Blake Gerard at a hearing of the General Farm Commodities and Risk Management Subcommittee
Blake Gerard testifies at a hearing of the General Farm Commodities and Risk Management Subcommittee.

Rice producers bracing for higher costs, tighter margins

USDA forecasts higher production costs for rice making PLC program even more important for producers.

U.S. rice producers are facing a challenging economic environment as they plant the 2017 crop, but it would be much worse without the 2014 farm bill’s Price Loss Coverage or PLC program, according to the chairman of the USA Rice Farmers board of directors.

Blake Gerard, a fourth generation farmer who lives in Cape Girardeau, Mo., and grows rice in Illinois, said rising costs of production and low rice prices have made the PLC program more important than ever for rice growers.

“It is safe to say that the reason I am still in business today is because of the safety net provided by the 2014 farm bill and, specifically, Price Loss Coverage,” said Gerard, testifying during a hearing of the House Agriculture Subcommittee on General Farm Commodities and Risk Management.

The subcommittee, chaired by Rep. Rick Crawford, R-Ark., is conducting a series of hearings aimed at examining the effectiveness of current farm policy in advance of writing the next farm bill. Most farm organizations support the 2014 farm law while conservative think tanks like the Heritage Foundation and some members of Congress want to do away with it.

Gerard said 2017 is proving to be a challenging year for rice producers but that 2018 could be even worse given a USDA Economic Research Service forecast that production costs could be the highest on record – nearly $1,000 an acre for rice.

Highest costs in Title I

“Our operating costs plus labor exceed every other crop covered by the Commodity Title,” he said. “To put that in perspective, the expected cost for producing corn is $679 an acre; soybeans, $479 per acre; wheat, $312 per acre; and sorghum, $317 an acre.”

Gerard, who also chairs the USA Rice Government Affairs Committee, said a reasonable question might be “Why not grow something else?”

Weather, water availability and soil type all play a role in whether it is agronomical to grow rice in a region, he said. But the most important reason is economics.

“The initial investments for rice farmers including equipment, infrastructure for irrigation, conservation measures that have been installed are so specialized that it is difficult to economically justify a shift from year to year,” he noted.

“So rice farmers are in it for the long haul - we intend to ride out the storm, but we could not do so without the safety net that the Price Loss Coverage program provides."

99 percent participation

Gerard isn’t alone in advocating for continuation of the Price Loss Coverage program. Ninety-nine percent of U.S. long grain rice farms and 94 percent of medium grain farms enrolled in PLC when the signup began for the 2014 farm bill. A very small number of rice growers selected Agricultural Risk Coverage or ARC, which is an insurance-based program.

“When prices were as high as they were during the 2014 farm bill’s development, USA Rice advocated for a safety net to protect us during multi-year price declines instead of shallow losses,” said Gerard. “We appreciate this committee’s recognition that the farm safety net is not one-size-fits-all and for including PLC, which, by and large, is working as intended.

“It is the committee’s foresight and work on our behalf that has helped to safeguard much of America’s rice industry.”

What’s happened to the rice industry since the passage of the 2014 farm bill is a playing out of the old marketing adage that the best cure for high prices is high prices. The high grain prices between 2010 and 2014 enticed countries like India and Vietnam to increase their rice plantings and push up world supplies of rice.

U.S. rice prices, which averaged $16.30 per hundredweight across all grain lengths in 2014, are forecast by USDA to average $10.50 per hundredweight in 2016-17. That would be a 10-year low for the rice industry and a 36-percent decline over three years.

Bigger drop in west

“Even more extreme, California’s Temperate Japonica rice was averaging $21.60 per hundredweight for the 2014-15 marketing year and is now forecast at $13.60 per hundredweight – a 37-percent decline in just two years.

The U.S. rice industry has also been hit by a series of natural disasters. “Over the last four years, our national average yields have taken a significant hit and decreased annually due to extreme flooding or drought throughout the rice-growing regions. The U.S. rice industry is clearly not in a great place due to factors beyond our control.

“Weather events will continue to impact our yields and other major rice producing countries, many of which do not abide by World Trade Organization or WTO rules, will continue to overproduce and artificially depress world market prices for rice. A robust safety net is necessary to protect farmers from extreme weather events and multiple year price declines.”

Like representatives of the cotton, peanut, canola, sunflower and sugar industries who testified during the hearing, Gerard said some areas of the 2014 farm bill could be improved, most notably payment rules and crop insurance coverages.

He said the Actively Engaged in Farming regulations, payment limits, and adjusted gross income or AGI limits should be removed from the next farm bill. Rice producers would also like to see improvements in insurance coverage for their crop.

No more limitations

“Along the lines of program eligibility, we are opposed to any additional limitations based on a farmer’s adjusted gross income. In fact, we firmly believe that this AGI limit should not exist at all. We shouldn’t punish growers for farming larger tracts of land or doing what it takes to be profitable by disqualifying their operations from farm safety net programs,” he said.

Although rice yields are relatively consistent because of irrigation, crop insurance rates for rice remain high. Gerard cited a 75-percent Revenue Protection policy for corn in Floyd county, Iowa, that would cost a farmer $9 per acre. “The same policy on rice in Richland Parish, La., would cost $23 per acre or nearly three times as high as the corn insurance for the same coverage.”

USA Rice has been working with the USDA Risk Management Agency on other types of insurance programs, but the costs and the final products approved by the Federal Crop Insurance Program have not been economically feasible for rice producers.

Gerard also highlighted the many trade challenges facing rice in his testimony and pressed for finalizing the China Phytosanitary protocol, protecting the benefits for rice in NAFTA, and combating unfair trade practices.

When asked by subcommittee members about the factors affecting the downturn in prices, Gerard said an open market with Cuba would offer a major sales opportunity for the U.S. rice industry. He also reminded the subcommittee the U.S. needs to go after global competitors that over-subsidize their producers, both violating their WTO obligations and distorting the world market prices - ultimately costing U.S. taxpayers.

“If it were up to us as farmers, we would prefer to prosper only by the prices our crops bring at the market. But commodity markets aren't always kind,” he noted. “Right now our crops are simply not bringing enough to pay our bills without the assistance of the 2014 farm bill safety net. I am here to ask for this Committee's consideration in not only maintaining our Commodity Title programs, but strengthening it.”

To see Gerard’s prepared testimony, visit https://agriculture.house.gov/uploadedfiles/gerard_testimony.pdf.

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