What is in this article?:
- USDA looks at impact of ending direct payments
- Effect on land values
- USDA has found that, “an abrupt end to the direct payment program could reduce the number of farms with a favorable financial status (profitable farms having relatively low debt burdens) by about 11,000 nationally, or about 2 percent of farms that received direct payments in 2009.
Effect on land values
On the categories farms fall into in the analysis…
“There are four categories of financial status that we use. These are very standard and take into account the balance sheet, the solvency, and income levels.
“‘Favorable’ is a positive net farm income and a debt-to-asset ratio of less than 0.4 (percent).
“‘Marginal’ income is where you have negative farm income with a debt-to-asset ratio of less than 0.4 (percent).
“‘Marginal solvency’ is where you have positive farm income and a debt-to-asset ratio that’s greater than 0.4 (percent).
“‘Vulnerable’ farms have both negative farm income and a debt-to-asset ratio higher than 0.4 (percent).”
On the effect of ending direct payments on land values…
“This is something that’s more difficult to measure. We looked at something called ‘the share of capitalized direct payments relative to cropland values.’
“It’s a bit tricky. ‘Capitalized direct payments’ is the present value of all future direct payments assuming they continue indefinitely. That’s an estimate of the contribution to land values. And we know this is a maximum – we don’t think the total impact would be so high.”
In the Delta, “direct payments are relatively higher in relationship to the land values. We don’t see this in the Southeast as much, which could be due to having more urban influence on land values.
Did you take into account the size of farms? Say, 500 acres versus 5,000 acres?
“No. We’d probably have run into sample size issues with the ARMS analysis.
“One thing we did do, though, is limit the analysis to ‘farm businesses.’ A ‘farm business’ is where farming is the primary occupation of the primary operator.
“Farm businesses make up less than half of all farms in the United States. ‘Rural residence farms’ make up a much larger share. However, farm businesses account for over 80 percent of production.”
“We try to mention quite a bit that we’ve used data from 2004 to 2009 in the analysis. Some regions have seen significant increases in income since then – the Corn Belt, the Plains region. In those areas, the impact of an end to direct payments might not be as much as our estimates.”