House Agriculture Committee Holds Hearing on Structural Changes in Farm Economy
News Date October 24, 2007
On October 18, 2007, the House Agriculture Committee held a hearing regarding structural changes that are taking place in agriculture and their impacts on the farm economy. Chairman Collin Petersen (D-Minn.) called the hearing to order, stating that American farmers and ranchers are more productive than ever before. He emphasized that farmers are eager to meet the nation's growing fuel challenges while serving new, fast-growing markets.
Ranking Member Bob Goodlatte (R-Va.) explained that indicators of U.S. performance in agriculture include crops, livestock, public health, and macroeconomics, all of which depend heavily upon renewable fuels (ethanol and biodiesel) and a secure energy supply. "Today, we heard about a number of factors that are influencing the agriculture economy including commodity prices, weather/drought, the declining dollar, and production problems domestically and abroad. It is critical that this committee understand the big picture so that we can put policies in place that allow all of our constituents to compete in an ever-changing global marketplace."
The committee heard testimony from a panel of three economic analysts about trends in prices, farm output, rising input costs from energy prices, increasing land and labor costs, and how biofuels affect the rural economy.
The panel of witnesses included Dr. Keith Collins, chief economist, USDA; Dr. Howard Gruenspecht, deputy administrator with the Energy Information Administration (EIA), U.S. Department of Energy; and Dr. Pat Westhoff, research associate professor with the University of Missouri-Columbia Food and Agricultural Policy Research Institute (FAPRI).
Collins explained that ethanol prices have weakened since midsummer as additional plants have come on line adding to ethanol supplies and contributing to some infrastructure bottlenecks. He stated that corn planted area for 2008 is expected to fall as prices and returns for competing crops, such as wheat and soybeans, have improved relative to corn in recent months. In order to meet the demand for corn, more is being produced per acre; therefore, farm labor needs to be insured, and infrastructure issues such as transportation to other states and a farmer's accessibility to lending facilities needs to be addressed. Transportation energy costs and the corn market can be positively affected by dispersing ethanol plants so they are not all in one concentrated area.
In his testimony, Gruenspecht stated that crude oil prices are projected to average over $73 per barrel in 2008, up from $69 per barrel in 2007. "Assuming continued tight global supplies, slower U.S. economic growth of 1.9 percent projected for both 2007 and 2008 may be a mitigating factor for even higher crude prices." Increasing prices of gasoline and diesel oil, energy import security, and greenhouse gas emissions are all concerns related to agricultural growth. With the EIA's projections that the ethanol market will continue to grow substantially over the next 15 months, demand for ethanol blends such as E85 will also increase.
Westhoff gave details about biofuels and U.S. agriculture. Biofuel production has been more rapid than FAPRI expected, which increases the amount of corn ethanol plants use to four billion bushels by 2009, and puts upward pressure on corn prices which encourages producers to shift acreage away from other crops such as soybeans and wheat. In effect, this increases the prices for these commodities and further encourages producers in South America to expand corn production. Other factors affecting agricultural markets include global economic growth, exchange rates, population growth, technology, supply response, land value and policy. Complete witness testimonies are located at http://agriculture.house.gov/hearings/statements.html. (Contact: Alexandra Lee)