Before the U.S. Senate Committee on Appropriations,
Subcommittee on Agriculture, Rural Development,  and Related Agencies

February 29, 2000

 Mr. Chairman and Members of the Subcommittee, thank you for inviting me to discuss the state of the farm economy and its prospects.  I will describe the situation in major commodity markets, the financial well-being of farmers and the prospects for economic recovery.
 While an overall farm economic crisis during the past year of generally weak markets has been averted, in part due to emergency assistance, market fundamentals remain weak, especially for crops.  Global economic prospects are improving, yet commodity supplies are large and rapid recovery in farm income appears unlikely.  In fact, under current legislation and programs, net cash farm income in 2000 is projected to be the lowest level since 1986, prompting the President, consistent with his concerns about the 1996 Farm Bill, to include several proposals in his budget to provide farmers and ranchers additional income protection.  While U.S. agriculture continues to face the prospect of low prices and incomes and ongoing structural change, many indicators remain favorable up to now, including asset values, debt levels, inflation, interest rates, and productivity.

General Economy Booms; Agriculture Slumps–Why?
 The U.S. economy just established a record for the longest expansion in history.  Strong income growth, low unemployment, surging productivity, low inflation and interest rates and a stunning increase in equity markets have made life better for most Americans.  While the farm economy prospered in the mid 1990s, it did keep pace with the general economy in the late 1990s.  Several factors that propelled the national economy have been absent from the farm economy.
 One factor has been strong investment in the U.S. economy.  The growth in the U.S. economy combined with economic problems in recent years in other countries has fueled an enormous increase in direct foreign investment in the United States and a large increase in investment in U.S. stocks and bonds.  Another factor has been rapid technological change and productivity increases which have reduced per unit labor costs and improved competitiveness.  The U.S. appears to be in the global lead in high technology, ranging from information sciences to biological sciences to communications, creating new industries and transforming other industries that can use these technologies, such as financial sectors, retailing, travel and entertainment.
 Production agriculture has been helped by some of these trends, such as low inflation and interest rates and new technology.  However, production agriculture has been particularly vulnerable to foreign competition and economic recession in foreign countries, which have reversed the upward export trend of the earlier 1990s.   In addition, growth in investment has lagged that in the general economy, as agriculture has not benefitted greatly from international capital and has had a reduced rate of return on assets.   Moreover, production agriculture has probably not been able to utilize new technology to the extent of the rapidly growing nonfarm industries.

 As we assess the prospects for 2000, many agricultural commodity markets show little improvement in their fundamentals.  For the 1999/2000 marketing year, USDA forecasts the average price of soybeans to be the lowest since 1972/73, the prices of corn and wheat the lowest since 1986/87 and the price of rice the lowest since 1992/93.  Cotton prices are also down sharply and so far this season are the lowest since 1974/75.  Cattle and hog prices were relatively weak in 1999 but have strengthened recently and are expected to be up this year.  Milk prices were relatively strong in 1999 but dropped sharply at year’s end and are expected  to average the lowest level in 9 years in 2000.

 In addition to historically low agricultural commodity prices, many producers the past couple of years have been adversely affected by drought, excessive heat, pests, flooding and wind which lowered crop yields and quality, reduced forage supply and quality and lowered milk production.  In recent months, many areas of the United States have experienced subnormal precipitation.  Unseasonably mild and windy weather also has accompanied the lack of precipitation since October, increasing the evaporation of moisture from the topsoil.  Soil moisture levels are very low in the northern Great Plains and upper Mississippi Valley due to the prolonged absence of precipitation.  Another area, extending from western Texas to southern California, also remains very short of soil moisture.  In addition, parts of the Great Plains, eastern Corn Belt, mid-Atlantic and New England endured long-term drought in 1999, depleting subsoil moisture reserves in those areas.

 Congress and the Administration have responded to these problems by providing over $15 billion in emergency assistance to farmers and ranchers the past two years, greatly limiting the farm financial stress that farmers and ranchers would otherwise face because of historically low prices and reduced production.  These emergency payments plus payments authorized under the Federal Agriculture Improvement and Reform Act of 1996 (1996 Farm Bill) pushed government payments to a record-high level in 1999 and net cash farm income to a near record-high.  Had Congress not provided emergency assistance, net cash income would have likely fallen below $50 billion in 1999, the lowest level since the farm financial crisis of the mid-1980s.  Reduced government payments and continued low prices could push net cash farm income below $50 billion in 2000, increasing farm financial stress and debt repayment problems.

