[Senate Hearing 115-173]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 115-173

                      EXAMINING THE FARM ECONOMY:
                     PERSPECTIVES ON RURAL AMERICA

=======================================================================

                                HEARING

                               BEFORE THE
                               
                       COMMITTEE ON AGRICULTURE,
                        NUTRITION, AND FORESTRY

                          UNITED STATES SENATE


                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION


                               __________

                              MAY 25, 2017

                               __________

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           Committee on Agriculture, Nutrition, and Forestry
           
           
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           COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY



                     PAT ROBERTS, Kansas, Chairman

THAD COCHRAN, Mississippi            DEBBIE STABENOW, Michigan
MITCH McCONNELL, Kentucky            PATRICK J. LEAHY, Vermont
JOHN BOOZMAN, Arkansas               SHERROD BROWN, Ohio
JOHN HOEVEN, North Dakota            AMY KLOBUCHAR, Minnesota
JONI ERNST, Iowa                     MICHAEL BENNET, Colorado
CHARLES GRASSLEY, Iowa               KIRSTEN GILLIBRAND, New York
JOHN THUNE, South Dakota             JOE DONNELLY, Indiana
STEVE DAINES, Montana                HEIDI HEITKAMP, North Dakota
DAVID PERDUE, Georgia                ROBERT P. CASEY, Jr., Pennsylvania
LUTHER STRANGE, Alabama              CHRIS VAN HOLLEN, Maryland

             James A. Glueck, Jr., Majority Staff Director

                Anne C. Hazlett, Majority Chief Counsel

                    Jessica L. Williams, Chief Clerk

               Joseph A. Shultz, Minority Staff Director

               Mary Beth Schultz, Minority Chief Counsel

                                  (ii)

  
                            C O N T E N T S

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                                                                   Page

Hearing(s):

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

                              ----------                              

                         Thursday, May 25, 2017
                    STATEMENTS PRESENTED BY SENATORS

Roberts, Hon. Pat, U.S. Senator from the State of Kansas, 
  Chairman, Committee on Agriculture, Nutrition, and Forestry....     1
Stabenow, Hon. Debbie, U.S. Senator from the State of Michigan...     3

                               Witnesses

Johansson, Robert, Ph.D., Chief Economist, U.S. Department of 
  Agriculture, Washington, DC....................................     7
Kauffman, Nathan, Ph.D., Assistant Vice President, Economist, and 
  Omaha Branch Executive, Federal Reserve Bank of Kansas City, 
  Omaha, NE......................................................     9
Sheffer, Alec, Director of Retail Sales, Agri-AFC, Montgomery, AL    11
Weber, Bruce, Ph.D., Professor Emeritus of Applied Economics, 
  Senior Economist, Rural Policy Research Institute, Oregon State 
  University, Corvallis, OR......................................    13
                              ----------                              

                                APPENDIX

Prepared Statements:
    Johansson, Robert............................................    40
    Kauffman, Nathan.............................................    56
    Sheffer, Alec................................................    69
    Weber, Bruce.................................................    76
Question and Answer:
Johansson, Robert:
    Written response to questions from Hon. John Boozman.........    86
    Written response to questions from Hon. Debbie Stabenow......    88
Kauffman, Nathan:
    Written response to questions from Hon. Pat Roberts..........    91
Sheffer, Alec:
    Written response to questions from Hon. Pat Roberts..........    92
Weber, Bruce:
    Written response to questions from Hon. Pat Roberts..........    94
    Written response to questions from Hon. Debbie Stabenow......    95


 
                      EXAMINING THE FARM ECONOMY:
                     PERSPECTIVES ON RURAL AMERICA

                         Thursday, May 25, 2017

                              United States Senate,
         Committee on Agriculture, Nutrition, and Forestry,
                                                     Washington, DC
    The committee met, pursuant to notice, at 10:00 a.m., in 
room 328A, Russell Senate Office Building, Hon. Pat Roberts, 
Chairman of the Committee, presiding.
    Present or submitting a statement: Senators Roberts, 
Hoeven, Ernst, Grassley, Thune, Daines, Strange, Stabenow, 
Brown, Klobuchar, Bennet, Gillibrand, Donnelly, Heitkamp, 
Casey, and Van Hollen.

 STATEMENT OF HON. PAT ROBERTS, U.S. SENATOR FROM THE STATE OF 
  KANSAS, CHAIRMAN, COMMITTEE ON AGRICULTURE, NUTRITION, AND 
                            FORESTRY

    Chairman Roberts. Good morning. I call this hearing of the 
Senate Committee on Agriculture, Nutrition, and Forestry to 
order.
    We started off this year by holding two field hearings, one 
at Kansas State University, followed by another in Senator 
Stabenow's home state of Michigan. Two great hearings. We had 
600 in Kansas. We had a smaller place but they crammed in 250-
plus.
    We were there to do one thing, and that was to sit on the 
wagon tongue and listen, and we will continue to do that. We 
listened to farmers, ranchers, lenders, cooperatives, many 
others in rural America regarding what is working, what is not 
working, what needs to be improved in the 2014 Farm Bill.
    One thing is very clear. Times are extremely challenging, 
right now, in farm country, and that is why we are here today, 
to examine the economic landscape of rural America.
    When the 2014 Farm Bill was written and passed, times were 
relatively good in agriculture, but as everyone knows, or 
should know, a lot has changed since then. At the time, net 
farm income was at record highs. In the years since, the farm 
sector is expected to face a 50 percent decline in farm income. 
Low commodity prices are continuing to weigh on farm sector 
profits for both row crop and livestock producers. It hits 
everybody. Crop receipts are expected to decline by over $42 
billion and livestock receipts over $23 billion.
    On the credit front, reduced farm income over the past four 
years has continued to weaken credit conditions in the ag 
sector. Demand for farm loans, as well as renewals and 
extensions, has increased, due to ongoing cash flow shortages, 
and prolonged tight profit margins which are creating 
additional declines in repayment rates for our farm loans.
    Right now weakness in the crop and livestock sector is 
causing producers to expend more working capital to meet short-
term obligations. Many farmers are becoming more leveraged as 
working capital is decreasing while debt levels continue to 
rise.
    Obviously, this is a trend that should be monitored very 
closely, and, if possible, reversed, but let us not forget 
there are a number of economic factors which are different now 
than what was seen during the 1980s.
    Over the past few years, we have global production that has 
exceeded global demand. The fundamentals of supply and demand 
are certainly working. At the same time, our government is 
spending money it does not have. Our national debt is 
approaching $20 trillion--that is trillion with a T. That is 
20, and then you put 12 zeroes behind it. That is hard to even 
imagine.
    Despite these difficult conditions, time and time again 
agriculture has been asked to do more with less. I would remind 
everyone in this room that the last farm bill voluntarily cut 
spending, and the previous crop insurance contract negotiation 
cut $6 billion from the program, on top of a previous $6 
billion cut from the 2008 Farm Bill. Whoever did that had some 
relationship with Lizzie Borden.
    That is why virtually everyone on this Committee agrees 
that ag has already given at the store. Farmers, ranchers, and 
rural families understand fiscal responsibility. They want to 
do their part, but now is not the time for additional cuts. We 
need to review what is working and what is not working.
    What is needed is certainly bold thinking and new ideas 
that address today's challenges in these tough times in the 
agriculture economy. We need to ensure that producers have risk 
management tools at their disposal. Let me emphasize that crop 
insurance is the most valuable tool in the risk management 
toolbox. Let me emphasize that crop insurance is the most 
valuable tool in the risk management toolbox.
    Heidi, did you get me?
    Senator Heitkamp. I did. I think it bears repeating, 
though, Mr. Chairman.
    Senator Donnelly. I second that motion.
    Chairman Roberts. Let me emphasize--would the distinguished 
new member of the Committee like me to repeat that?
    Senator Strange. Yes, please, Mr. Chairman.
    Chairman Roberts. Let me emphasize that crop insurance is 
the most valuable tool in the risk management toolbox. We need 
to find ways to reduce regulatory burdens that hurt our 
producers' bottom lines, and we need to strengthen our export 
markets for not only the things that we make but also for the 
things that we grow. I think we are making some progress on 
that front.
    As I have said before, we need a farm bill that meets the 
needs of producers of all regions and all crops. Let me 
emphasize that--all regions and all crops. The challenges are 
so great, given the critical times we live in, it is essential 
that small differences do not get in the way of a larger goal, 
and that is to pass a farm bill. Today we will take a deeper 
look and work to understand expectations of the economic 
landscape and the challenges that all regions of rural America 
face.
    I remind my colleagues that the occupation of farming can 
be a very challenging profession. Earlier this year, farmers 
and ranches from Kansas, Oklahoma, Texas, and Colorado 
experienced devastating wildfires, prairie fires, the largest 
prairie fire in the history of the country on non-Federal 
lands. It affected more than 1 million acres across the four 
states.
    On top of that, just a couple of weeks ago, a massive 
blizzard dumped over 20 inches of snow that has the potential 
to impact roughly 40 percent of the wheat acreage in Kansas. 
Our producers in other states are also facing floods, diseases, 
and poor planting conditions. These weather events, layered on 
top of the economic conditions, are exactly why it is important 
that we have strong risk management tools available to help 
producers manage during the times of loss. I think I mentioned 
the importance of crop insurance.
    We know that times are tough in the agriculture economy. 
Going forward, we can do one of two things. We could focus on 
narrow interests that do not serve all of agriculture, or we 
can work together to get things done, like we have in the past. 
This may require compromise, and all sectors of the agriculture 
economy will have to work together to achieve that goal.
    At the end of the day, our role on this Committee is to 
pass a farm bill that provides certainty, and stand stability 
to farmers, ranches, and rural communities across the country.
    I would like to thank our witnesses for taking time out of 
their valuable schedule for being with us here today. I look 
forward to hearing your testimony. But before we hear from our 
distinguished panel members, I now recognize the distinguished 
Ranking Member, Senator Deborah Stabenow for her opening 
remarks.

