For thousands of farmers plagued by bad weather, low commodity prices, and high production costs, the $15 billion farm aid package passed by Congress last week was nothing short of a godsend.
"This bill is incredibly important. Without this payment, there are a lot of producers who would not have been able to make ends meet," said Skip Hawkins, president and chief executive officer at $60 million-asset Tensas State Bank in Louisiana, which caters mainly to farmers. Though most agricultural bankers are pleased with the package, which will guarantee cash flow from besieged producers, some still worry that it does little to address the long-range problems facing farmers.
"We have grain prices at historical lows - about where we were at the end of World War II - and we are operating under year-2000 expenses," said Terry Hague, chief executive officer of $72 million-asset Farmer's Exchange Bank in Cherokee, Okla. "The profit margins just aren't there."
This is the third time in as many years that Congress has bailed out financially troubled farmers - though this bill comes much earlier in the year than previous measures, which Congress did not adopt until fall. In addition to $7.1 billion to be given directly to farmers, the bill authorizes $8.2 billion of increased subsidies through 2005 to reduce farmers' crop insurance costs.
Crop insurance has long been attractive to agricultural bankers because it lets them better quantify risk when making a loan. But high premiums combined with reduced subsidy rates for higher levels of coverage have kept many farmers from using the insurance fully.
The new law raises the subsidy for farmers who buy higher levels of coverage. For example, those insuring 75% of their harvest currently get a 24% premium subsidy from the government; the new law more than doubles that, to 55%.
Terry Barta, senior vice president at $60 million-asset Smith County State Bank and Trust Co. in Smith Center, Kan., said he expects the new insurance subsidies to make the program more attractive to farmers.
"We think farmers will look more receptively at the program because they will now get higher coverage levels for the same premiums and because of the adverse weather conditions that have been plaguing many areas," Mr. Barta said. "The program provides a better safety net for producers."
Mr. Hague said very few farmers are using crop insurance because they "don't see much value in it." He agreed that the new law would go a long way toward making the program more successful.
The China trade bill passed by the House last week could also help struggling farmers. The legislation would grant permanent normal trading relations to China, which would help open up the world's largest market to American producers.
Though farmers and their bankers have praised both measures, no one is expecting the agricultural economy to turn around quickly. Low prices, caused chiefly by an oversupply of grain and other commodities, could persist for as long as two more years, economists say.
Even successful farmers have been leaving the business in favor of more stable occupations. "A lot of farmers quit to make more money," Mr. Hawkins said. "They're tired of fighting these battles from year to year."
If this attrition keeps up, whole agricultural communities could be stuck with an oversupply of land and equipment.
"We're losing good farmers every year," said Gary Canada, president of $60 million-asset Bank of England in Arkansas. "They don't see the end of this either. It scares me. This is an agricultural town, and this is an agricultural bank, and we are committed to it, but there is a hard road ahead."