Explaining the Farm Economic Downturn in More Detail
 The primary source of the farm economy’s weakness in imbalances in commodity markets brought about by several years of large U.S. production--despite production problems in many areas--and by lower exports.  Exports have been pulled down by large foreign production, economic problems in Asia, Russia and South America and a strong dollar.

Reduced Exports.  The value of U.S. agricultural exports in FY 2000 is forecast to remain at last year’s $49 billion, after reaching a record high of $60 billion in fiscal year 1996.  Asia accounts for a large portion of the drop in exports of both bulk and high-value agricultural products.  In FY 1996, $26 billion in U.S. agricultural products were exported to Asia, compared with $18 billion projected for this fiscal year, a drop of $8 billion.

 As for total bulk products, such as feed grains, wheat, soybeans, cotton and rice, export value is down 40 percent since 1996.  Declines in tonnage account for about one-fifth of the drop in export value of bulk agricultural products, and declines in export prices account for four-fifths of the drop.  In contrast, the export value of high-value agricultural products has changed little since FY 1996, remaining steady at about $32 billion.  The value of livestock product exports is projected to be down about 2 percent and the value of poultry product exports is forecast to be off nearly one-quarter in FY 2000, compared with four years ago.  However, the volume of livestock and poultry products exported has increased since 1996.
 As the global economy has improved, exports for some commodities have picked up. Within this weak export picture, there has been some positive news.  In volume terms, U.S. corn exports are up nearly one-third during January-November, compared with the same period last year, with expanded sales to Japan, South Korea, Egypt, South America and Taiwan.  Wheat and wheat flour exports are up 9 percent over that period, as sales to Japan, South Korea, Mexico and South America have improved and food aid shipments to Russia led to a sharp increase in exports to that country.  During January-November, soybean exports were up 13 percent over a year ago, as increased sales to East and Southeast Asian countries more than offset reduced sales to Europe.

 Although an acceleration of U.S. exports toward 1996 levels is not expected, the apparent turnaround in several key macroeconomic indicators make the outlook for higher exports more positive than it has been in a couple of years.  South Korea’s economy has emerged from recession, growing 9 percent in 1999, and the economic recovery that began last year in Southeast Asia is expected to accelerate in 2000.  In addition, several Latin American countries are forecast to show positive growth in 2000 after being in recession last year.  With economic recovery, most forecasters expect world economic growth in 2000 to exceed 3 percent, a rate not seen since 1997.

 Another key factor for U.S. exports is the U.S. exchange rate.  Over the past year, the value of the U.S. dollar has been declining in value against several key currencies.  On an agriculture trade-weighted basis, the value of the dollar is down about 5.5 percent from a year ago, although the dollar continues to remain about 11 percent stronger than in the early1990s.  A decline in the value of the dollar makes U.S. commodities more attractive to foreign buyers.

Large Global Crop Production and Stocks.   Despite some weather problems, global crop production exceeded consumption each of the past 3 years leading to rising U.S. and world stocks of grains and oilseeds.  Global stocks of grains at the end of the 1998/99 marketing year reached 350 million tons, up from 256 million tons at the end of 1995/96 marketing year.  The growth in global carryover of grains is almost entirely due to increased yields per acre, as grain planted area over the past three years is about unchanged relative to the average of the early to mid-1990s.  In 1999/00, global consumption is expected to exceed production causing global ending stocks of grain to drop to 335 million tons.

 Global stocks of oilseeds have risen by 63 percent since 1996/97, increasing from 17.1 to 27.9 million tons at the end of the 1998/99 marketing year.  Unlike grains, much of the increase in oilseed carryover can be attributed to increased plantings.  World oilseed area increased 8 percent from 1996 to 1998 and global oilseed area remained about unchanged in 1999.  In 1999/00, record global oilseed production for the fourth consecutive year is expected to cause global ending stocks of oilseeds to remain at near last year’s level.

