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Farming Forecast

A look at the issues that will shape 2013
By Patrick White


At a time of the year when many people are making New Year's resolutions, we asked a few ag industry experts to make a few New Year's predictions. Nobody can know for sure what 2013 will bring, but there seems to be consensus on some of the issues farmers will face in the coming year.


Gary Swan, director of governmental affairs and communications for the Pennsylvania Farm Bureau.
Photo courtesy of Pennsylvania Farm Bureau.
"As we look into the new year, part of the outlook will depend to a great extent on what happens in Washington, D.C., and whether there's action or inaction by the U.S. Congress on a very few but very important issues that confront the country and that confront agriculture," says Gary Swan, director of governmental affairs and communications for the Pennsylvania Farm Bureau.

Specifically, Swan says that farmers will be impacted by decisions concerning the farm bill and decisions on taxes. How these issues play out will have "major pocketbook and farm income" ramifications, he notes.

While much media attention has been paid to possible changes in income tax rates (at press time there had been no final decisions made on this matter), many farm families will be impacted by another tax issue. "If no action is taken, the current estate tax exemption that is part of existing law falls from $5 million to $1 million," Swan says. "That will impact a tremendous number of farms."

He says it took a lot of work in recent years to get the exemption level up to $5 million, and while some would prefer it to be even higher, there's no doubt that the $5 million level is much better for most in agriculture than the $1 million level. "We believe that if it were to slip back to $1 million, it would have a horrific and discouraging impact upon America's farm families," says Swan.

Farmers will also be impacted in the coming year by any change (increase) in the capital gains tax rate, he notes. "It could increase from 15 percent to 20 percent. A lot of people don't see agriculture in the context of the capital gains tax, but there are many, many small and midsize farm operations that are included in the capital gains tax for all sorts of different reasons," he says.

On another federal government topic, he says there is disappointment that the U.S. Congress and the Obama administration were not able to reach an agreement on the farm bill on schedule. The hope was that a permanent farm bill would have been enacted in September, but that still had not occurred by press time. It's likely that attention was more focused on the election season and other important fiscal issues, but whatever the cause, the ramifications are huge for those in agriculture.


A farm near Klingerstown, Pa. Decisions on a number of issues will affect farms in the coming year, including the estate tax, capital gains tax, immigration and the farm bill.
Photo by Scott Bauer, courtesy of USDA-ARS.
"Right now we have no sense about whether the farm bill will be extended, when that will happen, and what the provisions of the farm bill will be," says Swan. That makes it very hard for farms - as businesses - to plan. "The farm bill is the economic policy and road map that drives a lot of decision-making long-term out on farms," he says.

At press time, Swan felt it was more likely that there would be some type of extension into the new year, rather than passage of a full farm bill. "But we don't think it's something that should be extended for a long period of time; we think it's something that should be taken up very quickly in 2013. Extensions lead to more uncertainty and make it harder for farmers to plan," he emphasizes.

The farm bill will impact another key issue: changes away from automatic direct payments and toward a variety of crop insurance products to act as safety nets for farmers. The goal, though, is that federal money will be directed to help subsidize some of the high costs of those insurance premiums. "We think this really creates a safety net that will work for agriculture, while also dealing with all of the criticism there has been from those in the nonfarm community about direct subsidy payments," says Swan. However, he's uncertain about when and how a full farm bill will be passed.


Leon Berthiaume, general manager and chief executive officer of St. Albans Cooperative Creamery, Inc.
Photo courtesy of St. Albans Cooperative Creamery.
There is one area where Swan is optimistic. "We're hopeful that the long, frustrating issue of immigration reform may get adequate and successful attention by the White House and Congress this coming year," he states. "Farm families have always wanted immigration laws to be enforced, but at the same time we need a program for agriculture involving seasonal labor that works and is practical and reliable. We've never had that; the H-2A program has always fallen short in its bureaucracy and so many other things. It just doesn't work for the typical farm."

Swan thinks the coming year may bring more certainty in this area, as agricultural organizations have come together in recent months to strike agreements on what some of the principles of immigration reform should be.

"The American Farm Bureau Federation has spent a tremendous amount of time in the last six months devising a plan that will be offered to Congress and the Obama administration. We've been optimistic before, but we think the alignment of the stars now is such that after the elections, this will be high on the agenda."

He stresses that a workable, practical agricultural worker program needs to be an integral part of any nationwide immigration reform effort. "We would be very disappointed if it didn't," says Swan. If politics slow down comprehensive immigration reform, there needs to be an alternative that focuses specifically on agriculture.

Another aspect of agriculture looks dire for the coming year. "Livestock and animal farmers rely on feedstocks, and farmers that are unable or don't have sufficient land to produce all of their grains could be confronted with some really serious cost problems in the months ahead," says Swan. "The costs of grain and feedstock have risen dramatically because of the weather conditions across the country."

