5 or 6 years. We go back and 
look, and 5 years ago, China was importing 25 million bales of 
cotton globally, and they were the largest export market for 
U.S. cotton. Today, they are importing only about 5 million 
bales, and they are about our sixth largest market.
    So we have lost a huge market share there, and that is 
because they basically pulled out of the market and are 
importing only what they are required to under their WTO 
agreement. The reason for that is the 60 million bales of 
cotton stocks that are sitting in warehouses in China, which is 
the result of their own policies that they put in place when we 
saw global prices spike for all commodities a few years ago.
    So for several years now, China has been supporting their 
cotton producers, or a big portion of them, at about $1.40 a 
pound, which is more than twice the global price.
    Senator Moran. The way you describe it, is it true then 
that China is interested--they only get out of the circumstance 
that they are in. This is not a desirable place for them to be?
    Mr. Langley. That is true. They are trying to figure out 
now how to unwind this stock situation that they are in. But it 
this going to take several years to do that.

                         EXPORT INFRASTRUCTURE

    Senator Moran. In a broader sense of exports, what evidence 
do we have that we have sufficient infrastructure in place that 
allows us to export efficiently? Again, the way we started this 
conversation was about the bright future that comes with 
opportunity to feed a growing population in a hungry world.
    My view is that, in order to do that, we have to be very 
efficient in our ability to export. I think you translate 
efficiency in a number of ways, but one of the significant ones 
is transportation. Therefore, what economically do we need to 
be doing to be in a position to compete in a global economy 
when better days return, exports increase? Where are we on our 
infrastructure investment?
    I do not know whether that is an economist question or not.
    Dr. Johansson. Certainly, we looked at the railcar 
situation about a year and half ago when in the upper Midwest, 
there were a lot of capacity issues caused by a variety of 
factors. It was very cold that winter, if you recall. So a lot 
of producers in the upper Midwest were having a difficult time 
getting their commodities to either the Pacific Northwest ports 
or down to the Gulf of Mexico. So that raised some red flags 
that year.
    We saw a lot of basis effect for corn, soybeans, and wheat 
in those areas. Railcar companies, BNSF and others, have 
invested heavily in improving that condition, and I think that 
has helped a lot.
    We also obviously have the benefit in the United States of 
a very good river system for transporting our commodities down 
to the Gulf of Mexico and, of course, through the Great Lakes.
    I think there are infrastructure issues. And certainly, in 
a drought year, we will hear about the pinnacle rocks. And then 
certainly in a high-rain year, we will hear about the locks 
closing as well due to the level of the river being too high in 
certain parts of the Mississippi.
    Other than that, I know there are investments that often 
need to be made on the barge system. I know they have been 
occurring on the rail system. There is another issue on the 
West coast ports as well. There needs to be some investment 
made in some of those port facilities on the West Coast, but I 
do not have any specifics in terms of numbers.
    Senator Moran. A potential competitor today, a competitor 
today and a potential competitor in the future, is Brazil. What 
is the consequence of the expansion of the Panama Canal? Does 
that benefit us or them?
    Dr. Westhoff. Brazil is a country that obviously has 
transportation issues internally, and getting things from the 
interior of Brazil to a port has been a huge challenge over the 
last several decades. They are still moving incredible amounts 
of grain a very long distance by truck in Brazil, not the most 
efficient way of doing things. So as they are able to evolve 
their internal transportation system, that is hugely important.
    I do not think the Panama Canal is going to be where we 
move huge amounts of grain. I do not think. There will be some 
other higher value products.

                      CONSERVATION RESERVE PROGRAM

    Senator Moran. Okay. Perhaps more to the economic report, 
one of the things that caught my attention, Dr. Johansson, was 
you indicated there were falling CRP acres.
    That caught my attention because one would think, with 
declining commodity prices, that the Conservation Reserve 
Program (CRP) might be an alternative, but that is not what 
your statistics indicate.
    Dr. Johansson. I think the demand for enrolling in CRP is 
up. It is just that I believe the farm bill restricted the 
number of acres.
    Senator Moran. So it is not that there is not demand for 
CRP acres. It is that they were capped.
    Dr. Johansson. That is correct.
    Senator Moran. Okay.
    Dr. Johansson. So I think in a prior farm bill sort of 
programmatic sense, you would see increased enrollment in CRP 
taking up those acres.