 While adverse weather has reduced crop yields in many areas of the United States over the past two years, these production declines generally have been offset by good yields in other sections of the country.  In 1998/99, the U.S. corn and rice crops were the second highest on record, soybean production was record high and the wheat crop was the largest since 1990.  Only cotton production was down appreciably in 1998, as severe weather problems in much of the cotton belt resulted in the smallest crop in nearly 10 years.  In 1999/00, weather adversely affected yields for most major crops.  Even so, U.S. rice production was record high, the corn crop was the fourth highest on record and the soybean crop was the third highest on record.
Implications of the Farm Crisis–Aggregate Indicators
Cash Flow.   For 2000, farm cash receipts are forecast to fall to $189.9 billion, or $17.7 billion below the record of $207.6 billion set in 1997.  Lower receipts mean lower net cash farm income, which for 2000 is forecast at the lowest level since 1986 and more than $9 billion less than in 1999.  These aggregate figures mask the steep declines in cash receipts and farm income expected for major crops, hogs and milk.  Cash receipts for wheat, feed grains, soybeans, cotton and rice are forecast to decline from a record $56.8 billion in 1997 to $40.3 billion in 2000, a 29-percent drop.  While projected to be up from last year’s $9.2 billion and 1998's $9.4 billion, cash receipts for hogs are forecast to be $9.7 billion in 2000, down 26 percent from 1997's $13.1 billion.  Dairy receipts are forecast to drop to $21.4 billion in 2000, down 9 percent from last year.

  Government payments have offset much of the decline in cash receipts for major crops, thereby helping to maintain producers’ cash flow.  Total government payments increased from $7.5 billion in 1997 to a record $22.7 billion last year.  In calendar 2000, government payments could exceed $17 billion under existing program authorities, the second highest ever.  The emergency farm aid package passed by Congress in 1999 is expected to provide $2.4 billion in payments to farmers in calendar 2000.

 Farm cash production expenses, forecast at $171.5 billion in 2000, are expected to increase by about 1 percent for the third consecutive year, after rising more than 4 percent each year from 1993-97.  A large part of the stagnation in production expenses is due to the fall in grain prices, which has greatly lowered livestock producers’ feed costs.  Feed costs are projected to fall to $23.8 billion in 2000, down from $26.3 billion in 1997.
Balance sheet.  Farm business balance sheets have shown considerable improvement since the mid-1980s.  Farm operator debt levels are about 10 percent below the peak levels of the 1980s and asset values are substantially higher.  The debt-to-asset ratio for farm operators is up a little from 1997, but it is still expected to remain at about 16 percent at the end of 2000, compared with the low 20s during the mid-1980s.  Even though farmers’ balance sheets are much improved from the mid-1980s, the projected decline in farm income will reduce farmers’ credit reserves and an increasing number of producers will face debt repayment problems.

 Debt repayment capacity utilization measures the extent to which farmers are using their available lines of credit.  In 1999, record government payments boosted net cash income and increased the level of debt farmers could service, lowering farmers’ debt repayment capacity utilization to 56 percent of the debt that could be supported by current income.  In 2000, farmers are expected to use more than 66 percent of the debt that could be supported by their current income.  This figure is substantially down from over 100 percent in 1981 and somewhat down from the more than 70 percent during 1977-85, but would the highest level since 1985.

 While the balance sheet for agriculture in the aggregate looks reasonably sound, that could change if farmland values fall sharply.  Farm real estate values, which showed strong increases through much of the 1990s, started to level off last year.  Cropland values declined in 5 states in 1998, and in 1999, cash rents declined in 9 states, although the declines were small.   In 2000, the value of farm real estate, which represents the largest component of farm assets, is expected to rise 0.5 percent, compared with a 1-percent increase estimated last year.  Farmland values will likely remain stagnant or decline in areas of the country in which crop production dominates the farmland market, but increase in those areas where farmland values are influenced by urban pressure and other factors, such as the Northeast and some Western States.  Farmland value data are reported with a lag, and thus far, the data show the drop in hard hit crop regions have been fairly modest.  Recent Federal Reserve Bank data show that for certain parts of the country, such as portions of Iowa, Illinois and Indiana, land prices declined 2-5 percent between October 1, 1998, and October 1, 1999.  Given current production and price prospects, we can expect further pressure on land prices in the months ahead, particularly in the Corn Belt, Plains States, and Mid-south.