STATEMENT OF HON. DEBBIE STABENOW, U.S. SENATOR FROM THE STATE 
                          OF MICHIGAN

    Senator Stabenow. Well, thank you very much, Mr. Chairman, 
for convening this very important hearing today, and we welcome 
all of our witnesses. I also want to just indicate we have a 
member who has a birthday today, and I want to say happy 
birthday to Senator Amy Klobuchar. We will not ask you how old 
you are, but happy birthday.
    Senator Donnelly. Just old enough.
    Senator Stabenow. Yes, that is right. Just old enough to 
serve.
    Chairman Roberts. Who is going to lead us in that song?
    Senator Stabenow. Do you want to sing a song?
    Chairman Roberts. Well, I think it is most appropriate. Go 
ahead.
    [Singing.]
    Chairman Roberts. Stand up, Amy.
    [Applause.]
    Senator Klobuchar. Are you going to give me one of those 
portraits, unpainted? I thought that might be nice.
    Senator Stabenow. Wait. Your time is coming.
    Chairman Roberts. We just have a large picture of the crop 
insurance toolbox.
    Senator Stabenow. That is right. Yes. Yes.
    Chairman Roberts. Right next to Blanche.
    Senator Stabenow. Yes. The Chairman will give you a crop 
insurance policy. So happy birthday.
    So on that note, let me reiterate how important it is that 
we continue talking about the 2018 Farm Bill. It is hard to 
believe we are already talking about that, Mr. Chairman. But as 
you noted, we started the process by holding field hearings in 
Kansas and Michigan to hear directly from those who have a 
stake in every part of the farm bill.
    Mr. Chairman, I enjoyed hearing from producers at your alma 
mater, Kansas State University, where I wore Wildcat purple, 
and when you came to Michigan earlier this month I was grateful 
that you came sporting your best Spartan green. So thank you. 
While Kansas and Michigan farmers grow different crops, many of 
them face similar challenges. I have always said, farming is 
the riskiest business there is.
    A pre-harvest hailstorm on the ridge, or a late spring 
snowstorm, as your wheat growers in Kansas know all too well, 
can destroy an entire year's paycheck if you are a farmer.
    Similarly, the economic downturn in the farm country 
presents challenges for our producers all across the country. 
We know that farm prices for many crops--not all, but many--are 
down nearly 50 percent from their highs just a few years ago. 
Challenging market conditions have pinched margins and many 
producers are struggling to make ends meet. The U.S. has a 
diverse agricultural economy and these recent challenges extend 
to farmers in all corners of the country on farms of all sizes.
    We know that many farmers are facing hard times due to low 
prices. This is especially challenging for our dairy farms, who 
lack an adequate safety net. Specialty crop producers are 
struggling to find a stable workforce. New and beginning 
farmers are experiencing unique challenges in gaining access to 
credit in the current economic climate. All aspects of 
agriculture, including organics and local food systems need 
tools to survive these challenging conditions.
    We are also hearing that many of our small towns and rural 
communities are still facing tough economic times. Recognizing 
this slow economic recovery, the Agriculture Department has 
made historic, targeted investments in rural communities, to 
spur job and opportunity over the last several years. As a 
result, we are beginning to see small towns all across our 
country on the road to recovery. But there is much to do for 
these communities, which is why it is deeply troubling that 
this administration has proposed sharp budget cuts that would 
roll back a lot of the progress we have seen.
    Earlier this week, the Trump Administration released their 
budget proposal, which would have devastating effects on our 
farmers and rural communities. This proposal cuts $231 billion 
from farm bill programs, 10 times more than what we worked so 
hard to achieve in the last farm bill. Frankly, it would make a 
five-year farm bill virtually impossible to pass. It cuts crop 
insurance by $29 billion, which would take away a crucial part 
of the farm safety net in a time when it is needed the most.
    The budget also calls for sharp cuts to the family safety 
net, gutting SNAP by nearly 30 percent. Proposed closings of 
USDA offices would reduce customer service for our agriculture 
producers, and make their tough jobs even harder. Elimination 
of specialty crop and market access programs weakens our 
farmers' ability to recover from price slumps or pest and 
disease issues. The budget also ignores the needs of small 
towns and rural communities.
    USDA Rural Development programs support the health of our 
small towns by supporting home ownership, strengthening water 
and sewer and road infrastructure, and providing access to 
critical health and safety services. Cutting these critical 
services would have a devastating impact on rural quality of 
life and eliminate much needed jobs. I am looking forward to 
bipartisan efforts to make sure that these cuts do not happen.
    This devastating budget proposal comes on the heels of a 
USDA reorganization announcement that would eliminate the Under 
Secretary of Rural Development, a key voice for our small 
towns. While I was pleased that the reorganization included 
plans to add an Under Secretary for Trade, as required by the 
2014 Farm Bill, we have now learned it was not necessary to 
remove Rural Development from the subcabinet.
    Agricultural exports and rural development are both 
critical missions that deserve and require high-level, 
accountable, and focused leadership. The combination of 
devastating budget cuts to critical services and the planned 
elimination of the Under Secretary for Rural Development 
unfortunately sends a powerful message that this White House is 
not concerned with the needs of America's small towns and rural 
communities. I look forward to working with the Chairman and 
the Secretary and others to reverse that.
    Our farmers and rural communities have done their part to 
reduce the deficit, as the Chairman said. In the 2014 Farm 
Bill, we made responsible bipartisan reforms to cut $23 
billion. The farm economy was in a much better place, and the 
bill is still estimated to save $80 billion more than expected.
    But a lot has changed since then, and looking ahead to the 
next farm bill, we need to put our farmers and our small towns 
on the road to recovery. More than 500 groups, representing 
farmers, conservationists, rural communities, and food 
advocates wrote a letter that we should not make further cuts, 
and I agree.
    I look forward to hearing from today's witnesses and 
continuing this Committee's bipartisan process to reauthorize a 
comprehensive five-year farm bill.
    Thank you, Mr. Chairman.
    Chairman Roberts. I want to extend a welcome to our panel 
of witnesses before the Committee this morning. I believe we 
have compiled a panel that will be informative in providing an 
update on the general agriculture economy, and I am eager to 
hear testimony from all of you on this very important issue.
    Without objection, I am going to go out of order and ask 
our newest member of the Agriculture Committee, the 
distinguished Senator from Alabama, Senator Strange--Senator 
Strange is in charge of all rebounds that we may have to get, 
and we will probably have to get a whole bunch. I am going to 
ask you to--and Senator Strange has to be in charge of the 
Senate at 10:30. No small task. So to introduce our next 
witness, or our third witness, Alex Sheffer, I am going to turn 
to him.
    Senator Strange.
    Senator Strange. Thank you very much, Mr. Chairman. I will 
be happy to handle the rebounds for you. It is not a problem. I 
appreciate the courtesy. I am honored to serve on this 
critically important committee for our state and for the 
country, and I am very honored to introduce Alec Sheffer to our 
witness panel today.
    Alec is here--he serves as Director of Retail Sales for 
Agri-AFC. It is based in Montgomery, Alabama. He is a graduate 
of Auburn University, where he studied agronomy before 
beginning a 40-year career in the ag retail industry. In 
addition to his day job, he has served as past President of the 
Alabama Agricultural Chemical Association, and serves as a 
board member of the Alabama Agribusiness Council as well.
    He lives in Prattville, Alabama with his wife, Carol, and 
is the father of three children and seven grandchildren.
    I want to thank Mr. Sheffer for traveling to be with us 
today and I look forward to your testimony, as do my 
colleagues, and I will--I shall return, as they say, shortly, 
to ask my questions, Mr. Chairman. So thank you very much for 
the courtesy.
    Chairman Roberts. I thank the Senator. The other witnesses, 
in order, Dr. Rob Johansson. Rob serves as the Chief Economist 
for the U.S. Department of Agriculture. In that role, Dr. 
Johansson is responsible for the Department's agricultural 
forecasts and projections, as well as advising the Secretary on 
the economic implications of alternative programs, regulations, 
and legislative proposals. He serves as Chairman of the Federal 
Crop Insurance Corporation Board--I am just pausing for effect 
here--and is also responsible for the World Agriculture Outlook 
Board, the Office of Risk Assessment and Cost Benefit Analysis, 
and other economic initiatives.
    Dr. Johansson received his bachelor of arts in economics 
from Northwestern University and his master of science and 
Ph.D. in agriculture economics from his home state's land grant 
at the University of Minnesota.
    Welcome, and thanks for being here today, Dr. Johansson.
    Our next witness is Dr. Nathan Kauffman, from the Federal 
Reserve Bank of Kansas City. Dr. Kauffman serves as an 
Assistant Vice President and Omaha Branch executive for the 
Federal Reserve Bank of Kansas City. In this role, he serves as 
the bank's regional economist and is the Kansas City Fed's lead 
expert in agriculture economics. Dr. Kauffman oversees several 
bank and Federal Reserve System efforts to track agriculture in 
rural economics, including the quarterly publication of the 
10th District Survey of Agriculture Credit Conditions and the 
Federal Reserve System's Agriculture Financial Data Book.
    Dr. Kauffman received his Ph.D. in economics from Iowa 
State University, home of the Fighting Cyclones.
    Thanks for being with us today, Dr. Kauffman.
    We have had the introduction by Senator Strange of our next 
witness.
    For our final witness we have Dr. Bruce Weber. Dr. Weber is 
Professor Emeritus of Applied Economics at Oregon State 
University, and the former Director of Oregon State 
University's Rural Studies Program. He is currently a Senior 
Economist with the Rural Policy Research Institute. His 
research focuses on upward mobility in rural and urban areas, 
rural and urban economic interdependence, the impacts of social 
safety net programs and the impacts of federal forests in rural 
development policies on rural communities.
    Thank you for being here with us here, Dr. Weber.
    Dr. Johansson, why don't you proceed?

   STATEMENT OF DR. ROBERT JOHANSSON, CHIEF ECONOMIST, U.S. 
           DEPARTMENT OF AGRICULTURE, WASHINGTON, DC

    Mr. Johansson. Thank you, Mr. Chairman, Ranking Member 
Stabenow, and the members of the Committee. I am pleased to 
have this opportunity to discuss the farm and rural economy in 
the United States today. I have submitted a detailed statement 
for the record and so I will direct my comments to focus on a 
few main themes. First, what is the current farm financial 
situation; second, what is the outlook for production and 
prices in 2017; and finally, what are the prospects for ag 
trade.
    First, financial stress continues in the agriculture 
sector, with income expected to remain flat in 2017 and credit 
continuing to tighten. Based on the prices we projected earlier 
on this year, in 2017, we expected to see net cash income rise 
slightly in 2017, but net farm income, a broader measure, to 
fall, although the change is relatively modest compared to 
previous years.
    Since that first farm outlook in February, our expectations 
for many crop prices have changed to be a little bit lower. 
Currently the low prices for wheat and rice did spur a decrease 
in area, in terms of planting intentions, which, coupled with 
regional adverse weather effects, as you mentioned earlier, has 
sparked a modest rebound in expected prices for the coming crop 
year. However, corn and soybean price expectations have 
weakened.
    Livestock production is expanding fractionally more than 
initially anticipated, but despite large supplies, prospects 
for prices in 2017 have improved. Milk price expectations for 
2017 are lower than initial estimates but are expected to 
rebound in 2018.
    The continuing strength of farmland values has kept farm 
assets high, but we have seen land values and cash rents 
recently declining. Evidence suggests moderate declines in land 
values will continue into 2017. As a result, we are seeing an 
increase in debt-to-asset ratios, though, in aggregate, they 
are rising slowly and still remains low by historic standards. 
For some farm businesses, however--wheat, cotton, poultry, and 
hogs, in particular, or those with higher shares of rented land 
and those with younger operators--debt-to-asset ratios are 
generally higher and they will be most vulnerable to low 
commodity prices.
    Commercial loan demand remains high while loan repayment 
rates continue to weaken, as I am sure Dr. Kauffman will 
discuss. Demand for Farm Service Agency loans this year has 
seen only a small 6 percent decline from last year's $6.3 
billion record level, with an increase in delinquencies of only 
about 1 percent in the last 12 months. Fixed and variable 
interest rates have been increasing for farm loans but remain 
low again by historic standards.
    Farm budgets are expected to tighten into the 2017-18 
season. However, with flat commodity prices and an expectation 
of more normal yields, unlike the records we saw last year, we 
expect to see financial conditions continuing to tighten.
    Farm bill programs will help some producers, with payments 
under the ARC and PLC programs expected to increase from $8 
billion for crop year 2015 to $9.8 billion for crop year 2016, 
before falling off in the final two crop years of the 2014 Farm 
Bill.
    In addition, nearly 90 percent of all major crops are 
covered by crop insurance--pausing for effect----
    [Laughter.]
    Mr. Johansson. --with coverage for other crops increasing 
as new crops and policy types are added. An expected 4 percent 
rise in median farm household income as a result of continuing 
increases in off-farm income will provide some support as well.
    Cotton and dairy producers, as mentioned, have had more 
limited farm program support. Cotton producers have had the 
option of purchasing supplemental crop insurance coverage 
through STAX, but most have found it not beneficial, with less 
than 30 percent of cotton acres covered by STAX policies in the 
last two years. Dairy producers enrolled in the Margin 
Protection Program paid premiums of more than $20 million for 
2016 coverage, but only received about $11 million in payments. 
Estimates for 2017 are for another year of minimal or no 
payments under the MPP program, as feed costs remain low 
relative to improving dairy prices.
    Second, producers are responding to tepid price signals by 
reducing and reallocating acres. The backdrop to the 2017 
outlook is similar to last year, with generally softer 
commodity prices, tighter producer margins, and flat farm 
income. Producers in the United States and other countries did 
respond to the high prices in 2008-12 by increasing plantings 
and production, and after four years of record or near record 
production, stock levels for many commodities have risen and 
are expected to rise again for soybeans and wheat.
    Given favorable global harvests and ample stocks, we expect 
crop prices to remain flat into 2017-18, as I mentioned. Based 
on the NASS survey of farmer intentions in March of this year, 
U.S. planted acres for the eight major crops is expected to 
decline by two million acres this year, as narrowing margins 
push some acres out of production.
    Low wheat prices resulting from large domestic supplies and 
large crops among our global competitors resulted in record low 
winter wheat seedings this year--32.7 million acres. Prospects 
for better returns in some crops, notably cotton and soybeans, 
resulted in an expected reallocation of acres with producers, 
increasing soybean acreage to 89.5 million acres and cotton to 
12.2 million acres.
    We can easily observe what farmers are facing by looking at 
crop budgets for places like Kansas. Based on the Kansas State 
Extension crop budgets for northeast Kansas, soybeans, with an 
expected return at $65 an acre, offer the best opportunity for 
a positive return, compared to only $15 an acre for corn and 
negative returns for wheat and sorghum. The budgets offer 
insight into producer options, and we saw Kansas farmers plant 
a million fewer wheat acres this last year, offset by 
intentions to plant nearly a million more acres of soybeans and 
100,000 more acres of corn. We have seen record plantings of 
corn and soybeans expected this year in North Dakota, Nebraska, 
and Kansas.
    All right. I am running out of time so I am just going to 
go to my summary and turn it over to Nathan.
    Finally, we expect the global economy to see continued 
recovery, improving prospects for trade. Expanding export 
opportunities for U.S. farm products is critical for the 
agricultural economy. U.S. ag exports account for about 20 
percent of the value of U.S. ag production, rising even higher 
for some commodities, about 50 percent for soybeans, wheat and 
rice; 75 percent for cotton, and 90 percent for crops like 
almonds.
    Trade is not only important to U.S. farm incomes but to the 
broader U.S. economy. USDA estimates that each dollar of U.S. 
farm exports produces an additional $1.27 in economic activity, 
and every $1 billion in ag sales overseas supports about 8,000 
American jobs.
    In summary, some commodities may see improving returns. 
Interest rates and energy prices remaining near historic lows. 
Export values are projected up. Median farm household income is 
expected to rise. But, nevertheless, the ag sector will 
continue to adjust to lower prices for most commodities, both 
in the U.S. and abroad. The net effect of this financial stress 
over time is difficult to forecast, but certainly we might 
expect consolidation in some farm sectors, certain regions, and 
movement of the most leveraged operators out of farming.
    A key component of measuring that change will be the NASS 
Ag Census, which is going to be put into the field this 
December. We expect results to be available at USDA's 
Agriculture Outlook Forum in February of 2019.
    Mr. Chairman, that concludes my opening statement. I am 
happy to answer questions and follow-up questions that you may 
have now, or later for the record. Thanks.
    [The prepared statement of Mr. Johansson can be found on 
page 40 in the appendix.]
    Chairman Roberts. Doctor, we thank you. We turn now to Dr. 
Kauffman.

