COLLEGE STATION The $8.7 billion emergency assistance package recently passed by Congress and signed by President Clinton provides critical cash flow relief to hard-pressed farmers, according to research by the Agricultural and Food Policy Center with the Texas A&M University System.
The aid comes just in time to help farmers “cash flow” the 1999 crop in the midst of sharply depressed prices and regional weather adversity.
“But, the aid package does not cure this agricultural crisis,” said Dr. Edward Smith, professor and Texas Agricultural Extension Service agricultural economics specialist.
“If prices for the major program crops remain at levels experienced over the past two years, then liquidity issues will continue to plague the nation’s farming community.”
The research used a set of representative farms and was developed with the assistance of farmer panels from the major producing regions of the country.
Prior to the emergency package, the results from the 41 representative farms indicated that 39 would have serious financial problems as measured by their probability of a cash flow deficit. That is, their receipts from farming (including government payments) would not cover their cash expenses in 1999.
The emergency relief package alters the short-term picture significantly, Smith said. The relief package reduces the average probability of cash flow deficit for the 10 represented wheat farms from 58 percent to 41 percent in 1999. For example, the package reduces the probability of a 1999 cash flow deficit from 50 percent to 29 percent for the 1,760-acre North Dakota wheat farm.
“These numbers reflect a significant increase in the ability of farmers to cash flow their 1999 crops due to the emergency package,” Smith said.
For the 13 feed grain farms, the emergency package reduces the probability of a cash flow deficit from 55 percent to 44 percent. The 950-acre Iowa corn/soybean farm experiences a 10 percent decrease in its odds of a cash flow deficit from 54 to 44 percent for 1999. For a 1,600- acre Texas northern plains farm the reduction is even more dramatic a decline from 51 percent to 31 percent.
Smith explained that the difference in the odds of cash flowing relate to individual farm structures and the crops grown.
According to the study, cotton and rice farms also could see a substantial decline in their odds of cash flow deficits. The additional Agricultural Marketing Transition Act payments and full funding of the Step 2 Upland Cotton Competitiveness provision is projected to reduce the probability of a cash flow deficit for the 1,682-acre Texas Southern Plains cotton farm from 60 percent to 39 percent for 1999. The 424- acre California rice farm reduced its odds of net cash flow from 98 percent to 40 percent.
Smith said, “While this year’s emergency package did significantly improve the ability of farmers to cash flow in 1999, it does not solve the longer term problem of low prices.”
Prior to the government response, 37 of the 41 representative crop farms were projected to have difficulty cash-flowing their operation through 2002, Smith said. After the payments, that number remained the same.
“Thus, while the 1999 emergency package, like its predecessor in 1998, helped relieve the liquidity pressure facing the nation’s program crop producers, additional aid will likely be needed in the future unless prices substantially improve,” he explained.