 Commercial lenders report declining farm loan repayment rates, increasing numbers of farm loan extensions and renewals and more stringent collateral requirements.  However, all major institutional lenders continue to experience historically low levels of delinquencies, foreclosures, net loan charge-offs and loan restructuring.  In 1985, over 10 percent of all bank nonreal estate loans to farmers were either delinquent (past due 30-90 days) or nonperforming (past due 90 or more).  In the first quarter of 1999, 2 percent of all bank nonreal estate loans were either delinquent or nonperforming.  Bank charge-off rates, which reached 3.36 percent of nonreal estate loans in 1986, remained below 0.2 percent in the first quarter of 1999.   In addition, delinquencies of the Farm Service Agency (FSA) have declined from a year ago and since 1996.

 Over the past year, the amount of credit provided to farmers and ranchers by FSA directly or through credit guarantees to commercial banks has increased sharply.  The total value of loans provided to farm borrowers through direct and loan guarantees is up 75 percent, compared with a year ago.  Congress authorized over $5.7 billion in FSA guaranteed and direct loan program authority in FY 2000 to assist farmers in obtaining credit.  The FY 2000 program level for FSA farm loans is $1.9 billion more than the $3.8 billion obligated during FY 1999 and $3.5 billion more than the $2.2 billion obligated in FY 1998.

Implications of the Farm Crisis–Farm Level Indicators
 On January 1, 1999, USDA classified 59 percent of farms as being in a favorable financial position--positive cash flow and low debt compared with assets.  The remaining farms had a debt- to-asset ratio above 0.4, 4 percent of farms; or negative farm income, 33 percent of farms; or both, 5 percent of farms.  Most dairy producers entered this year in a strong financial position following two years of strong prices and low feed costs.  However, sharply lower milk prices could contribute to growing financial stress for those producers who remain highly leverage.  For producers of field crops who are already highly leveraged, continued low prices of these commodities and weather-reduced production will increase their financial vulnerability.  The areas of the country that specialize in the production of these commodities, such as the Corn Belt, Plains States, Delta and Southeast and areas affected by adverse weather, will likely see more of an increase in farm financial stress than other areas of country.  The extent farm financial stress increases in the coming months will also depend on whether the Congress passes an emergency aid package and the size of that package.
 Looking ahead at the 2000/01 crop years, income prospects from a crop sector perspective suggest sharp declines in income.   The net income--cash receipts plus government payments less cash production expenses--for wheat, feed grains, upland cotton, rice and soybeans could fall to $18 billion, down $6 billion from $23.8 billion for 1999/00 and the 1995-99 average of $24.0 billion.

Market Prospects–The Next 12-18 months
Crops.  Large U.S. and global production of major crops coupled with more than ample stocks going into 1999/2000 marketing year are expected to continue to pressure grain, oilseed, cotton and rice prices through the remainder of the 1999/00 marketing year.  Given no major weather disruptions in the major crop growing regions of the country, crop prices are expected to remain low over the next several months and into the 2000/01 marketing year.
 In 1999, U.S. producers planted the lowest wheat acreage since 1972.  But, wheat prices in 1999/00 are projected to decline from $2.65 per bushel last season to $2.50-$2.60 per bushel this marketing year, as winter wheat yields were record-high in 13 states and higher carryin stocks this season nearly made up for the year-to-year drop in production, leaving total wheat supplies very near last year’s level.  Wheat exports are forecast to be up slightly, reflecting the combination of strong export competition and increased food aid shipments.  However, total use is projected to fall this season due to a nearly 100-million-bushel drop in feed use.  Ending stocks are forecast to increase from 946 million bushels at the end of the last season to 997 million bushels at the end of this marketing year, the highest since 1987/88.  (This forecast does not account for the 3-million-ton food aid program announced on February 10.)

 Looking ahead to the 2000/01 marketing year, which begins on June 1, a further decline in winter wheat acreage will likely push total U.S. wheat acreage and wheat production lower.  Winter wheat plantings last fall were down 1 percent from a year earlier.  Lower wheat supplies and some improvement in exports could lead to slightly higher wheat prices next season.
 The 1999/00 corn crop of 9.44 billion bushels is down from last year’s crop of 9.76 billion bushels.  While the size of the corn crop is down this season, total supplies are up as higher beginning carryover added nearly 500 million bushels to current-year supplies.  Higher use is expected to more the offset the increase in total supplies, causing ending stocks of corn to drop from last season’s 1.79 billion bushels to 1.74 billion bushels at the end of this marketing year.  Total corn use this season is projected to reach a record-high 9.5 billion bushels, compared with last season’s 9.3 billion bushels, as domestic use is projected to increase by about 3 percent while exports are projected to fall slightly from last year.  The farm price of corn for the 1999/00 marketing year is projected to average $1.75-$2.15 per bushel, compared with last year’s $1.94.