  STATEMENT OF DR. NATHAN KAUFFMAN, ASSISTANT VICE PRESIDENT, 
ECONOMIST, AND OMAHA BRANCH EXECUTIVE, FEDERAL RESERVE BANK OF 
                     KANSAS CITY, OMAHA, NE

    Mr. Kauffman. Thank you and good morning, Chairman Roberts, 
Ranking Member Stabenow, and members of the Committee. Thank 
you for the opportunity to testify today.
    My name is Nathan Kauffman and I am an economist and Omaha 
Branch executive with the Federal Reserve Bank of Kansas City, 
a regional reserve bank that has long devoted significant 
attention to U.S. agriculture. In my role, I lead several 
Federal Reserve System efforts to track the agricultural 
economy with a focus on farm finances and agricultural credit 
conditions. Our bank is committed to including perspectives 
from rural America in discussions on the national economy, and 
I am here to share recent developments in the U.S. farm sector.
    Before I begin, let me emphasize that my statement 
represents my views only and is not necessarily that of the 
Federal Reserve System or any of its representatives.
    At a high level, the U.S. farm economy has weakened notably 
over the past several years. The primary cause of the downturn 
that began in 2013 was a sharp drop in agricultural commodity 
prices and this remains a top concern in the agricultural 
community today.
    In a recent survey of agricultural banks, conducted by the 
Kansas City Fed, about 85 percent of lenders in our region, in 
the Central United States, identified the current environment 
of low commodity prices as a leading concern. In addition, 
while agricultural commodity prices have dropped sharply and 
remain low, farm sector input costs have declined only 
gradually and profit margins generally have remained weak.
    Reduced profitability has gradually intensified the level 
of financial stress among farm borrows. Nationally, debt-to-
asset ratios and farm loan delinquency rates have edged higher 
over the past year, but only slightly. Federal Reserve data 
also show that the rate at which farm loans are being repaid 
has fallen steadily in each of the past four years, alongside 
persistent increases in borrowers' financing needs.
    The degree of financial stress in the farm sector, however, 
has varied regionally. In the first quarter of this year, 
nearly 60 percent of agricultural bankers surveyed in Colorado 
and western portions of Nebraska, Kansas, and Oklahoma, 
reported that loan repayment rates had fallen from the previous 
year. This is a region that is highly concentrated in cattle 
and wheat production. In contrast, only 25 percent of 
respondents in the eastern portion of our district, a region 
that is more concentrated in corn and soybean production, 
reported lower repayment rates.
    Other measures of agricultural credit conditions in our 
region tell a similar story and are consistent with other parts 
of the country. This is to say financial stress in the farm 
sector has increased more significantly in regions where 
cropland is generally less productive and in regions 
concentrated in markets that have been particularly weak, such 
as cattle and wheat, for example. In other areas, strong crop 
yields last fall resulted in cash flows that were better than 
expected, and financial conditions have been more stable 
recently in those regions.
    In a similar vein, farm real estate values have also 
declined in the past few years, but only at a modest pace, and 
regional disparity has also been notable. Federal Reserve 
surveys show that the average value of high-quality cropland 
has fallen by about 10 to 20 percent since 2013, in states with 
a high concentration of crop production. Since the beginning of 
2015, however, farmland values have decreased more 
significantly in regions where the land is considered to be 
less productive, or where the local farm economy has weakened 
more dramatically.
    Despite regional variation, the relative strength in farm 
real estate markets has likely shielded the farm economy from 
potentially more severe financial stress, since farmland 
accounts for more than 80 percent of the farm sector assets, 
and is an important source of collateral for other farms. The 
strength in land values has given agricultural lenders some 
opportunities to work with borrowers by restructuring loans and 
requesting additional collateral in response to heightened risk 
in their loan portfolios.
    To briefly summarize, the U.S. farm economy is in the midst 
of a prolonged downturn, and financial stress in the farm 
sector has risen gradually over the past two years. Despite 
recent signs of stabilization in some areas, farm income has 
continued to decline overall, due to persistently low 
agriculture commodity prices and elevated production costs. 
Alongside the reductions in farm income the past four years, 
agricultural credit conditions have weakened steadily and farm 
real estate values have trended lower. In general, I expect 
these downward trends to continue in the near term as global 
supplies are likely to continue to weigh on agricultural 
commodity prices and profit margins.
    Although a farm crisis does not appear imminent, some 
regions appear to be notably weaker than others, and there are 
still risks that could lead to more widespread challenges in 
the coming years.
    This concludes my formal remarks and I would be happy to 
answer questions at the appropriate time. Thank you.
    [The prepared statement of Mr. Kaufmann can be found on 
page 56 in the appendix.]
    Chairman Roberts. Thank you, Doctor.
    Mr. Sheffer.

STATEMENT OF ALEC SHEFFER, DIRECTOR OF RETAIL SALES, AGRI-AFC, 
                         MONTGOMERY, AL

    Mr. Sheffer. Good morning, Chairman Roberts, Ranking Member 
Stabenow, and distinguished members of the Senate Ag Committee 
on Agriculture, Nutrition, and Forestry. Thank you for allowing 
me to testify in regard to America's farm economy.
    My name is Alec Sheffer and I serve as Director of Retail 
Sales for Agri-AFC, headquartered in Decatur, Alabama. At Agri-
AFC, our roots have been firmly planted in the Southeast since 
2003. With offices in Georgia, Mississippi, Florida, and 
Alabama, we have made a name supporting crops of all varieties. 
From cultivation to harvest, our goal is to provide an 
abundance of information and resources to help guide farmers.
    I also appear before you today on behalf of Agriculture 
Retailers Association. ARA advocates, influences, educates, and 
provides services to support its members in their quest to 
maintain a profitable business environment.
    America's retail farm suppliers have been hit hard by the 
downturn in the agricultural economy over the past decade. 
There are a growing number of factors that have led to this 
decline, including a steep drop in farm commodity prices, 
increased regulatory burdens, and market uncertainty. However, 
we are confident these winds are beginning to shift. We believe 
Congress will make changes in the upcoming farm bill to help 
strengthen the safety net provided by crop insurance programs 
and assist in improving conservation efforts.
    Secretary of Agriculture Sonny Perdue, testified before the 
House Agriculture Committee last week and I was heartened to 
hear that, despite the steep drop in commodity prices and 
market uncertainty, he was hopeful rural America will 
strengthen in the coming years as the United States Department 
of Agriculture looks to improve existing safety nets for 
farmers and ranchers.
    As referenced in my written testimony, USDA's Economic 
Research Service reported a dim outlook for farm profits. Other 
indicators of a weakening farm economy include a decline in 
farm credit access while the demand for loans remains strong, 
creating a higher uncertainty level among America's farmers. In 
addition to declining farm revenues, USDA ERS predicts a 
decline in crop cash receipts. This means safety nets through 
USDA are crucial in making sure our industry receives full 
support.
    I fully expect your committee will work swiftly to ensure 
these gaps are filled when crafting the upcoming farm bill. We 
also feel it necessary to push for comprehensive tax reform to 
help agriculture retailers and their farm customers. In 
addition to a full repeal of the estate tax, we believe it 
equally important for Congress to preserve policies which will 
help keep farm businesses intact and families in agriculture.
    U.S. farmers and ranchers understand and appreciate the 
roles of taxes in maintaining and improving our nation's 
infrastructure, but believe the most effective tax code is a 
fair one. For this reason, we respectfully request that any tax 
reform legislation considered in Congress will strengthen the 
business climate for farm and ranch families while ensuring 
agriculture businesses can be passed to future generations.
    The ag community also understands the need for 
infrastructure improvement, especially in rural America. Roads, 
bridges, ports, locks, and dam systems all play crucial roles 
in our delivery of essential farm inputs. Additionally, 
expansion of broadband infrastructure throughout rural America 
is sorely needed. From precision agriculture technology to 
rural health care needs, a greater and more robust broadband 
network will mean more effective, efficient, and safer farm 
communities.
    Farmers continue to be America's best stewards of land 
conservation and work diligently to follow best management 
practices when applying pesticides and fertilizer. The 
legislative, regulatory, and judicial landscape is vastly 
different from what the agriculture retail industry experienced 
decades ago.
    In the past eight years, federal regulators completed 
hundreds of major rules that have impacted many sectors, 
including agriculture. The EPA has targeted several important 
crop protection products over the years in an attempt to remove 
these important compounds from the marketplace. Our industry 
asked the new administration and EPA reset the process to be 
based on sound science and a predictable registration and 
regulatory review process.
    Another regulatory burden for ag retailers has been EPA's 
assessment of National Pollutant Discharge and Elimination 
system, under the Clean Water Act, which is the result of a 
Federal court ruling in 2009. The court invalidated decades of 
precedent and congressional intent of EPA regulation and 
created a duplicative permitting system. Additionally, we 
support the administration plans to review and restructure 
WOTUS rule, promulgated under the last administration.
    As a farm retailer, I am confident that improvements to 
safety nets in the upcoming farm bill, free and fair trade for 
agriculture producers and consumers, tax reform, infrastructure 
improvements, and changes to the regulatory landscape hindering 
farm production will all contribute to once again growing farm 
economy.
    Thank you for your continued commitment to supporting 
America's agriculture industry and I look forward to your 
questions.
    [The prepared statement of Mr. Sheffer can be found on page 
69 in the appendix.]
    Chairman Roberts. Thank you very much for your testimony. 
All the way from Oregon, Dr. Weber. Thank you for coming. Did 
you use the Oregon Trail to get here through Kansas?
    Mr. Weber. I did not. Alaska Airlines provides a very 
direct route here.