                              LAND VALUES

    Senator Moran. Okay. The conversation about land values, 
which maybe this is Dr. Kauffman, but land values matter 
greatly, as far as the consequences to a credit worthiness of a 
farmer. I think the indication, at least by one or more of you, 
was that we have seen a modest decrease in land values. I would 
describe it as a much more dramatic decrease in commodities or 
farm income, commodity prices or farm income.
    How do you explain the modest decrease in farm values, in 
land values? And what would your prediction be for that in the 
future?
    Dr. Kauffman. So land values, to your point, account for a 
very large portion of the balance sheet. I think it is 
something like 85 percent of farm assets. So in terms of the 
asset side, it is important. In terms of lending, it is 
important, for bankers who are looking for collateral and other 
things. In terms of being able to provide credit, that is 
obviously an important factor.
    There are a lot of I think drivers behind why we have seen 
only a modest decline in land values. When we have talked to 
lenders and when we have done surveys and other things to look 
at this, some of those are simply the fact that the wealth that 
was generated in agriculture during those 5 years or during 
that time period was significant. So in terms of the number of 
producers that were able to deleverage, and many of them using 
cash to be able to purchase land, we definitely saw some of 
that.
    Clearly, interest rates, in terms of the amount that 
producers or their investors would need to spend on mortgage 
payments, is a different number when interest rates are at the 
level that they are.
    There are other factors I think involved in that. But I 
think those are a couple of them that we hear the most. I think 
we do hear going forward that there is likely to be additional 
modest pressure, but because of the interest that has been in 
farmland, there have not been as many sales as what we seen in 
previous years. So I think there have been a lot of folks 
sitting on the sidelines waiting to see what might happen 
before really moving back in.
    So in terms of the volume, it has been a little bit lower. 
So we have not seen the kind of pressure.
    There have not been a lot of forced asset sales. It has not 
gotten to that point, as I noted with the delinquency rates 
being low. So we have not seen the kind of forced asset sales 
that you might have seen in the 1980s that would have 
perpetuated this cycle back downward.
    Senator Moran. Is the same analysis true for cash rent?
    Dr. Kauffman. So on the cash rent side, I would also say 
that we have seen only modest reductions. There, too, there are 
a number of reasons why I think that you have seen only some 
modest changes there. I think part of that has simply been, 
again, the fact that there has been the kind of wealth that has 
been generated, so it has taken some time to get to a point 
where producers maybe have to think more carefully about their 
operation going forward.
    They have had the ability and they would be reluctant, many 
farmers would be reluctant, to give up the ability to farm that 
land, for fear of not getting it back. If they were to do that, 
so far there have been other others who have been willing to 
step in and take on that land, so it continues to be farmed.
    I think that is one of the reasons there has been a 
significant run-up on working capital, and a lot of farmers had 
the cash to be able to pay some of those things. Now the 
concern, I think, going through 2015 and into 2016, is some of 
that working capital has deteriorated. So as we go forward, 
that is why I think there is some of that expectation that you 
would need to see some of the reduction in cash rent simply 
because of the working capital.
    Senator Moran. That answer reminds me of the question about 
consolidation, fewer farmers farming greater acres. I assume 
that downtimes exacerbate consolidation?
    Dr. Kauffman. That is what we have heard, that there could 
be some pressure on consolidation from the fact that there are 
some producers who put themselves in a very good financial 
position during these very good years. They maybe have been 
careful in taking on new debt and maybe careful in terms of 
expenditures. So their breakeven costs may be lower than some 
others that had a different set of circumstances.
    So I think when you have some producers that face a 
disproportionate amount of financial stress, it is clear that 
there are others that may be looking at some of these other 
long-term opportunities that have been discussed in terms of 
profitability for agriculture and recognizing that, the saying 
is you buy low and sell high. So I think there are some who are 
looking at that as a potential opportunity, which obviously 
points to the possibility of consolidation.

