Released Nov. 16, 2007
LITTLE ROCK, Ark. - Today's rice and cotton farm business setting has changed radically over the last few years for many reasons far beyond the control of producers. It has left producers exposed to many risks, and there is little evidence that anyone really understands their predicament, says Bobby Coats, agricultural policy analyst for the University of Arkansas Cooperative Extension Service.
Coats said the problems rice and cotton producers face are tied to several factors, including:
- The instability of the new global economy, which continues to produce huge swings in commodity prices and staggering production cost increases.
- Arkansas producers, like many in the United States, have had repeated damaging drought events over the past several years.
- The increasing trend in U.S. agricultural policy for our producers to produce for the global market without a global trade agreement puts our producers at a major disadvantage in the export market.
- Food and fiber protectionism in country after country around the world exists and will exist for decades to come.
- Farm government program support is not indexed, which means our producers are focused on increasing their productivity and achieving low cost production.
"Under current farm legislation, given the current economic, farm and trade policy setting, change and reform to the U.S. rice and cotton sector is occurring at a very rapid and dangerous pace," Coats said.
He urges caution in weakening the farm safety net. Policy that accelerates change should be considered carefully since the financial and structural consequences to producers, supporting infrastructure and regions are unknown, Coats said.
Globalization has made the rice and cotton farm business environment far more dynamic, fluid, and fragile, he said.
"This is why the new farm bill debate has become very strained and confrontational," Coats said.
Meanwhile, he said strong commodity prices at some point would decline.
Extremely high 2007 crop wheat future prices may have already peaked, he said, and be in the process of starting a multi-year decline. Corn, soybeans, rice and cotton will probably top in the next three months to 15 months and start their decline unless there is a major catastrophic global event somewhere in the world, he said.
By 2010 or 2011, the global economy may be showing equity and commodity price weakness similar to the 2000 and 2001 period, which is why a strong safety net should be maintained in the new farm bill.
"If Congress passes a five-year Farm Bill, commodity prices could easily be going through a painful correction during part of the life of the legislation," Coats said. "This type of global slowdown also has the potential to dramatically lower oil prices and stress, and slow the growth of the ethanol industry and the alternative biofuels movement."
Looking forward, Coats said the future for commodity prices after a multi-year correction looks bright. "I expect, assuming continued strong global growth continues, that our food and fiber commodity prices will exceed previous highs as we finish the bull market cycle in commodities," he said.
Podcasts and transcripts by Coats on the Farm Bill are available by going to http://www.uaex.edu and selecting a link at the bottom of the page. The Cooperative Extension Service is part of the U of A Division of Agriculture.
-30-
http://www.uaex.edu/news/november2007/1116farmbill.htm
Contact: Lamar James, (501) 671-2187, ljames@uaex.edu
