"...What is happening to the farm economy?"

Georgia's farm economy has declined since 1996. In '96 we had generally strong crop commodity prices and Market Transition Payments were authorized. But since then we have had two bad weather years and the prices of most major crops have gone south.

Congress responded in 1998 with the Omnibus Appropriation Act which included funds for farmers affected by the bad weather and low commodity prices. This amount is truly disaster assistance. No farm policy is involved.

But has Congress unlearned the lessons of the 1930's regarding farm policy? Look back! The Federal Farm Board was established in 1929, and spent millions to hold farm products off the market with the object of increasing commodity prices.

But the board went broke, because there were no production controls. This gave rise to the Agricultural Adjustment Act of 1933 which established the principle of supply controls. These were a part of farm policy until 1966.

The 1966 bill did not totally abandon the principle. Rather, price supports were set so low they were ineffective.
 
 

Weather and the biological nature of farming cause instability. In a "free market", commodity prices give information to help producers make required changes that give rise to this instability. Higher prices are supposed to result in increased production, which results in lower prices. The same, in reverse, happens with lower prices. If anything interferes with the market and prices do not reflect true demand and supply, producers get unreliable information and cannot make the correct response to the market signals.

Past farm policy with support prices encouraged production. Government payments were tied to output. But when farm policy gives signals for producers to increase production without production controls, such as current farm policy seems to be doing, then we have producers making the wrong decisions.

The result is going to be greater production, resulting in lower prices. Eventually producers will respond to the lower prices and the vicious cycle has begun.

This gives rise to greater risk in the industry. This is the change in government farm policy.

And this change in farm policy has increased farm risks. It has created another element that the farm business manager must take into account as decisions are made. The manager is forced to predict what changes congress may make in the next appropriation process and how this change may affect the industry and the individual farm.

Is agriculture going back to the conditions that existed in 1929?
 
 

Overall, the cost of farming in 1999 is not expected to change much from last year.

Poultry and livestock growers have relatively inexpensive corn, which is a major component of their production costs.

Looking at specific inputs:

The cost of borrowed funds is expected to remain near or maybe slightly below 1998 levels. Most operating loans are based on the Prime Rate plus 1% to 2%. The prime has been lowered in recent months and is slightly below levels of a year ago.

Fuel and Energy costs are always hard to call. Fuel prices have trended down in recent months due to a decline in world demand for crude oil and some new oil reserves discovered in recent years. If OPEC doesn't create an artificial shortage of crude oil, fuel prices may be near or below last year's level. One unknown - How will the severe weather in the Northern U.S. affect the demand for heating oil, and will this force up diesel prices? Maybe, but they should come back down by this summer.

Fertilizer Prices are generally determined by the total crop acreage in the U.S. and worldwide. Total U.S. acreage is not expected to increase this year. We're not looking for a big change here.

Seed and Farm Chemicals - These currently show little inclination to escalate dramatically. Seed supplies are expected to be plentiful. As roundup ready seed appear to be plentiful, and if the majority of weed problems can be controlled with roundup, some traditional herbicide prices may drop due to a decline in their demand.

Machinery Prices and Repairs - Equipment dealers report new item sales are down from last year. Look for most equipment item sales to stay flat, although, repair costs may keep up with the inflation rate.

Labor - "In short supply in many U.S. markets. Given the cautious economic approach given by most economic prognosticators, labor prices are not expected to change much.

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