                          AGRICULTURE ECONOMY

    Senator Moran. The comparison between now and the 1980s, 
the days that we all remember with such disdain, such fear, it 
is different. I do not know what it was like going into the 
1980s with what you described as the built-up reserves, the 
cash income, the income that preceded that fall. Was that 
present then?
    Dr. Kauffman. Debt measures were certainly higher going in 
through the 1980s than where we are sitting right now when we 
look at things like debt-to-asset ratios. That is certainly 
true.
    I think part of it, when you look at why things are 
different though, that is a significant part of it. Certainly, 
the leverage is not the same. Clearly, interest rates, that 
environment is different going into the 1980s and what 
inflation had looked like leading up to that. So the 
expectation, then, of what might happen with high inflation I 
think is part of that.
    So we are in a different environment as it relates to those 
sorts of things and coming off of the kind of years that we 
had. And a lot of producers remember the 1980s, so as to not 
want to repeat it.
    Senator Moran. In your analysis, did you determine that the 
president of your bank is going to prevail on increasing 
interest rates or is she going to be on the losing side of that 
debate?
    Dr. Kauffman. I appreciate that question.
    Senator Moran. You're welcome.
    Dr. Kauffman. I certainly cannot speculate as to where 
future interest rates may be.
    Mr. Russell. You know, Senator Moran, just to put it in a 
little perspective, during the 1980s, I was at USDA. I was 
Deputy Assistant Secretary for Economics and chief of staff. We 
lost 30 percent of the equity value in agriculture in a very 
short period of time, 30 percent. I mean, it was an enormous 
amount.
    We had double-digit unemployment. We had double-digit 
inflation. The prime rate went over 20 percent. It was probably 
the most difficult period we have had, and I was not there 
during the Depression, but clearly, it was a very difficult.
    As you may recall, the farm credit system needed bail out. 
It was an extremely, extremely tough period.
    I am not trying to say what we are going through now is not 
a difficult one, but, again, relatively speaking, it is one of 
these periods that it is a downturn and it will turn around.
    Senator Moran. Randy, you described the broader economy in 
those days, and that is reminder to me. As policymakers, one of 
the things that we can do that would benefit everyone, 
including agriculture, is to have a growing economy generally. 
I am often asked to visit with an industry sector and speak in 
front of a group of folks who are in the particular business, 
and I think about, well, what are their issues? What do they 
want to hear about? What do they request of Congress?
    I often take a step back to say, I think the best thing we 
can do to help your industry is to have growth of GDP, which is 
true of agriculture as well.
    Mr. Russell. To your point, Mr. Chairman, I totally agree. 
We are now entering the 10th consecutive year of sub-3 percent 
growth. We have never had a 10-year period like this since 
1929. So, I mean, that is an amazing thing.
    As I cited earlier, the difference between 2 percent GDP 
growth and 3 percent GDP growth over the next 10 years is $4 
trillion to the economy. So it is an enormous compounded 
economic benefit.

                          OIL AND INPUT COSTS

    Senator Moran. Thanks, Randy.
    Again, Dr. Kauffman, in our part of the country, the price 
of oil is an important component on both sides of the equation. 
Many of our communities in Kansas, their prosperity certainly 
rests with agriculture, but it is a different world when we are 
producing oil and gas at prices different than they are today.
    But a common question of me as a Member of Congress is, why 
has the input cost not diminished as rapidly as the underlying 
price of oil? I am looking for that two-sentence answer that I 
can provide folks who ask me that question. Does that exist?
    Dr. Kauffman. I am trying to think of how I might put that 
into two sentences. I mean, I think that, in general, you do 
tend to see prices can be sticky. That is what we see in 
agriculture, in general, to the question about cash rents and 
some other things, that we do tend to see that prices can be 
sticky coming back down.
    I am probably not the best person to speak to gasoline 
prices, as it relates to oil prices, but certainly there has 
been a pretty significant drop in gasoline prices as well.
    Senator Moran. I think maybe it was you, Dr. Johansson, 
said that the input costs have not diminished in a comparable 
way--these are my words, not yours--in a comparable way to the 
reduction in commodity prices or farm income.
    Dr. Johansson. Yes, typically you see, for a variety of 
reasons, the cost side lags a little bit. We are seeing today's 
prices for gasoline, for example, or for corn cash in the 
Midwest, and what we are seeing in terms of input prices, we 
are certainly seeing what those are in the newspaper or through 
the Agricultural Marketing Service (AMS) reports. But producers 
have those inputs on hand and they paid a higher price for 
those several months ago, or maybe over the winter. So it takes 
a while for them to go back out repurchase those inputs at the 
lower prices that are going to be available.
    So when you try to add those into a farm income statement, 
you are going to see they are selling their commodity, whether 
they forward-contracted or not, they are selling it at more 
contemporary prices relative to cash inputs that they are using 
to produce those, right? So there is a certain lag in that in 
farming in general, because you incur the costs much prior to 
the time you are getting your revenues. So I would say that.
    But there is also this phenomenon that we see across all 
sectors. Most sectors in terms of prices go up a lot faster 
than they come back down, sort of the rocket and feather 
phenomenon that you see a lot of times.
    We see this, for example, if we look at farm income from 
last year, our farm income estimate that we put out in February 
relative to what we put out in November, our final one, cost 
did decline over that time period. So we had higher costs at 
the beginning in February, when we initially estimated, 
compared to November, when we finally had a much clearer 
picture of what the tally was going to be.
    I would expect, so long as prices stay low, I mean, oil 
prices have continued to come down since November, I would 
imagine that if they stay low through the summer into the fall 
that we will see a lot of those other chemical input prices 
coming down over time over the summer as well. And by the time 
we get to November, we will likely see lower input costs on the 
balance sheet.
    So the farm income number, it is always going to log just a 
little bit. We do not really know what final prices are going 
to be for the commodities, nor do we know what costs are going 
to be.
    But typically, over the space of the year, so long as input 
commodity prices are coming down for oil, for chemical 
fertilizer, for pesticides, that type of thing, we will see 
that come down over the summer as well, and it will be 
reflected in our November numbers.