 In 2000, corn acreage is expected to be near last year’s level and assuming trend yields the corn crop would be up slightly and total corn supplies would be near this year’s level.  Total use also may be near this year’s level, as ethanol use expands but declining livestock numbers hold down feed use.  With little to no change in ending stocks, corn prices are expected to show only modest improvement next season.

 Soybean plantings of nearly 74 million acres in 1999 exceeded the record of 72 million acres in 1998.  However, soybean production dropped 4 percent in 1999, as drought adversely affected yields in several States.  Despite the drop in production, total soybean supplies this season are record-high, as larger carryin stocks more than compensated for the drop in production.  Most of the increase in supplies is expected to be absorbed by larger exports, which are forecast to be up 11 percent, leaving soybean ending stocks about unchanged from last year.  Soybean prices for 1999/00 are currently projected to average $4.50-$5.00 per bushel, compared with last season’s $4.93.

 Plantings of soybeans could continue to expand in 2000, as returns to soybeans, including loan deficiency payments and marketing loan gains, relative to other major crops encourage farmers to switch acreage into soybeans.  Higher acreage and trend yields could lead to record soybean production in 2000 and another year of rising carryover.  Under the pressure of rising stocks, soybean prices could face additional pressure in the 2000/01 marketing year.

 The 1999 cotton crop is estimated at slightly less than 17 million bales, up 22 percent from last year’s crop of 13.92 million bales, pushing 1999/00 carryover stocks up nearly 12 percent from last year’s 3.94 million bales.  In both, 1998 and 1999 weather reduced cotton yields in several States.  Despite abundant current-year supplies, U.S. cotton mill use is projected to decline from last season’s 10.4 million bales to 10.2 million bales, as textile imports continue to grow.  U.S. cotton exports are forecast at 6.4 million bales during 1999/00, up 2.1 million bales from last year, as the continuation of Step 2 payments has improved the competitiveness of U.S. cotton in U.S. and foreign markets.  From August through December, the U.S. farm price of cotton averaged 44.9 cents per pound, compared with 60.2 cents last season.

 Plantings of cotton are expected to remain about unchanged in 2000.  However, cotton production could be up in 2000, assuming weather does not adversely affect yields in the major cotton producing States.  Despite the expected increase in production, price prospects could possibly improve, especially if China’s supply of exportable cotton declines in the coming months.

 Rice production in 1999 rose 12 percent from a year earlier, as acreage rose 7 percent to the second highest level on record and per acre yields improved.  The combination of larger production and stagnant total use is projected to lead to a near doubling in carryover stocks to 40.6 million cwt.  Rice exports are projected to increase slightly in 1999/00, due to stronger milled rice exports resulting from lower U.S. prices and larger food aid shipments, while domestic use is expected to drop from last year’s record high.  Rice prices are forecast to average $5.75-$6.25 per cwt., compared with last season’s $8.89.  The decline in prices could lead to a cutback in rice plantings and production in 2000, but large carry-in and another year of large supplies will likely continue to pressure rice prices during the 2000/01 marketing year.

 Other crops face mixed prospects in 2000.  Sales receipts of fruit, vegetable, greenhouse and nursery crops are expected to rise $1.2 billion to $41.7 billion.  While fresh vegetable prices are likely to rise from last year’s reduced levels, fresh citrus prices are returning to normal after the December 1998 freeze.  Horticultural exports are also likely to rise slightly in 2000 after 2 flat years, as Asian economies strengthen and U.S. citrus supplies recover.  Tobacco receipts will decline again in 2000 to $1.8 billion, down $0.4 billion from the year before.  Rising retail prices and reduced use are causing sharp quota reductions.  Peanut production may decline a little with a return to trend yields and reduce cash receipts somewhat.  Sugar production is likely to continue growing, despite reduced prices, as weak prices for alternative crops deter switching.  International trade obligations will cause increasing concern about 2000/2001 imports and supplies.

