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Source: Farm Credit Administration news release

To view the complete report, click here.

Chairman Bishop, Ranking Member Fortenberry, and Members of the Subcommittee, I am Glen R. Smith, board chairman and CEO of the Farm Credit Administration (FCA or agency). On behalf of my board colleague, Jeffery S. Hall of Kentucky, and all the dedicated men and women of the agency, I am pleased to provide this testimony. Mr. Hall also serves as chairman of the board of directors of the Farm Credit System Insurance Corporation.

In my testimony today, I will discuss the agency's responsibilities, the current state of the farm and rural economy, and the condition of the Farm Credit System (FCS or System) and the Federal Agricultural Mortgage Corporation (Farmer Mac).1 I will discuss the effects that the COVID-19 pandemic has had on the rural and farm economy. I will also discuss the response by FCA, the System, and Farmer Mac to the challenges of the pandemic.

Condition of the farm economy
Over the past year, U.S. farmers and ranchers have once again demonstrated their resourcefulness. Agricultural producers repeatedly braced themselves and their operations as the coronavirus disrupted many aspects of the farm and rural economy. Price volatility, sudden shifts in demand, processing disruptions, and general uncertainty have contributed to one of the most challenging times for U.S. agriculture. Moreover, before the pandemic, farm prices for many commodities had been relatively low for five years, and financial stress was building for producers.

The hallmarks of U.S. agriculture - creativity, perseverance, and hard work - have served the nation well during the pandemic. Farmers and ranchers quickly adjusted to fast- changing conditions. Processors and manufacturers worked through spot shortages and continue to look for ways to make the food supply chain more resilient.

Fortunately, the farm economy is in better shape today than it was a year ago, thanks to robust U.S. exports and strong crop prices since last fall, particularly for major commodities such as corn and soybeans. Meat trade is also strong. For example, 2020 was the third- highest year on record for U.S. beef exports despite the COVID-19-related disruptions, which drove down exports by 30% in May and June. For fiscal year 2021, USDA expects total U.S. exports to hit a record high, with shipments to China leading the way.

USDA estimates gross farm income will remain unchanged in 2021 because an increase in total farm cash receipts is expected to offset a decline in government payments. With rising farm expenses, net cash farm income in 2021 will decline modestly, but it remains well above levels recorded from 2015 to 2019.

A record level of government support in 2020 has helped stabilize the farm sector. Payments arrived through traditional farm programs, USDA's Coronavirus Food Assistance Program, and the Market Facilitation Program. Some producers also received proceeds under the Paycheck Protection Program. Importantly, a broad swath of agriculture and rural America has benefited from the Coronavirus Food Assistance Program, especially those who encountered serious market disruptions. A concern for the future is that, if agriculture faces another major disruption, current law does not provide for assistance of the magnitude supplied in recent years.

Farm debt continues to grow, with an expected increase of nearly 50% between year-end 2012 and year-end 2021. USDA estimates that by the end of this year inflation-adjusted farm debt will be just $2 billion shy of the record set in 1980 and 1981. Despite the continued rise in debt, net cash farm income is expected to keep pace this year. A positive indicator for loan repayment is strong farm income relative to debt, coupled with interest rates that are expected to remain low for the immediate future.

Farmers are now gearing up for spring planting season with a degree of optimism they haven't felt for years, according to the Purdue/CME Group Ag Economy Barometer, which measures farmer sentiment. Expectations for the future beyond spring 2021 also remain high but have drifted lower in recent months, reflecting longer-run concerns about policies that could affect U.S. agriculture.

While producers certainly need a well-deserved dose of optimism, as a grain producer, I know how markets can reverse course. Higher prices will motivate more plantings here and abroad, which may add to supplies and cause prices to moderate. As always, weather during the growing season will shape the size of crops. In the meantime, producers have excellent opportunities to manage their risks through federal crop insurance and their own marketing plans. For livestock producers, margins have tightened or turned negative because of the rise in feed costs. Agricultural disaster funds continue to provide financial support to farmers and ranchers as they strive to overcome the weather-related calamities of the past year, including the severe winter weather that caused hardship for many operations last month.

Speaking of extreme weather events, a growing concern is the effect that climate change may have on agriculture and the rural economy. Fortunately, farmers have a history of adopting conservation practices in their operations that improve water, air, soil, and wildlife habitat and will no doubt continue to be receptive to further innovations. And I'm happy to report that the Farm Credit System and Farmer Mac are already supporting many renewable energy projects, including wind and solar.

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