Dairy farmers are among those who will continue to be hit hard by high grain prices. "We think, as always, it's going to be a challenging year for farmers," says Bob Wellington, senior vice president of economics, communications and legislative affairs with Agri-Mark, based in Lawrence, Mass. "We do think that prices should stay in the $20 per hundredweight area, depending on the farm operation, here in the Northeast. Perhaps higher, depending on the circumstances," he says. "That's good news for some farmers, particularly those who grow their own feed."


Rob Johnson, policy director with the New Hampshire Farm Bureau.
Photo courtesy of Rob Johnson.
For farmers with feed challenges or who buy a substantial amount of grain, "then they are going to struggle at that price," predicts Wellington. "We don't see substantially lower grain prices for 2013. There could be some mitigation of them, but we don't see them going back to levels that existed several years ago. The challenge is going to be on the feed side. There's going to be some additional revenue on the milk price side to pay for it."

Wellington shares Swan's optimism that 2013 might usher in some progress on the issue of immigration and farm labor. "We hope that immigration can be addressed. More and more farmers are working with immigrant labor, so that has to be addressed as we move forward," he says. "We're looking forward to some positive results on this front."

Leon Berthiaume, general manager and chief executive officer of St. Albans Cooperative Creamery, Inc., projects that taxation issues will affect farms from a number of different perspectives in the coming year, from payroll taxes to estate tax provisions.

"Especially on the estate tax issue, I hope Congress will recognize that the number we're currently at [exempt] is not unreasonable, given the value of the assets that our farms are working with. When you look at families trying to pass a farm on from generation to generation, that's something that needs to be considered very carefully. This is a way of life; this is not cash wealth, it's asset wealth, and I think that's a difference that needs to be realized," he explains.

In all fiscal policy and regulation discussions, Berthiaume is hopeful that lawmakers will realize "the importance of us being able to continue to grow and produce the food for this country - that needs to be a part of the conversation going forward. I think we've lost track of how fortunate we've been to produce the quality and quantity of food, including dairy products, that we all enjoy. Some of the policies that have been put into play have really created some challenges for the food industry as a whole and for our dairy industry."

He cites as one example ethanol policies that continue to hurt livestock farmers by keeping grain prices high. With farmers paying higher costs but unable to get higher prices on the market for their products, the balance is becoming very difficult, he states. He predicts that 2013 will see farmers looking to maximize their own resources.

"They may start to use less desirable land to try to grow as much of their own feed as possible. I think farms are evaluating that, as well as their herd size, to better match what they can feed from their own production. And I think there's been more focus on feeding forages and a little less on grains," says Berthiaume. "Farmers are having to make alterations to their overall feed programs."


A small dairy farm in western Maryland. Leon Berthiaume says, "I think there will continue to be significant innovation with dairy and dairy products."
Photo by Scott Bauer, courtesy of USDA-ARS.

He says that farmers need to recognize that they are now part of the global economy, and what's happening across the globe as far as the production of food certainly has implications in our regional marketplace as well. "We now have major countries coming in to purchase or import significant amounts of grains and feeds, and that has serious implications for our livestock producers, who are competing for those same grains and feeds," says Berthiaume of a trend he expects to continue in 2013.

Fortunately, Berthiaume says that dairy producers have fared fairly well in recent years. "We've continued to see an overall increase in the consumption of dairy, obviously in different forms. Even with this economy, there has still been the support of people including dairy in some form in their groceries, so we're holding our own as far as the domestic consumption of dairy products right now," he points out.

The growth of new categories is helping, says Berthiaume, citing the current popularity of Greek-style yogurts. "I think there will continue to be significant innovation with dairy and dairy products," he predicts. "And I think we need to continue to do a better job of making sure people know about the health benefits of consuming dairy as part of their diets. I think we need to continue to educate consumers."

Rob Johnson, policy director with the New Hampshire Farm Bureau, says prospects for 2013 might vary for different agriculture segments. He sees milk prices going up, perhaps a dollar or two, and he is hopeful that there will be less demand for ethanol, prompting grain prices to ease a bit. Both of those prospects are good news for dairy farmers. "Then when you get into fruit and vegetable growers and the local meat producers - with all the interest in food among the general public, I think there will continue to be a lot of opportunities," predicts Johnson.

On the other hand, with the still sluggish economy, prospects might be more challenging for greenhouse operators and those in the timber industry. "Those are really dependent on the housing market. I'd say they might face more of the same in 2013. Not that things are real bad, but growth is slow," Johnson states.

Johnson adds that he is hearing a lot of talk from farmers who are trying to deal with what seems to be shifting climate patterns. "They need to adapt. The early spring we had this year and late frosts and lack of snow cover has impacted many farmers, and there's particular concern among the maple sugar producers," he observes.

From weather to taxes to policy to immigration to costs, farmers seem likely to continue to deal with a host of issues in the coming year. "But with all the challenges, there is still an optimism," says Johnson. That's the nature of farmers, no matter the year.

Patrick White is a freelance writer based in Middlesex, Vt. Over the past 11 years, he has covered a wide range of agricultural operations around the Northeast. He is always on the lookout for interesting and unusual stories. Comment or question? Visit www.farmingforumsite.com and join in the discussions.