Livestock and Poultry.  Record-high per capita meat production pressured livestock and broiler prices last year.  In 2000, higher poultry production is expected to be about offset by lower beef and pork production, causing per capita meat consumption to drop below last year’s  Lower red meat production is expected to boost prices for cattle and hogs in 2000.  In addition, livestock, poultry and dairy producers should benefit from another year of low feed costs.
 In 1999, hog prices steadily improved throughout the year averaging $34 per cwt. for the year.  During the fourth quarter of 1999, hog prices averaged over $36 per cwt., more than $14 higher than one year earlier.  In December and January, hog prices averaged $38 per cwt., moving above break-even for the first time since late 1997.  Responding to the low returns the past couple of years, producers began to reduce their breeding herds in late 1998 and continued to reduce them in 1999.  Although the number of sows farrowing in June-November was down 4 percent from a year earlier, the increase in pigs per litter was up 2 percent, leading to a 3-percent decline in the pig crop.  The drop in hog numbers is expected to lead to nearly a 4-percent decline in pork production in 2000.  The decline in pork production could push hog prices above $40 per cwt. during the second half of this year, with hog prices averaging $39-$41 for the entire year.

 Cattle prices are projected to average about 5 percent higher in 2000 following last year’s nearly 7 percent increase, as the liquidation of the nation’s cattle herd finally leads to reduced beef production.  The USDA’s January 1 inventory of cattle and calves on farms showed 98 million head, down from 103.5 million head on January 1, 1996.  In 1999, lower cattle and calf numbers did not translate into less beef production, as record slaughter weights, another year of poor incentives to hold back heifers for herd expansion and reduced forage due to drought led to record beef production.  Beef production will remain large during the first six months of 2000, as cattle on feed inventories continue at record levels.  On January 1, the number of heifers on feed was up 11 percent, while the number of steers on feed was up 6 percent from a year ago.  During the second half of 2000, higher cattle prices and low feed costs should provide an incentive for producers to reduce heifer slaughter and begin rebuilding the cattle herd.  Reduced placements of cattle on feed is expected to lead to a sharp reduction in beef production during the last half of 2000.  For all of 2000, beef production is forecast to be down 3 percent.
 Broiler prices in 2000 are projected to be off about 2 percent from last year after falling 8 percent in 1999.  In response to attractive returns in 1998, poultry producers expanded the hatchery flock which could be about 5-percent larger than a year ago through the first half of this year.  In the face of larger supplies, prices for whole birds are expected to remain weaker than a year ago.  Prices for most broiler parts in January were 10-20 percent below a year ago, while strength in the export market kept leg quarter prices about 5 percent above last year.  Despite the price drop, producer net returns are expected to continue to remain positive.

 For all of 1999, milk prices averaged $14.38 per cwt., down from the record of $15.42 per cwt. in 1998, but still well above the previous 5-year average.  These strong milk prices coupled with low feed costs and favorable weather in most areas of the country caused producers to expand milk production by over 3 percent in 1999, the highest year-to-year gain in milk production this decade.  Increasing milk production and seasonally soft demand for dairy products caused milk prices to collapse at the end of 1999.  The surge in milk production will likely pressure milk prices over the next several months.  For all of 2000, the all-milk price is forecast to average $12.55 per cwt., down nearly $2 from last year and about $1.60 below the previous 5-year average.

Other Factors Affecting the Outcome
 There is no doubt the farm economy is weak and many producers are having serious cash-flow problems.  A number of key factors that will determine the financial fate of U.S. agriculture over the coming year are as yet unknown.  A few key things to watch:

Market access.  There is continuing concern by producers over the acceptance of transgenic crops and the economic returns to producing them.  Consumer and government reaction to these crops in overseas markets will determine producer use of transgenic seeds, marketing practices,  and farm prices.

 China.  China will continue to be a potentially major factor in world agricultural markets for several reasons.  First, China’s domestic macroeconomic policy is a factor in Asian trade patterns and exchange rates.  Second, China has not been much of a wheat importer in recent years and holds large stocks of cotton and corn.  China has lowered producer prices for major commodities in 2000 and that may result in some crop production cutbacks or switching among crops. China’s exports limit U.S. prices of corn and cotton, but production changes and stock reductions in the 2000 crop year may begin to limit China’s effect on world markets.
 Accession to the World Trade Organization (WTO) would be a very positive factor for U.S. exports and farm prices.   China’s commitment to eliminate export subsidies should reduce their exports and reinforce domestic policy changes that reduce production incentives.  Recent USDA analysis suggests that U.S. farm exports to China could rise as by at least $2 billion by 2005.