  STATEMENT OF DR. BRUCE WEBER, PROFESSOR EMERITUS OF APPLIED 
 ECONOMICS, SENIOR ECONOMIST, RURAL POLICY RESEARCH INSTITUTE, 
             OREGON STATE UNIVERSITY, CORVALLIS, OR

    Mr. Weber. Thank you, Chairman Roberts, Ranking Member 
Stabenow, and Committee members. I am honored to offer 
testimony today. I hope you will find this useful as you 
develop the Rural Development Title of the farm bill.
    I would like to begin with four fundamental structural 
realities that drive the future of rural America and the farm 
economy. These are discussed in greater detail in my written 
testimony.
    Number one, the incomes of farm families, and thus the 
health of the agricultural sector, are very dependent on the 
health of rural communities. This is because most farms get 
most of their income from off the farm.
    Number two, each rural community is unique, and a diverse 
set of non-farm sectors provide the primary economic base for 
most rural counties.
    Number three, the health of rural communities is very tied 
to urban centers, and rural economic health requires 
increasingly strong connectedness with urban centers.
    Number four, and critically, rural communities face 
inherent structural challenges due to their small populations, 
their low density, and their remoteness. This Committee has 
long recognized this, as you have developed a remarkable set of 
programs tailored specifically to address these challenges.
    My colleagues here at the table have discussed the 
structural challenges in the agricultural economy and the farm 
programs, how they can address these challenges. I would like 
to discuss the challenges facing the rural economy and how the 
Rural Development programs can address these challenges.
    The takeaway is that place-based federal rural investments 
have stimulated income and job growth and reduced poverty in 
rural areas. Several recent studies support this conclusion. 
USDA economists, Reeder and Pender, have recently analyzed the 
impact of Rural Development projects funded by the Delta 
Regional Authority in distressed Mississippi delta counties. 
They found that income and earnings grew more rapidly in these 
counties--in the DRA counties, than in similar, non-DRA 
counties.
    In some of the ongoing research that I am involved in, 
there is some preliminary evidence that spending by the USDA 
Rural Development Agency on business and economic development 
loans have increased employment and reduced poverty. A 
colleague of mine at the University of Missouri and I are 
finding that counties that received more of these RD loans 
during the 2000-2010 decade had lower poverty rates at the end 
of the decade, controlling for other factors that might affect 
poverty. Research currently underway with colleagues at Penn 
State University and Texas A&M Galveston show a positive impact 
of these same programs on employment growth over time.
    In closing, I would like to suggest some specific examples 
of rural investments that I believe are important for rural 
people and places, based on my 40 years of studying the rural 
economy.
    First, as Mr. Sheffer has eloquently noted, accessible and 
affordable high-speed broadband connections are now essential 
for rural economic development and are critical infrastructure 
investment for rural places.
    Second, food assistance is a different kind of investment 
in rural America that not only provides a safety net for 
vulnerable people but also is a significant boost to the 
economies. ERS research on the impacts of the SNAP program, for 
example, suggests that $1 billion in SNAP payments generates 
over $100 million in farm income and over 3,300 farm jobs, as 
well as $1.8 billion in total economic output in the overall 
economy.
    Finally, as the Pender and Reeder study shows, regional 
approaches that use federal place-based investments to leverage 
other public and private sources of funds can increase income 
and jobs in rural communities.
    Chairman Roberts, Member Stabenow, and members of this 
Committee, the rural development programs that you have 
developed over many decades have had a significant positive 
impact on America's rural communities. Many of these programs 
are currently at grave risk. This is a critical moment for the 
Senate to exercise leadership in ensuring that rural 
communities have the supports that they need to thrive as they 
face the future.
    Thank you for the opportunity to testify today, and I will 
be pleased to answer any questions you might have.
    [The prepared statement of Mr. Weber can be found on page 
76 in the appendix.]
    Chairman Roberts. Thank you, Doctor.
    Dr. Johansson, and also Dr. Kauffman, well, for that 
matter, the whole panel, during consideration of the 2014 Farm 
Bill, the farm sector, as has been stated, experienced high 
commodity prices, record net farm incomes. But as you have all 
testified since then, we have seen our commodity prices 
received by producers drop drastically--corn, 43 percent; 
soybeans, 31 percent; wheat by 40 percent, and that will 
probably go up with the freeze we have just had; and cattle by 
16 percent. Obviously we see the trend.
    Since that time we are also expected to see net farm income 
drop by 50 percent. Certainly the ag economy is in different 
shape than it was back when the 2014 Farm Bill was being 
considered.
    So my question, as we again work on our next farm bill, 
give me the top three factors, or two factors, in the 
agriculture economy that we should be considering, given this 
trend that everybody is talking about and the word 
``prolonged.'' I just wrote that down. I do not like prolonged. 
I do not know any farm that likes prolonged.
    But at any rate--and I am not sure that is going to happen. 
I know Brazil is exporting more soybeans than we are, but 
Brazil is doing exactly what they do all the time. They are 
changing leadership. That is a problem if you are going to be 
trading with Brazil. Russia is exporting more wheat. Who knows? 
Maybe they will have wheat mosaic next year.
    But we are making progress with China, opening it up to 
beef, and I think other products--1.4 million people, or a 
billion people--it is hard to keep track there. Then, Bob 
Lighthizer, our new trade rep, actually mentioned, in one 
sentence, the repair of NAFTA and strong bilateral agreements 
with the TPP countries. First time anybody in the 
administration ever mentioned TPP and bilateral together. What 
a wonderful idea.
    So if you could just list for me maybe the two or three 
things that you think are most important that this Committee 
should address.
    Mr. Johansson. Well, I will just start with, as you 
mentioned, stock levels right now are much higher relative to 
use globally, relative to last time the farm bill was being 
negotiated. That means that we are in a very flat price 
environment. As you mentioned, there are ways that we can see 
prices rebound. Whether we have some supply side stock in some 
major producing part of the globe, or if we do start expanding 
trade quickly, those will also push prices up. But for right 
now, relative to 2014, stocks are relatively high.
    So back then the farm bill pivoted towards counter-cyclical 
types of Title I programs. This time, as you consider farm bill 
programs, certainly the Title I programs would be one that I 
would look to, in terms of the fact that counter-cyclical 
programs may have to be re-examined when we have flat prices 
relative to volatile prices.
    Secondly, as you had mentioned, crop insurance programs 
changed quite a bit in the last farm bill. We added whole farm 
revenue, which has been popular. We added STAX, which is not 
popular. So as you look forward, to new Title II programs, I 
think you are likely to see the ability to make some 
adjustments there.
    I will leave land values and financial credit to Dr. 
Kauffman. I will just also mention that on the dairy side, the 
new program for dairy margin protection has not been very 
popular with the dairy sector, and so I imagine there will be 
opportunities to look at changes to the dairy programs as well.
    Chairman Roberts. Dr. Kauffman, would you like to add?
    Mr. Kauffman. I will mention two factors from the 
perspective of credit conditions, and I would say first is that 
we have seen some deterioration in liquidity. So we have seen 
persistent cash flow shortages the last several years, demand 
for financing. As profit margins have remained weak we have 
seen liquidity decline. That would be the first, is just 
monitoring the trend in liquidity.
    We have not seen it turn into an issue of solvency, partly 
because of farm real estate values. Farm land values have 
remained relatively strong in most areas, although I would cite 
that as a second area where, if we did see more rapid declines, 
then we could start seeing more balance sheet problems for farm 
options as debt-to-asset ratios could rise further from there.
    Chairman Roberts. What about--what do you see about the 
possibility--you mentioned the land values, but if those start 
to tail off, and with the price situation the way it is, and 
Mother Nature not behaving herself, on a whole series of 
things, and if we become stagnant on these efforts with NAFTA 
and China and other bilateral agreements, I am very worried.
    Back in the 1980s, I just called them the regulators, from 
our Federal Government, came marching into our small community 
banks and they did not practice mark-to-market. They had a 
certain criteria, and it was that or whatever happened, and it 
was not very good.
    Do you foresee anything like that happening, and if it 
does, can we get some forbearance with regards to the 
regulators that do come in?
    Mr. Kauffman. I cannot necessarily speak to the forbearance 
question. What I will say is that most banks have remained 
pretty well positioned. A lot of banks have taken fairly 
conservative approaches in recognition of the declines in 
commodity prices, maybe limiting loan-to-value ratios as an 
example. They have remained pretty well capitalized. Returns 
have been fairly strong.
    So we have not seen delinquency rates on ag loans rise to a 
point where it has gotten to be problematic and, in fact, most 
banks are still doing quite well in that regard. So I would say 
that it has been a gradual increase in financial stress but it 
has not yet gotten to the point where I think it would become a 
problem.
    Chairman Roberts. That is certainly good news. Thank you.
    Senator Stabenow.
    Senator Stabenow. Thank you, Mr. Chairman, and thank you to 
each of you for your testimony today.
    First, Dr. Weber, when we are looking at the massive cuts 
that have been proposed by the administration--21 percent 
reduction across the board at USDA as well as $231 billion in 
farm bill programs. Food assistance would be cut by $193 
billion, and over 40 different Rural Development service 
programs would be eliminated--I wonder if you might speak about 
the impact of those cuts on the farm and rural economy?
    Let me first say, I grew up in a Northern Michigan small 
town and know how, as you speak about the broader question of 
quality of life is so important. My mom was Director of Nursing 
at a small hospital that is certainly financially stressed 
right now, and I know if the hospital closes, the largest 
employer is gone along with all, the doctors. There is a whole 
range of things that relate to our quality of life in a small 
town. Rural development and other investments are part of the 
way we invest in small towns.
    I wonder if you might describe if anything near the kinds 
of cuts being talked about were to happen, what would be the 
impact on the farm and rural economy?
    Mr. Weber. Senator Stabenow, I would like to focus on two 
particular impacts of the kinds of cuts that you have talked 
about. The Rural Development programs, as you know, provide 
both consistent funding and an infrastructure that allows 
regional development approaches to succeed in rural places, and 
there is not another agency in the Federal Government that 
could do that if that agency is reduced and eliminated, and if 
the funds that are available to support their infrastructure, 
their workforce, and their programs is reduced.
    You also mentioned SNAP, and the SNAP program provides 
demand for farm products, as well as providing a safety net for 
vulnerable people. So cuts in either or both of the safety net 
programs of SNAP and the Rural Development programs would have 
negative effects on the capacity of rural communities to do the 
kind of--to provide the kind of qualify of life that you 
experience.
    Senator Stabenow. Well, as you are saying, SNAP--helping 
people who need temporary help with food is a win-win, because 
the people who make the food----
    Mr. Weber. Right.
    Senator Stabenow. --get paid because somebody is purchasing 
food, and the people who need the food are able to get the 
temporary help when they are in a bad situation as well. So you 
agree that is a win-win situation, for farmers and families.
    Mr. Weber. Absolutely.
    Senator Stabenow. Thank you.
    Let me turn now to Dr. Johansson and talk about a mutually 
favorite topic of crop insurance. You may have noticed that we 
have a very strong belief on this Committee and we moved, in 
the last farm bill, away from payments to farmers when times 
were good to risk management tools like crop insurance and 
conservation. Voluntary conservation efforts allow farmers to 
be able to manage the land and water on their operations, which 
is becoming an even greater risk management tool.
    In the last farm bill we expanded insurance options to more 
crops, such as fruits and vegetables which are important in my 
state. We are now seeing a lot of potential for another part of 
our farm economy that insurance providers, and dairy producers 
to be able to receive the help along with other commodities. 
You indicated 90 percent of our commodities were covered under 
crop insurance. I would like to see that be even higher, and I 
join with the American Farm Bureau, National Milk Producers and 
National Farmers Union in supporting something we put into the 
last appropriations bill, indicating that Congress supports 
expanding crop insurance for dairy farmers.
    So I wonder if you might talk about the impact of crop 
insurance both to the farmers' bottom line, and its importance 
in terms of the availability of credit in these difficult 
times.
    Mr. Johansson. Those are great points that I certainly 
tried to get some more research on, in terms of the linkage 
between a strong crop insurance portfolio and availability of 
credit, whether that is better terms on credit or actual 
primary availability of farm loans. So that is something that I 
think is generally accepted across research institutions, and 
we are just trying to get some more data out there to support 
that, sort of what people take as conventional wisdom, that 
certainly when you go in to seek farm loans, bankers often 
assume that you have crop insurance, and most producers do. 
When we start looking at different coverage levels, we would 
expect to see higher coverage levels be associated with likely 
better terms on those loans. So that is something we are 
looking at.
    Senator Stabenow. The Chairman is asking me, and I was 
about to ask, as well, when do you expect to have that data in? 
It would be very helpful for us to have that data.
    Mr. Johansson. At the meetings this summer in Chicago, the 
Agriculture and Applied Economics Association meetings being 