                      INTEREST RATES AND FARMLAND

    Senator Moran. I am going to bring this to end in just a 
moment, otherwise it will just become an ego trip for me to sit 
here and ask you all questions.
    In regard to interest rates, how sensitive is farm income 
to interest rates? Are most farmers leveraged in a significant 
way?
    Dr. Kauffman. So leverage is certainly lower, and Rob may 
be able to speak to the exact number. But it has been on the 
order of 15 percent or less, as it relates to a debt-to-asset 
ratio, for the last number of years. So I think you have seen a 
lot of producers take that opportunity to deleverage.
    When we look at our lending data, certainly producers have 
been advised over the last number of years to take advantage of 
low interest rates, so they have sought to lock in some of 
those lower fixed-rate loans. So I think to some extent, that 
has limited their exposure.
    As I noted, I obviously cannot speculate on the future path 
of interest rates, but I think it has been well-known that the 
path so far has been a fairly gradual process. We have been in 
this low environment for some time. So I think that has limited 
the interest expense payment of that, as it relates to 
producers.
    It is a relatively small number. We did a calculation, and 
I presented this last week at the forum, in looking nationally 
for a corn producer, as an example, if you put the interest 
expense payment in cents per bushel on corn, it is somewhere in 
the vicinity of $0.12 to $0.13 per bushel. When you compare 
that with just the average fluctuations in the price of corn 
over any given timeframe, those average fluctuations swamp the 
interest payment that is there. Again, part of that is because 
of the deleveraging but it is also because of the low interest 
rate.
    So I think in terms of what producers may stay awake at 
night thinking about, it has not necessarily been the interest 
rate side of things, partly because they are so low.
    So I think you can obviously envision an impact, but 
because the path of interest rates out there, private 
forecasters and others are looking at where we might be in a 
couple of years, I think that no one is looking at something 
that would be on the order of what we saw in the 1980s, so I 
think that has given people----

                              CROP REVENUE

    Senator Moran. In regard to the 1980s, I was thinking as we 
talked about input costs as well as commodity prices, I assume 
that our farmers today are much more--they are hedging. Their 
risks are reduced as a result of using hedging and other 
financial techniques, more than they would have been, 
certainly, in the 1930s, but I guess in the 1980s as well. Is 
that true? We are better protected for ups and downs in both 
input costs and commodity prices?
    Dr. Kauffman. There certainly is a lot, and there have been 
a lot of services that have come onboard to help offer farmers 
the tools they need for marketing. And marketing certainly has 
become a more important part I think of a producer's toolkit.
    I think one area there to think about is, as we have come 
off very good times, the 5 years of crop prices, when prices 
were only ever going up, it was in the farmer's best interest 
to wait and not hedge. So they may have learned that rather 
than hedge the crop in advance, let's say in the spring, that 
they get a better price by waiting in the fall.
    So some of what we have seen now has been, to some extent, 
less hedging, simply because in past years, it has been better 
to wait.
    So that is some of the concern. When we talk to lenders, 
certainly from a lender's perspective, cash is king, so they 
are talking about wanting to see, as it relates to working 
capital, may be more cash, as it relates to the financials. So 
there has been maybe more of a tendency more recently to wait 
and hold onto some of that grain.
    Mr. Moore. Mr. Chairman, if I could, one of the things that 
we keep an eye on, talking about the commodities that have a 
futures market product and the commodities that have the crop 
insurance product, we have a number of commodities out there 
that do not have a revenue product or any kind of crop 
insurance beyond the gap type coverage or the noninsured type 
coverage, and certainly do not have a pit in Chicago that is 
setting a price for them.
    So there is some volatility in specialty crops.
    Senator Moran. Thank you for reminding me that you are with 
the American Farm Bureau and not the Kansas Farm Bureau. 
Message received, Dale.
    Mr. Moore. I love my home State, but I have lots of----