Global weather.  As always, adverse or exceptionally good weather around the world could affect the level of crop food, feed and fiber supplies and prices.  At this point, weather generally looks favorable, with dry areas in the U.S., North Africa and the Middle East.

 Emergency assistance legislation.  The drop in farm prices the past two years raised concerns with the farm income safety net resulting in Federal emergency assistance of over $15 billion.  The President’s FY 2001 budget proposes a new farm safety net initiative.  The initiative, designed to broaden Federal support, includes four complementary proposals that would:  (1) enhance farm income support by providing supplementary countercyclical income assistance, (2) increase environmental benefits and farm income with expanded conservation programs, (3) improve risk management programs and (4) expand economic opportunities in farm and rural areas.  These legislative proposals would provide about $11.5 billion in additional assistance to the farmers and ranchers during 2000-2002.

 The income assistance program would provide supplemental income assistance payments to eligible producers of wheat, feed grains, rice, upland cotton, and oilseeds.  The supplemental payments would be provided to eligible producers if the projected nationwide gross income for the crop falls below 92 percent of the preceding five-year average.  To target the program to smaller farmers who typically have lower farm income, payments would be subject to a separate $30,000 per person payment limitation.  The income assistance program is projected to cost $3.1 billion during FY 2000-01.  In addition, the President proposed to extend the dairy price support program, which terminates at the end of this year, for two additional years.

 The budget proposes an additional $1.3 billion for a Farm Conservation Programs Initiative, which includes a new $600 million Conservation Security Program to provide annual payments to farmers and ranchers who implement sound conservation practices.  Additional funding is also provided for the Environmental Quality Incentives Program (EQIP) and the Wildlife Habitat Incentives Program (WHIP).  In addition, the President proposed to remove the enrollment cap on the Wetland Reserve Program (WRP) and to increase the enrollment cap on the Conservation Reserve Program (CRP) from 36.4 to 40 million acres.

 The FY 2001 budget would extend the premium discount available in 1999 and 2000 for farmers who purchase buy-up coverage for crop insurance.  The premium discount and the costs associated with higher participation are expected to total $640 million. The budget also requests $100 million to establish coverage for multi-year losses and $100 million to provide livestock producers with price protection.

 Lastly, the Administration proposes using $80 million in FY 2001 to provide equity capital for new livestock and other processing cooperatives. The proposal would help address concerns about market concentration and provide farmers with an additional source of income through cooperative ownership.

 That concludes my remarks, and I invite questions.  Thank you.

                                 1996        1997       1998        1999E        2000F
                                                        Billion Dollars
Cash receipts            199.1      207.6      196.8          191.9          189.9

Government payments   7.3          7.5        12.2            22.7            17.2

Cash expenses          159.9      169.0      167.8          170.0          171.5

Net cash farm income  57.5        58.5       55.0             59.1           49.7

Net farm income          54.9        48.6       44.1            48.1            40.4

Farm debt                  156.1     165.4     172.9          172.8          172.5

Farm assets             1,003.9  1,051.6  1,064.3       1,067.2       1,072.8
Debt-to-assets              15.6      15.7       16.2            16.2             16.1
                                                     Billion Dollars
Agricultural exports       59.8      57.3       53.6            49.0            49.0

Agricultural imports       32.6      35.8       37.0            37.4            38.0

Value of the dollar1/   101.0     109.6     115.5          112.0          108.7
                                                 Million Metric Tons
Farm production 2/      410      417         431              415              NA

Farm prices received 3/
                                  112      107          101                95               NA
Grain stocks-to-use 4/
                                   16.0      17.9         18.7            18.1             NA

CPI–food                      3.3        2.6           2.2              2.2              1.9
E=estimate; F=forecast
1/ real agricultural trade weighted, 1990=100
2/ U.S. production of grains and oilseeds
3/ index of prices received by producers for all farm products, 1990-92=100,
    data for 1999 is for the month of August 1999
4/ marketing year world ending stocks in the year indicated.

Note: Data and forecasts are based on early February 2000 conditions.