held at the end of July, we have a session on that, and 
hopefully we will have some papers coming out from that 
conference that we can share, that will be available online 
very soon.
    Senator Stabenow. Thank you.
    Mr. Johansson. As you mentioned, we also expanded, or we 
have been expanding crop insurance to other commodities. In 
particular to your state, we have been increasing coverage for 
specialty crops through different products that we see coming 
through the Federal Crop Insurance Corporation Board. In 
addition, of course, FSA also has the buy-up option now for the 
non-insuranced crops as well.
    In liability last year, 4 out of the top 10 insured 
commodities were specialty crops, including almonds, grapes, 
nursery, and including whole farm, with a combined liability of 
$9 billion, so that is about 10 percent of total liability in 
2016. So that has been growing really well. In addition, the 
specialty crops also have been buying up on the Non-Insured 
Crop Disaster Assistance (NAP) buy-up option since the last 
farm bill.
    So improvements in the ability to extend those products to 
new crops. We see new ones coming in all the time. Of course, 
we will see if we see some more livestock and livestock product 
insurance products coming through as well.
    Senator Stabenow. Thank you.
    Chairman Roberts. Senator Grassley.
    Senator Grassley. Thank you, Mr. Chairman, and also I would 
like to put a statement in the record, since I had two other 
committee meetings this morning.
    Chairman Roberts. Without objection.
    Senator Grassley. I do not want to take time to read that.
    Senator Grassley. My first question would go to Dr. 
Johansson and Dr. Kauffman. We have read your testimony. It 
seems that you are portraying farmers as holding on right now 
financially. I am particular struck by Figure 2 of Dr. 
Johansson's testimony, that shows the share of farms, by crop, 
that are highly leveraged, with debt-to-asset ratios between 41 
and 70 percent, and the more concerning, very highly leveraged 
farms with debt-to-asset ratios above 70 percent. With that 
sort of ratios, I would think more pressure would exist for 
input and land costs to correct for profitability to return.
    So two questions. Why do you think land values and cash 
rents are declining so much slower than farm income, and are 
there any specific factors that you can point to? Are outside 
investors keeping land prices high, is just one example?
    Mr. Johansson. That is a great question. I think a lot of 
people are looking at that issue. Obviously we see cash rents 
and land values being a little bit more sticky on the way down, 
due to the nature that often times those contracts, certainly 
on the cash rent side, are a little bit longer term, so you 
have a three-year term on your contract. We would expect to 
see, and we have seen that, cash rents to start coming down a 
little bit more and I think that will help the bottom line for 
a lot of producers that are renting land. We have about 50 
percent of our crop land that is rented.
    As you mentioned, it is not coming down as quickly, so I 
think there are some reasons for why that is, in addition to 
the contracting length. There has been institutional investment 
in land. You often find good farmland still securing fairly 
high returns when it comes up. Oftentimes you do not see land 
coming on the market as fluidly as you see other commodities 
coming on the market, so when something does come up, there are 
still producers out there that do have cash resources, and of 
course, interest rates are very low, to be able to purchase 
that land. Looking forward into the future, it is seen as a 
fairly good investment.
    Some parts of the country, as Nathan had mentioned, are 
seeing land values continuing to increase. So you do see, in 
some parts of, for example, in Texas, land values continue to 
increase, perhaps reflecting the strength in the cattle sector.
    So I will stop there and see if Nathan has additional 
comments.
    Mr. Kauffman. I will mention just a couple of things in 
response to that. I think first is to recognize just the scale 
of wealth that had been generated during the really good times 
in agriculture. So you have had a lot of farm operators that 
had the capacity to add additional land and have really moved 
that market forward. A lot of farmers also recognize that there 
are limited alternative investment options available to them, 
and so they have a propensity to want to buy land as part of 
their operation, as they look at the long term.
    I think that there has been some outside investment, so the 
demand side has still been relatively strong. On the supply 
side for land values, there really just has not been a lot of 
land on the market, because I think most farmers would prefer 
to try to hold on to the land to the extent that they can. We 
have not seen a lot of forced asset liquidations that would 
push a lot of land onto the market. Going back to my previous 
comment, I would say that is probably something that if we did 
start to see more of that forced asset liquidation, it would 
lead to potentially more problems.
    Senator Grassley. I think my last question would be just to 
you, Dr. Johansson.
    Many crops have seen prices decline since the 2014 Farm 
Bill. Rice and wheat seem to have been hit the hardest, 
followed by corn and soybeans. Of course, we all wish we were 
as lucky as cotton farmers right now, with it being fairly 
high.
    As we approach the next farm bill, we have a look at 
numerous policy options. The 2014 Farm Bill has PLC and ARC. So 
my question relates to the nuances in both programs, like 
really highly referenced prices for few crops under PLC, and 
county-by-county yield variability under ARC, that make 
comparative effectiveness very hard.
    So the question is, which program is better in the long run 
for farmers considering WTO impact, planted acres distortions, 
that create price gluts and a lot of other examples that I 
could give you?
    Mr. Johansson. So as you mentioned, wheat and rice are good 
examples where we have seen prices appear to have bottomed out 
and start to come back in recovery. Part of that is due to the 
fact that producers have pulled out of those acres and plant 
fewer of them. As you mentioned, we have seen corn and soybeans 
weakened a little bit, also since the beginning of 2017. As you 
mentioned, cotton has seen very robust sales this past year, in 
exports. Prices are relatively high. We are seeing producers 
put in a lot more acres of cotton this coming year, so we are 
expecting to see prices reflect that and to come down in the 
2017-18 crop year.
    If you look at other commodities where that price response 
has not been what we might expect from just market 
fundamentals, you would have to look at peanuts, for example. 
So we have seen prices for peanuts coming down since the last 
farm bill yet acres have been going up. So there are a number 
of reasons for that, but certainly one might be the fact, as 
you pointed out, that the reference price for peanuts is 
relatively high compared to current market prices, and the 
ability of peanut producers to take advantage of generic base 
acres. So that is one area where we have seen that sort of 
normal price response and acreage response not follow what the 
market fundamentals might be.
    Senator Grassley. So, then, what about the fact of--in 
regard to WTO impacts?
    Mr. Johansson. Well, certainly we are well within our 
commitment levels for WTO, in terms of our aggregate measure of 
support. Going forward, we certainly want to respect all of our 
WTO commitments. One of the movements, certainly in U.S. farm 
policy over the previous farm bills, has been a movement away 
from market distortions, movement towards programs that are 
decoupled from planting decisions and production decisions.
    I would imagine that the committees, as you take into 
account the next debate going into the 2018 Farm Bill, to 
certainly consider keeping to those trends, in terms of moving 
away from market-distorting policies and towards keeping with 
programs that are decoupled from planting decisions.
    Senator Grassley. Thank you, Mr. Chairman.
    Chairman Roberts. Senator Klobuchar.
    Senator Klobuchar. Senator Heitkamp was here first.
    Senator Heitkamp. Thank you, Amy. Thank you, Mr. Chairman.
    I just want to follow on a little bit on Senator Grassley's 
question, but it is more kind of a request. I think sometimes 
when you look at land prices and land values, the question that 
I have been asking is what percentage of agricultural property 
is actually owned by the producer, whether it is a cattle 
producer or whether it is a commodity producer? We have been 
trying to get a number in North Dakota. We think it is only 
about 25 percent. Now some of that land could be family-held 
land, where you are farming Grandpa's homestead, or family 
land.
    But I think that the distance of land ownership from 
agriculture has had an impact on whether people are willing to 
look at farm adjustments. I think if you own an apartment 
building in New York, you do not expect prices--rent to go 
down, but if you own farmland, that farmland has to fluctuate 
with commodity prices. You know, understanding supply and 
demand, you still have supply. You know, demand for the land 
out there, eventually that is going to reach some kind of 
equilibrium.
    But I think it is a complicating factor, from when I was 
growing up in my small town of 90 people, watching the 
adjustments. I think it has been a major change.
    I want to just point out, none of you have painted a 
particularly optimistic view of what is going to happen with 
farm income in the next certainly short term, and maybe even 
long term, as we move into maybe a sustained lower commodity 
price environment. Does anyone on this panel want to offer 
defense of the budget that the President just released, saying 
that is going to really encourage increases in farm income and 
actually meet the challenges that we see going forward?
    [No response.]
    Senator Heitkamp. Nope. I did not think so.
    You know, obviously, one of the things that we are failing 
is to get people to appreciate and understand that food 
security is national security, that we have challenging times, 
and this is the last thing we want to do, which is pull the 
string on crop insurance that is going to unravel our 
opportunities to basically continue to produce the highest 
quality, lowest cost food in the country.
    I am particularly concerned about the average age of 
farmers, and about what we can do, going forward. I guess this 
is for Mr. Johansson and Mr. Kauffman. As you look at the aging 
of farmers, which could lead to consolidation, which could lead 
to, I think, an outcome that none of us would want, can you 
tell me what additional programs you could recommend for 
beginning farmers that would help them through this patch and 
encourage them to actually come forward, or stay in the farm 
business?
    Mr. Johansson. Well, certainly we are seeing, based on the 
most recent survey that NASS put out, called the TOTAL survey, 
some better information coming out regarding transition in 
farming, in terms of types of land that is owned and how that 
land is turning over to the younger generation. We had 2014 
Farm Bill provisions that provided some assistance to new and 
beginning farmers in securing crop insurance, also securing 
some loan--additional loan availability for new farmers.
    In terms of new programs that might also target that 
transition, I would suspect that those types of provisions 
would still be very useful to producers as they get into 
farming or as they take over operations from their parents.
    Senator Heitkamp. Mr. Kauffman?
    Mr. Kauffman. The first thing I will mention, from the 
credit side, is just the demand for FSA guarantees that is out 
there right now. That has been pretty strong the last couple of 
years, and so that is one of the tools that would be in the 
toolbox for young and beginning farmers.
    Senator Heitkamp. But we have to convince them that they 
are not mortgaging their future.
    Mr. Kauffman. Right.
    Senator Heitkamp. You know, offering them more credit may 
not be the sole solution here. They need to be offered more 
income.
    Mr. Kauffman. Sure. So the other area that I would go to, 
then, is from an education perspective. Some of the areas that 
our lenders have recognized specifically would be in the areas 
of marketing and finances, and also in risk management. More 
and more lately, the past couple of years, lenders have 
required more well-defined risk management practices as part of 
their lending operation on a regular basis. So those things, I 
think, providing some assistance, could be useful.
    Senator Heitkamp. I think Mr. Weber--Dr. Weber wanted to 
comment.
    Mr. Weber. Yes. The thing I think is important to recognize 
is that particularly small farmers and beginning farmers get a 
lot of their income from off the farm, and the healthy rural 
community is maybe the best way of protecting incoming and 
beginning farmers, because the stability that it provides.
    Chairman Roberts. Well, thank you, Senator Heitkamp, for 
reading all those questions that I wrote for you.
    [Laughter.]
    Chairman Roberts. Just as an observation--and Senator 
Strange, I will recognize you in just a moment--I was trying to 
remember when we, in the Senate, paid close attention to a 
President's budget. I think it was back when Reagan was 
President. I remember we did have a vote in regard to the 
previous administration's budget one time. I think it was 100 
to zip, not in favor.
    Senator Heitkamp. Two votes.
    Chairman Roberts. Oh, two votes. Okay. Well, they are no 
longer here.
    Now, listen. Do not go running off.
    [Laughter.]
    Chairman Roberts. We were trying to get an OMB economist 
here. The word came back they were afraid that you and I were 
going to hold him hostage, so we did not get an answer here 
from these people here, but that is the only reason. I am sure 
there is an OMB economist that we could find that could defend 
the budget, especially with regards to agriculture. I am not 
talking about everything else. But I just wanted to let you 
know that.
    Senator Heitkamp. Well, I am excited to meet that person.
    Chairman Roberts. Well, okay. We will have him report to 
your office.
    Senator Heitkamp. Thank you. Thank you, Mr. Chairman.
    Chairman Roberts. You bet. Senator Strange.
    Senator Strange. Thank you very much, Mr. Chairman. I want 
to address my question to Mr. Sheffer, if I could, and I 
apologize for having to step out earlier.
    This is sort of a multi-part question, but it is on a topic 
of very great interest to me. As you look across the sales and 
service area that your company serves, in the Southeast and 
Alabama, I wish you would talk about the role of cotton 
production as it relates to the company you work for. From your 
perspective, what is the impact of declines in the cotton 
acreage, the producers that your company serves, and how does 
that decline affect the industry's infrastructure? How 
important is it to have a safety net policy for cotton to help 
producers where there are periods of low prices?
    Mr. Sheffer. I can speak to the area that I mentioned, in 
our company's market geography, Georgia, Alabama, and southern 
Mississippi. In the last few years we have seen commodity 
prices fluctuate, be very volatile, and our growers are very 