                           LENDER EXPERIENCE

    Senator Moran. We work hard at caring about all of 
agriculture. But you did remind me I was stereotyping.
    Really, bringing this to conclusion, I read several months 
ago about reduction--that is not the way to say it. A number of 
bankers with experience are retiring. We are at that age in 
which people with experience in lending are not as prevalent as 
they used to be.
    Do you see that in your region and farmers now dealing with 
less experienced loan officers, credit specialists?
    Dr. Kauffman. We certainly do see that. In fact, there is a 
program at the University of Nebraska that tries to bring in 
young, aspiring ag lenders to be involved in the industry. So I 
do think that you see programs out there to try to get people 
involved. Some of this may go back to the earlier discussion 
surrounding some of the urban migration where some of the kids 
are looking at jobs outside of rural areas.
    I think as you see in agriculture, yes, some of those same 
trends are there. As you see aging farmers, you also see ag 
lenders. Where there is maybe some concern, just as you noted, 
as it relates to the experience, as it relates to this maybe 
being a time when they are experiencing a downturn and how do 
you lend in that environment, and what is the best way to do 
that. So I think there are people actively looking at that, but 
I think it is something that we have heard.

                       FEED LOT MARKET VOLATILITY

    Senator Moran. Colin, last question. I was mentioning about 
the $500 reduction in the feed yards. What about the cow-calf 
operation? Is there something similar going on there?
    Mr. Woodall. They have seen a reduction, but they are still 
profitable. We expect them to remain profitable.
    When you look at the feed lots, one thing that concerns us 
more than anything right now is the volatility in the futures 
market because, as we have seen this reduction, it makes risk 
management that much more important for us. When you look at 
the CNB groups, live cattle and feeder cattle futures, the 
volatility has been unbelievable.
    When you look at the fact we have transitioned away from 
open outcry trading in the pits, it is all automated trading 
now, we saw several runs in the fall where we went limit up and 
limit down without any fundamentals to drive that. So that 
means the computers are doing that.
    It has actually been a good thing for us because we have 
been able to get the attention of the CME. Terry Duffy, the 
Executive Chairman himself, came to our annual meeting to talk 
about this. We have formed National Cattlemen's Beef 
Associations (NCBA)-CME working group to look at ways we can 
address this volatility, knowing if we can bring that 
volatility down, make it more manageable, restore the faith in 
futures as an actual risk-management tool, it is going to go a 
long way in helping our feeders trying to manage through these 
next couple of years.
    Senator Moran. Do any of you have something you want us to 
know, the record to reflect, before we conclude the afternoon?
    Mr. Moore. I think it has been said, but I just want to 
thank you. I cannot remember the last time this has occurred. I 
have been in town for 30 years, and I just want to tell you I 
very much appreciate your taking this leadership and giving us 
a chance to share this with you. Tell Judd to holler at us when 
you have more questions.
    Senator Moran. Thank you very much.
    Mr. Russell. I just want to add one comment, just that this 
is as close as you are ever going to get to seeing a white 
shirt out of Dale, so thank you for having us.
    Mr. Sell. I just want to echo what Dale said in his yellow 
shirt.
    Senator Moran. He described that to me as Fort Hays colors.
    Mr. Sell. What you said earlier about the cyclical nature 
of agriculture and the goal of kind of preserving our 
infrastructure so that we can take advantage of the next good 
time is key, from my perspective. We have a unique farm sector. 
It is dynamic. It is made up of family farms. There is a lot of 
disagreement as to what that looks like, but there are not many 
of them, and they do tremendous good for this Nation.
    We have always had a policy of standing by those family 
farms through the bad times, so that we could take advantage of 
the good. It has worked to this country's great benefit.
    So I just greatly appreciate your care.

                        CONCLUSION OF ROUNDTABLE

    Senator Moran. Thanks.
    Anyone else? I think they are ready to leave, too.
    Thank you all very much for joining us this afternoon. 
Thank you for your testimony, especially for those of you who 
came from out of town. We are pleased that you did, and thanks 
for sharing your expertise. Thank you.
     [Whereupon, at 4:33 p.m., Tuesday, March 1, the roundtable 
was concluded, and the subcommittee was recessed, to reconvene 
subject to the call of the Chair.]