apt to make a decision on planting at the time they are ready 
to pull it into the field. So planting a crop for inputs has 
been very hard for our growers to do, whether it is cotton, 
peanuts, soybean, corn growers, wheat.
    The cotton growers, as a commodity, are like all our 
commodity growers. They have felt the volatility of these price 
swings and they have an infrastructure on their farm that has 
been built around a cropping system, and it has caused some of 
our growers to make major shifts, to change direction, to 
become more grain oriented, to put storage facilities in to 
store grain, where they did not have it before. Now, with the 
uncertainty of pricing, they now are looking at having to 
switch back and make decisions. It also puts a burden on the 
retailer, such as myself, trying to supply inputs to those 
producers. As they are making decision, how do we best prepare 
to serve them?
    So I think the volatility of the commodity pricing for the 
grower has been throughout, and I think safety nets, for some 
stability in the upcoming farm bill, is much needed for all our 
commodities. Cotton, as you mentioned, would be greatly 
benefitted by safety nets.
    Senator Strange. Fantastic. Let me ask you, in my remaining 
time, another question relating to an interest that I am sure 
share with you. You are a graduate of a great ag research 
institution, Auburn University. I would like to know what you 
think, as we address the upcoming farm bill, are things that we 
can think about to improve ag research to meet the needs of our 
farmers and ranchers across the country, as we look at our 
research institutions.
    Mr. Sheffer. A great question. Our land grant universities 
provide--have provided for years, and still provide, a 
tremendous amount of information flow for our growers and our 
producers throughout the country. Again, in my geography, 
Georgia, Auburn, LSU, Mississippi State, just to name a few--I 
am leaving a few out--but they are providing good information, 
current information about the new genetics of the seed as we 
move into the next realm of seed development. Our growers 
depend on land grant institutions for their farming decisions, 
for their cropping decisions.
    So I think in retail, such as mine, we provide agronomy 
staff that do research ourselves, and working in coordination 
with the research units at Auburn and Georgia, we can help 
combine some efficiencies in the future.
    Senator Strange. Well, I appreciate your company providing 
jobs to some of these graduates, too, and I know you do that as 
well.
    Finally, for the benefit of the Committee and the Chairman, 
if you would not mind just giving us your view on how Alabama's 
farmers have fared over the last several years. The Chairman 
has very clearly described the economic conditions. How have 
Alabama's farmers, given our diverse ag economy, fared, 
relative to farmers and ranchers in the rest of the country?
    Mr. Sheffer. I can only speak to our growers in the area I 
am in, but I would say that we probably have fared equally 
challenged in the marketplace over the last few years, as 
growers have, I am sure, in other areas, whether they be in the 
Midwest or the West Coast, citrus growers, vegetable growers in 
Florida. It has been a very volatile time in terms of trying to 
access funds for their operations. Retailers have been put in 
positions to try to help be a gap for some of that, and it has 
put retailers at risk.
    I think the Alabama farmers, the Georgia farmers, too, have 
been pushed hard, and the retailers as well, over the last few 
years, and we look forward to seeing those times behind us in 
the rear view.
    Senator Strange. We do too. Thank you very much, Mr. 
Chairman.
    Chairman Roberts. Good questions. I appreciate that very 
much, Senator Strange.
    Senator Donnelly, I give you a unique choice.
    Senator Donnelly. That never ends well, sir.
    Chairman Roberts. What has happened here on the Committee 
is that we had a celebration of Senator Klobuchar's birthday, 
so the Chair ignored the seniority rule, or the appearance 
rule, in terms of recognition. I recognized her, and she, being 
the kind of person she was, yielded to Senator Heitkamp.
    Senator Donnelly. Yes.
    Chairman Roberts. So my question----
    Senator Donnelly. So let me get this right, sir. So your 
choice is I can either be a really awful person and go, or 
yield my time to Senator Klobuchar. Would that be about--sum up 
the situation?
    Chairman Roberts. I would not describe it in that way, no.
    [Laughter.]
    Chairman Roberts. I do not think ``awful person'' will ever 
be the----
    Senator Donnelly. No, I think that is what people would 
think. I think that is pretty accurate.
    Chairman Roberts. No, I----
    Senator Donnelly. See, my colleague from North Dakota said, 
``That is probably correct.''
    Senator Hoeven. I concur with that analysis.
    [Laughter.]
    Senator Donnelly. Thank you. So, you know what? I am going 
to yield to my amazing colleague from Minnesota.
    Chairman Roberts. Happy birthday, Amy.
    Senator Klobuchar. Okay. Thank you, Mr. Chair. I will do 
the same for Senator Donnelly on his birthday. I promise.
    Thank you for holding this important hearing. I think so 
often, as we focus on the details and the minutiae of the farm 
bill, we forget the overall economic picture, and I appreciated 
your analysis, Dr. Kauffman, of what we know of the changes, 
and what many of us with the commodity prices, what many of us 
have seen with the poverty issues, with kids in small towns, 
and what we are continuing to see with the digital gap having 
more and more of an impact as we go on, as more and more 
business is done that way.
    I have met people in small towns with businesses that 
literally are turning business away because they just cannot--
they are not able to either get the workers or they are not 
able to have the Internet capability to actually do what is 
required, so I appreciate this hearing.
    I share the Chair's support for crop insurance and concern 
with the elimination of the--some of the crop insurance 
protections that have been discussed. I wanted to focus some on 
rural development. Dr. Weber, in your testimony, you discussed 
how the programs offer some of the most important place-based 
investments. Where should this Committee focus when thinking 
about support for different types of rural investments, like 
broadband?
    Mr. Weber. Thank you, Senator. A couple of places, it seems 
to me. Thinking about the fundamental challenges that rural 
communities face is the place I would start. The kinds of 
investments that the USDA makes in rural places allow the 
connections to urban places that make them more successful, 
provide the stability and the capacity to generate regional 
approaches to economic development that support the rural 
communities in those areas.
    I think it is important to emphasize the infrastructure 
that is created by the workforce in USDA Rural Development, and 
other organizations like the Regional Development Commissions, 
provide both the funding and the deal-making capacity, which 
allows rural communities to thrive.
    Senator Klobuchar. Can you talk about the potential 
challenges of not having an under secretary at USDA focused on 
rural development, which is the proposal now?
    Mr. Weber. Right. I think the proposal, basically, to 
distribute the current things that are done by the under 
secretary to other agencies really would make it very difficult 
to focus on the needs of rural communities. The thing that USDA 
has is the capacity to understand these and develop culturally 
appropriate programs in these areas. Other agencies do not have 
that. Not having an Under Secretary for Rural Development would 
mean that the focus that is needed for rural communities would 
disappear.
    Senator Klobuchar. Very good. I think not very good that 
would happen, but very good in your answer, because I think so 
many times people do not see that interconnection with farming 
but also with all of the other development that goes on in 
rural areas, and especially the interconnection, whether it is 
making sure there is a pharmacy or a hospital, but also making 
sure that the farm equipment repair shop stays in business, or 
the distributor stays in business.
    One last question, Mr. Johansson. By the way, you have the 
perfect last name for having attended the University of 
Minnesota. Thank you very much for that, in a Lake Wobegon 
fashion.
    Minnesota poultry producers faced economic losses of $650 
million following the 2015 outbreak of avian influenza. As you 
know, we are number one for turkeys in our state, and I will--
okay, that was unnecessary, Senator Hoeven. It is a fact. It is 
a North Dakota little snide laugh.
    Last September a new poultry testing lab opened in Willmar 
to enhance our state's ability to more efficiently diagnose and 
respond. As you know there is some fear of some outbreak 
occurring in other states right now. Can you talk about how we 
are preparing ourselves to reduce the likelihood of economic 
impacts from livestock disease, in general?
    Mr. Johansson. Well, that is a great question. You know, 
certainly R&D is one area that I think we have learned that it 
is important to invest in, regarding livestock diseases, but 
also our response and producer response has been improved 
dramatically since 2015. We saw that--while we have seen some 
minor outbreaks this year, the containment was much more rapid. 
Producers have improved their biosecurity quite substantially 
on the poultry operations, so that has helped from the producer 
side. On the USDA side, certainly we have been quicker about 
imposing depopulation around those areas.
    So from the poultry side, I think we have learned a lot 
from the 2015 experience. Extending that outwards to other 
livestock diseases, I think there are lessons to be learned as 
well, and certainly when we think about whether it is vaccine 
banks, that type of thing, the Secretary, I am sure, is going 
to be looking towards that, having his background in the 
veterinary sciences.
    Senator Klobuchar. Okay. Very good. Thank you.
    Chairman Roberts. Senator Hoeven.
    Senator Hoeven. Thank you, Mr. Chairman. For all of our 
witnesses, I think you have testified and you would agree that 
with low commodity prices and a strong dollar it is tough time 
for ag. Everybody agrees with that; correct? That the 
projection for this year that it is going to be a tough year 
for farm income as well. Does anyone disagree with that, or 
want to elaborate?
    [No response.]
    Senator Hoeven. Okay. So the question then becomes, what do 
we do about it, and I want each of you to weigh in, in regard 
to crop insurance, support for crop insurance, the importance 
of crop insurance to our producers; our PLC, the counter-
cyclical safety net; ag research; and trade, programs like PL 
480, Food for Peace, and Dole-McGovern. Because my contention 
is that all of these are very important, in terms of supporting 
our farmers, meaning that they have to be funded in the budget 
and they have to be authorized in the farm bill.
    I would like each of you to weigh in on those four--crop 
insurance, counter-cyclical safety net, ag research, and trade, 
in particular, some of the programs like PL 480 and Dole-
McGovern.
    Mr. Johansson. So I will take a quick start and leave lots 
of time for my colleagues on the panel. But certainly we 
understand the importance of crop insurance. Going into the 
last farm bill, I think one of the reasons why the Committees 
moved to more of a counter-cyclical Title I programs was due to 
the success of the Title II programs in dealing with the 2012 
drought.
    So I think that is a very good illustration of why crop 
insurance is such an important tool for producers. We did not 
see any requests for ad hoc disaster assistance in that year. 
We saw despite the fact that we had a historic disaster on 
hand, that the crop insurance program was able to deal with 
that and provide producers with the type of support they needed 
in getting through that year.
    Moving on to ARC/PLC, we certainly know that the programs 
are, I would say, working as they were engineered in the last 
farm bill. As prices have come down, the ARC program has 
provided producers with a cushion as those prices have come 
down, and we know that the Olympic year average is going to 
catch up to the ARC program by the end of the farm bill. 
Whether or not costs have come down as much as prices have come 
down in that time period, we will wait and see. Certainly, as 
you pointed out, the financial conditions are tight for farmers 
right now. We cannot count on a record yield, like we had last 
year, for years going forward. We have to expect trend yields.
    Research and development. Certainly we know that R&D is a 
great investment in agriculture. We know that it has been flat 
over the last five, six, seven years. We know that if we invest 
more in basic R&D for agriculture that it is going to provide 
larger returns in the future. Obviously, R&D expenditures and 
investments take a while to come to fruition. So we know that 
dollars we invest today are going to come back and improve 
productivity down the road, but certainly I think that is an 
important component.
    Of course, trade is always something that we know is 
critical for the farm sector. We export at least 20 percent of 
ag production, but a lot higher for crops coming out of the 
Northern Plains, for example. We export about half of our 
soybeans, globally, and about half of those are just going to 
China. So we know that trade is going to be an important focus 
going forward, and I know that the administration, certainly, 
at least, the Secretary, has made that a key component of his 
focus going forward, as he takes over at the Department.
    Senator Hoeven. I would like each of the four of you to 
finish your comments with yes or no on whether we need to 
strongly support these programs in the budget and the farm 
bill. Yes or no on all four before you--and any other comment 
you make, but I want a yes or no on that one.
    Mr. Johansson. Certainly. I think those are all important 
components of the farm bill and they should be supported.
    Senator Hoeven. Thank you.
    Mr. Kauffman. Unfortunately, I cannot make specific policy 
recommendations but I will respond to each of the four. In the 
first two, for crop insurance and the safety net programs, 
specifically to recognize that when it comes to availability of 
credit, certainly the ability to limit the downside risk that 
producers have weighs into the credit decisions, and I think 
most lenders would require crop insurance in many places, as 
part of that risk management profile.
    As I mentioned earlier, with a requirement for more well-
defined risk management strategies, crop insurance and other 
things are certainly part of that.
    Speaking to the ag research side, I think looking at this 
from the supply side and recognizing that we have had several 
consecutive years of really strong yields that has, obviously, 
improved the productivity, the efficiency, and cash flow for 
many producers. So it has given them opportunities to be able 
to improve on the revenue side.
    But then to the trade piece, as Dr. Johansson mentioned, 
certainly that is a key component for our demand for 
agricultural products. So recognizing what we can get in terms 
of the gains on the supply side through research, and that can 
happen in many different ways, but then also recognizing the 
importance of opening at markets and trade from the demand 
side.
    Mr. Sheffer. From the retailer point of view, I would say 
that yes is the answer to all four of those different segments. 
We would recommend for you to support crop insurance, ag 
research, safety nets, and the trade.
    From the ag research side, I will mention--I think I 
mentioned it in the written and the oral, but the need to look 
at improving broadband Internet service in rural areas. 
Precision agriculture, over the last several years, has grown 
the acres for our producers, in my geography, in my market 
area, and the limitations of Internet access is certainly in 
play in the rural areas, and we need to see improvement in 
that, so more growers could have more access to two things, 
like precision ag and specific application of the fertilizers 
and seed and those applications that growers in other areas are 
taking advantage of. It would be a huge benefit for us.
    So I would say yes to all four.
    Senator Hoeven. Thank you. Dr. Weber?
    Mr. Weber. My colleagues here can speak much more 
knowledgeably to the effects of these programs you mentioned 
than I can. I would just say that in order for agriculture to 
succeed in America, a strong farm economy is really important, 
but it is also important to recognize that a strong farm 
economy depends on the rural communities. So some attention and 
resources to support the rural communities in which farms live 
is also important.
    Senator Hoeven. So you want to add rural development to 
that mix.
    Mr. Weber. I would, indeed.
    Senator Hoeven. I sense that. Thank you, Dr. Weber--and it 
is important.
    Chairman Roberts. Are you ready?
    Senator Donnelly. Ready to go.
    Chairman Roberts. Senator Donnelly.
    Senator Donnelly. Thank you, Mr. Chairman, and I want to 
add on to the Chairman's comments about crop insurance and how 
incredibly important it is, what a good tool for risk 
management it is. We need to have a strong crop insurance 
sector in the farm bill. I have done a farm bill listening tour 
around the state, and this is a subject that comes up time 
after time. You are right on target with that, Mr. Chairman.
    Mr. Sheffer, you testified about a number of things that I 
frequently hear, from Hoosiers in rural communities, 
particularly those who are farming or running small businesses. 
I wanted to ask you about the importance of making sure we have 
got the right conditions in place for our rural communities to 
thrive, especially when it comes to broadband, that you have 
talked about, which is critical for our businesses, but the 
importance of access to health care and education, so that 
people can live in a place where they can raise healthy 
families.
    Can you tell me what it would be like for a small business 
owner to try to operate a business in a community without 
broadband access, without access to high-quality health care, 
and without strong educational opportunities?
    Mr. Sheffer. We have that----
    Senator Donnelly. Right.
    Mr. Sheffer. --in Alabama and other areas of my geography, 
that I am familiar with. It is very difficult and it is heart-
wrenching to see the disadvantages that are there, and what 
opportunities--with opportunities, what rewards and investments 
might yield over a period of time, with individuals that 
certainly have the potential to take advantage of the same----
    Senator Donnelly. Are not those the kinds of building 
blocks that you look at and say, if this town, if this county 
had these, it could really take off?
    Mr. Sheffer. You see that, and you see the potential in the 
farming community to be able to take advantage that. Companies 
like mine, and others, we invest--that is one reason we have 
taken the position of investing ourselves in staff that create 
value for those that may not be able to access it themselves. 
We have agronomists on staff that pull information so those 
that cannot gather it themselves, we can provide it to them, a 
precision ag staff.
    So we have made investments and try to take it to those 
areas that have potential. Yes, sir.
    Senator Donnelly. Mr. Weber, you testified about your 
research into the positive link that exists between the USDA's 
Rural Development investments and lowered rates of poverty. Can 
you talk a little bit more about how infrastructure investments 
in rural communities can create a positive feedback that 
increases opportunities for residents, can reduce poverty, and 
makes it a little easier for rural communities to grow?
    Mr. Weber. Senator, one of the things that you mentioned 
earlier was the importance of rural health care, and I guess 
what I would like to highlight in this response is the regional 
rural approaches that are taken by such agency organizations as 
the Delta Regional Authority; the finding in the Pender and 
Reeder paper on the more rapid growth in the DRA counties than 
in the non-DRA counties really focused on the impact that 
investments in health care had on that growth.
    So, in part, the capacity of these communities in this 
region to work together and to develop a strategy that was not 
just focused on small businesses but on the infrastructure as 
well, appeared to be responsible, in part, for the differences 
in the DRA and the non-DRA counties.
    I guess that is a long answer to----
    Senator Donnelly. No. Thank you. Dr. Johansson, you 
testified a lot about the record crops and production levels 
coming from reforms. I would like to highlight the growing 
importance of exports for our farmers, especially in a 
situation where we can help feed a growing world.
    Can you talk about how important it is to have consistent 
and predictable rules for farmers when they are looking to 
export their products, especially to markets like China, where 
they still have not allowed imports of poultry products for the 
last several years?
    Mr. Johansson. Well, yes, we know the importance of trade. 
We have been expanding our trade value since the '50s, and 
certainly a lot more since NAFTA went into place, and then, 
again, with the advent of clear trading rules under the WTO 
agreements. So having the ability to both expand our markets 
into the countries we are in right now but also open up new 
countries and lower our trade barriers is certainly one that, 
as an economist, I would say benefits both trading partners, in 
general. I think evidence backs that up, particularly for 
agriculture.
    As we know, our farms are becoming more productive every 
year. Certainly we can use that production domestically. We 
have seen a burgeoning market for a lot of organic products. 
But for our general row crop production and livestock 
production, we need to find export markets to sell that 
additional productivity to.
    So I think it is clear that improving our access to China 
is an administration priority, as well as to try and, as had 
been mentioned earlier, to go after bilateral agreements with 
some of the other Asian countries that we have been discussing 
as part of the TPP negotiations. Certainly improving access to 
our trading partners to the north and south is important as 
well to look at. We certainly can make inroads into dairy, 
poultry, and eggs with Canada and Mexico.
    Senator Donnelly. Great. Thank you. Thank you, Mr. 
Chairman.
    Chairman Roberts. Senator Daines.
    Senator Daines. Thank you, Mr. Chairman, and I want to 
thank Chairman Roberts for holding this hearing, and also for 
joining me in Montana next week. I think the Chairman is very 
well aware that within the beltway there is not a lot of ag 
going on. There is not a lot of ag going on within the beltway 
here in D.C., but there is in Montana.
    Chairman Roberts. Well, there is quite a bit going on 
inside the beltway with regards to ag, that I am not very happy 
with.
    Senator Daines. Perhaps the south end of a cow going north. 
But I----
    Chairman Roberts. Well----
    Senator Daines. --but thank you for coming out to Montana 
next week to be part of our ag summit.
    Chairman Roberts. We are going to give the reins to Daines.
    Senator Daines. Thank you. I like it.
    As you all know, the state of the ag economy has declined 
significantly, relative to where it was during the time the 
last farm bill was negotiated, and unfortunately Montana has 
not been spared. Our commodity prices are low, in some cases 
historic, inventories high. Net farm income has declined about 
50 percent over the last few years. This makes getting an 
effective farm bill completely in a timely manner all the more 
important.
    Prior to coming to the Hill, I spent 28 years in the 
private sector, a lot global businesses, and the reality is 95 
percent of the world's consumers live outside our borders, and 
particularly in light of low commodity prices, declining farm 
incomes, the importance of trade and the ability to access 
foreign markets for long-term growth in ag I do not think can 
be overstated.
    In fact, towards that end, six weeks ago I had the 
opportunity to lead a congressional delegation to China. We had 
four U.S. Senators, two members of the House. I hand-delivered 
four Montana steaks--and not just Montana steaks, from Mile 
City, Montana, steaks, from Fred Wacker's ranch, to the Chinese 
premier, Li Keqiang, to emphasize the importance of opening 
that market to U.S. beef.
    I was thrilled to hear when President Trump and President 
Xi met in Florida in early April they had U.S. beef for one of 
their meals. They had a chance to talk about the importance of 
U.S. beef and access to China, the world's second-largest beef 
import market.
    I am pleased to see the progress. I am optimistic about the 
substantial progress being made, and we will be finalizing 
details to open the Chinese market to U.S. beef within the next 
few weeks.
    Dr. Johansson, what impact would opening China's market for 
the U.S. beef and cattle industry have?
    Mr. Johansson. Well, as you mentioned, it is important to 
our beef sector to have access to that market. We have been 
trying to get back there for over a decade now, and we expect 
that just from a primary beef production perspective it is 
going to obviously improve the prospects for value-added sales 
to China. But it also opens up the conversation for other 
products as well. Certainly we have some issues with our grain 
trade into China, and we would hope that this would also lead 
to a more productive relationship in terms of trying to reduce 
some of those barriers. DDGS, corn, wheat are products that we 
would certainly like to sell more of to China.
    Of course, we also have important discussions regarding our 
soybean sales into China. We want to make sure that our 
progress on biotechnology is approved in a timely fashion with 
our trading partners in Asia. I would expect that would also 
lead to an additional ability to conclude successful 
negotiations in some of those other areas.
    So beef is important to get into China but also has 
implications for some of the other crop sectors, in terms of 
China being our number one trading partner, from an ag 
perspective, right now.
    Senator Daines. Thank you, Doctor. Switch gears here to Dr. 
Weber. Access to broadband has the ability to remove geography 
as a constraint for states like Montana. I spent 12 years in 
the cloud computing sector and saw how you can build a world-
class company in places like Montana, thanks to technology, 
where we now combine this incredible quality of life we have in 
a place like Montana, and with now technology at our hands we 
can bridge that geographical gap, and now can compete with 
anybody in the world.
    So access is increasingly important for ag, and will 
continue to be. I mean, ag is now a high-tech industry. 
Agencies like the USDA's Rural Utility Service has been 
critically important for improving and expanding 
telecommunications infrastructure in rural areas. I will tell 
you that some of the most sophisticated technologists in 
Montana are now farmers and ranchers. Never, ever underestimate 
how savvy they are with technology. It is very impressive.
    You indicate that access to broadband is an essential 
building block for rural communities. Could you expand upon 
that, and what policies would you recommend to improve access 
to help these rural economies grow?
    Mr. Weber. Senator, I have also seen that in Oregon, that 
some of the most sophisticated use of technology is in the farm 
sector, and it is really quite amazing what can be done.
    What would I suggest in terms of increasing access to 
broadband? I think both access and adoption are important in 
terms of making the investments in infrastructure effective, 
and some research has been done by economists at Oklahoma State 
University, suggesting it is not just the access, which is 
important, and there is a gap in both access and use, but in 
addition to providing access to assisting the people in 
adopting and using it is also important.
    I think the risks that exist for keeping that gap large are 
serious and the farm bill ought to make sure that, to the 
extent possible, this gap between access in rural and urban 
areas is reduced.
    Senator Daines. Thank you, Dr. Weber. Thank you, Mr. 
Chairman.
    Chairman Roberts. Senator Brown.
    Senator Brown. Thank you, Mr. Chairman. Dr. Johansson--
thanks to the whole panel. Dr. Johansson, I wanted to ask--talk 
to you a bit about--you had mentioned the success of ARC, and I 
would like to explore that more, is designed ARC, which Senator 
Thune and I worked on in the last farm bill, adjust with lower 
prices but provide short-term assistance to farmers to help 
against the initial shock of a price drop. Talk through, if you 
would, how ARC has helped farmers manage the financial stress 
of these depressed prices, and much of this hearing has been 
devoted to low farm prices. It is on the minds of everybody, 
obviously. Talk about how ARC has helped them manage that 
stress.
    Mr. Johansson. Well, certainly for--obviously, depending on 
which commodity group we are talking about, some commodities 
participated more heavily in ARC relative to PLC. But for corn 
and soybean producers, by and large, I think about 90 percent 
or so enrolled in the ARC program.
    So as we have seen, corn and soybean prices, and obviously, 
for the other commodities too, like wheat--we have about 50/50 
in terms of wheat producers being in the ARC versus PLC--as 
those prices have come down from the highs we saw----
    Senator Brown. Could I interrupt for a second? Does corn 
have higher participation, because the price drop has been a 
greater percent, or that is not really the reason?
    Mr. Johansson. I think--no, in terms of participation, we 
have seen corn producers, I think, when they had to make their 
decision going into the 2014 planning year, had to decide what 
their expected support would be under the two different 
programs, and at the time I think the idea, or the notion was 
that it was clear that corn prices were coming down and that 
the ARC program would probably provide the most assistance in 
the short term.
    Obviously, looking out five years is a little bit more 
difficult. Some producers opted for the PLC program in higher 
levels. As I mentioned earlier, obviously peanut farmers, for 
the most part, chose to participate in the PLC program.
    But as you mentioned, the design of the program was on an 
Olympic average, so that means that, as you know, from a five-
year perspective you drop the highest and lowest years. So when 
we had those high years in there, high revenue years of '12, 
'13, and '14, relatively high revenue years. That gave a fairly 
high guarantee for program payments, relative to a falling 
revenue outlook.
    So as prices have come down, revenues have come down. That 
means that the ARC program has been paying support to producers 
that enrolled in that program. But now we are starting to 
lose--as that five-year average moves forward in time, we are 
just going to start losing some of those higher year revenues 
that we had back in '12, '13, and '14, and that means that the 
ARC revenue guarantee is going to be much lower going forward 
into the next farm bill. That is why, when you look at CBO 
scores or our expectation for the next 10-year outlay period, 
that we expect a lot of producers to move out of the ARC 
program into more of a PLC type of program going forward.
    So it has been effective, at least from the 2014 to 2018 
period. I would say, by and large, it has provided producers 
with support as prices have come down. Of course, now that we 
are in a much lower price environment going forward, we expect 
those ARC program payments to also fall and remain low going 
forward, without a change in the program.
    Senator Brown. Thank you. Dr. Weber, one question for you. 
Rural areas so often are anchored by institutions that drive 
the local economy, perhaps a university, perhaps a medium-sized 
or larger manufacturer. The Trump Administration's budget 
proposes reduced funding for ag research and other rural 
economic development programs. Understanding all this hearsay; 
it is dead on arrival in both parties. But we also know the 
priorities are set by this administration.
    If rural areas were to lose some of these federal resources 
and institutions like ag research centers, would they be able 
to adapt, or do their economic prospects take a long-term hit?
    Mr. Weber. Well, I think there would be two negative 
impacts of these kinds of institutions going away. I know in 
Oregon they are located all over the state and they are 
important in many of these rural places. I mean, the first 
would be the short-term impact of the loss of jobs and the 
multiplier effects in the economies.
    But in the longer term, these research centers also support 
the particular agriculture in those particular areas, which 
they know better than the people than are not in those places, 
and they work with local farmers to create the innovations that 
allow increases in agricultural productivity.
    So I think in both the short term and the long term, there 
would be negative effects of reducing that agricultural 
research infrastructure.
    Senator Brown. Thank you so much. Thank you, Mr. Chairman.
    Chairman Roberts. Well, Coop.
    Senator Thune. It is high noon, Mr. Chairman.
    Chairman Roberts. It is about nine minutes to high noon.
    Senator Thune. Well, I will get a little----
    Chairman Roberts. You think you can get down there and meet 
the train and still meet Grace with a buckboard?
    Senator Thune. I will do what I can, Mr. Chairman.
    Chairman Roberts. All right.
    Senator Thune. I am down here at the tall end of the table, 
by the way.
    Thank you, Mr. Chairman, for having this hearing. You know, 
obviously, this is a critically important issue. We have got an 
ag economy that is in a very tough spot. A few weeks--a few 
months ago, I should say, the Wall Street Journal wrote of the 
next American farm bust. I would like to point out, too, just 
the role that biofuels has played in many of the states 
represented on this Committee, a role that is even more 
important in today's ag economy.
    Secretary Perdue has spoken, in the last several weeks, 
regarding the importance of the RFS to the country and the 
administration's ongoing support of the policy, and we 
appreciate that support. In the coming months, there is going 
to be a clear opportunity for the administration to demonstrate 
that support with a strong proposed renewable volume 
obligation, RVO, that is going to set blending targets for 
2018. The 2017 RVO got the RFS back on track, after years of 
challenges, so it is imperative that we maintain that progress.
    I appreciate the great group of witnesses that we have here 
today. I would like to just start with perhaps a general 
question, if you could answer it. Based on what you know about 
today's ag challenges, if you were a farmer that was growing a 
few commodity crops, with a reasonable amount of debt, what 
would your strategy be to survive and sustain your operation 
for the next few years, assuming that the ag economy stays 
flat? Dr. Johansson.
    Mr. Johansson. Well, we have seen producers that have 
looked at expected prices and adjusted their planting 
accordingly, so I would imagine that producers are going to 
continue to do that. For example, we have seen a lot of wheat 
acres go out of production, and that is being replaced by corn 
and soybean acres in a lot of the states like your own, but 
also in some of the other Plains states. I would imagine that, 
going forward, as long as we have the wheat surplus we do right 
now in the world market, that trend might continue.
    Certainly a strong, robust insurance portfolio is one that 
I think all producers would take advantage of. I think if your 
producers are looking at continuing to tighten their belts, one 
area they may do that is through new renegotiation of cash rent 
contracts. Another area might be to look at their insurance 
portfolio to see if they might be able to save some money by 
moving to an area coverage versus an individual coverage. That 
is obviously going to be less expensive.
    We have not seen producers backing off on their ability to 
buy high-quality seed, so I imagine that they are going to 
continue to chase those yields going forward, and so I do not 
imagine that you will see a significant change. Of course, Mr. 
Sheffer may be able to talk a little bit more about that.
    I would imagine that securing farm loans, while credit has 
been tightening, will still remain an important aspect of 
production going forward. Certainly as you mentioned, we have 
seen a tightening situation. Land values have started to 
decline but producers are still able to get loans at relatively 
low interest rates. So I imagine we will continue to see levels 
probably increasing in the short term, but at low interest 
rates, or relatively low interest rates.
    Senator Thune. Would you agree that one of the quickest and 
most effective ways to counter low commodity prices for crops 
and livestock is to increase exports?
    Mr. Johansson. I would agree with that.
    Senator Thune. Assuming--right now we are talking about, 
potentially, with Mexico and Canada, having a renegotiation of 
NAFTA. But if you add Mexico, China, and Canada, they are the 
most significant trading partners, accounting for about 46 
percent of U.S. agricultural exports.
    The question, I guess, is, is there room to grow that, do 
you think, with these three countries, or should the U.S. be 
looking for export opportunities in other countries, and, if 
so, which countries?
    Mr. Johansson. That is a great question. I think, though, 
there is still room for improving our access to NAFTA 
countries, in terms of dairy, poultry, and eggs. Also, 
obviously, a robust--you mentioned biofuels--a robust E10 
market in Mexico would be very beneficial to the ethanol 
sector. China is obviously our biggest trading partner and 
there are still plenty of opportunities to improve our sales to 
China, in terms of grains, feed grains, for example. I know 
that Japan is a very attractive market for our meat sector, so 
we are going to be actively pursuing agreements with Japan.
    Then, looking forward, we certainly know that, in the 
medium term, India is going to be a major market for ag 
commodities going forward. They are going to have a tripling of 
the number of households in the medium income class over the 
next 10 years, so I would imagine that we will be putting some 
effort into trying to open up that market as well.
    Senator Thune. I am out of time but very quickly, do any 
others see any other countries, or with respect to the whole 
dynamic as it relates to exports and trade, where there might 
be market opportunities or additional headroom to grow with 
those we already have trading relationships?
    [No response.]
    Senator Thune. No?
    Dr. Weber.
    Mr. Weber. But I would say that in addition to the kinds of 
things that you have mentioned, if I were a farmer, which I am 
not, I would want not just the kinds of programs you have 
talked about but also the kinds of investments in the rural 
community which would allow my family to get off-farm jobs, 
just to help me support our family during these rough times, 
and also allow us to live at a higher quality of life while we 
are there.
    Senator Thune. All right. Thank you, Mr. Chairman.
    Chairman Roberts. Thank you.
    Senator Bennet.
    Senator Bennet. Thank you, Mr. Chairman, and as always, 
thank you for holding such a thoughtful hearing and having such 
a great panel. I consider it an enormous privilege to be on 
this Committee, and I think this Committee functions so much 
better than so many committees in the Senate, partly because of 
your leadership, partly because of our membership. I am hopeful 
that we are going to come together and figure out a better way 
through on this budget and what has been presented from the 
administration.
    You add up the cuts to the farm bill with the cuts to the 
Department of Agriculture, we are well over 20 percent of the 
Department of Agriculture, and I view that as an attack on 
rural Colorado and on rural America. When you talk about almost 
a fifth of the workforce in places like--Sherrod Brown 
mentioned it, but the Akron Research Station on the Eastern 
Plains of Colorado that has been so critical to developing 
innovations with respect to wheat over decades and decades and 
decades. To think about that going away is just a vital part of 
who we are as Colorado.
    So I am glad to be on this Committee and I know this is a 
place where we are going to be able to resist.
    I wanted to ask Dr. Johansson a question about immigration, 
which I think has not yet come up today in this hearing. On top 
of the already horrific economic conditions in farm country, 
our producers in Colorado counties continue to lack a stable 
and qualified workforce. Just last week I heard from a friend 
of mine who said that he had to disc up his cabbage because he 
has nobody to harvest it. He does not have the workforce that 
he needs.
    We addressed farm labor four years ago in the Senate, 
through a compromise bill. I was part of the Gang of Eight that 
wrote the immigration bill here in the Senate, which got 68 
votes. Both growers all across the country and the farm workers 
supported it as the first ag jobs bill where that has been 
true. But the House never took it up.
    But I wonder if you could talk a little bit about how our 
inability to actually tackle immigration reform is affecting 
the rural economy and our agricultural workforce.
    Mr. Johansson. Well, it is certainly an issue that 
producers bring up frequently, in addition to trade, as being 
an important component of what producers are hoping can get 
expanded in the new administration. They also are looking to 
see improvements in the stability of the ag labor workforce, 
and as you mentioned, for commodities like specialty crops, 
vegetable, fruit, and nuts, out West, as well as in your state, 
labor is a much larger percentage of the cost of production as 
compared to row crop farming in the Midwest--not to say that 
labor is not an issue there as well.
    But certainly a lot of ag production that we are seeing 
coming out in this specialty crop area has been improving. It 
is almost a third of our export sales right now. It is a very 
important part of the ag economy, and labor is crucially 
important to that sector.
    So I know that the Secretary is committed to looking at 
this issue and he has hired some expertise to help shepherd 
some proposals when they come around, so he is going to be 
looking at it.
    Senator Bennet. Great. I hope he will take a look at the 
work we did in the Gang of Eight bill. I think there would be 
some useful things for him to consider there.
    My other question, actually, was about trade, and I know 
you have touched on that also today. One way to support farming 
and ranching communities in Colorado, in this difficult 
economy, is to make sure we have markets for our products, and 
this means creating new opportunities in Cuba and China, and 
other places as well. We also need to protect access to the 
critical Canadian and Mexican markets. We hear about this all 
the time. I hear about it in Colorado all the time, from wheat 
growers on the Eastern Plains, potato producers in the San Luis 
Valley, cattlemen on the Western Slope.
    I wonder, in light of the administration's recent notice of 
its intent to renegotiate NAFTA, what advice you would give to 
the U.S. trade representative and members of this Committee 
about how we should proceed? I would be happy to have anybody 
answer that question.
    Mr. Johansson. I will just say a couple of words and then 
let other folks chime in, but certainly we know that trade with 
our NAFTA partners is very important. They are the number two 
and number three, respectively, destination markets for U.S. ag 
producers. Certainly there is room for improvement and I think 
that is what the administration is committed to trying to find, 
not only on agriculture but for other sectors as well.
    I think our job at the Department, and certainly--well, 
your jobs, obviously, as representatives of your states, is to 
just highlight the importance that trade has for agriculture, 
and I think that is what we are focused on doing, just to point 
out, while some sectors may not have the same retrospective 
return on trade, but agriculture has, hands down, benefitted 
from improved trade access.
    Senator Bennet. Right.
    Mr. Weber. Could I add to that, that not only is trade 
demand important but also the capacity to deliver the product 
to the markets. I would reinforce the notion that we need a 
strong infrastructure in rural communities to actually deliver 
on the trade.
    Senator Bennet. Thank you, Mr. Chairman.
    Chairman Roberts. Thank you. That will conclude our hearing 
today. I again want to thank all of our witnesses for taking 
time to share your views on the state of the ag economy. It is 
certainly clear from your testimony and the questions by my 
colleagues who serve on this Committee that our farm economy is 
in a rough patch.
    This understanding will be valuable as the Committee 
continues to hear, first-hand, from farmers, ranches, other 
stakeholders, and it will be vital as we continue discussions 
on the next farm bill.
    To my fellow members, we would ask that any additional 
questions you may have for the record be submitted to the 
Committee Clerk five business days from today, or by 5:00 p.m. 
next Thursday, as of June the 1st.
    The Committee now stands adjourned.
    [Whereupon, at 12:03 p.m., the Committee was adjourned.]

      
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                              MAY 25, 2017

      
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                              MAY 25, 2017
      
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