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Ag Forecast: Glum but Sunny at the Same Time

There’s a Trump Bump in rural America. On the same day USDA forecast the fourth year in a row of lackluster farm income, Purdue said farmer optimism was the highest – by far – since it began a monthly survey in October 2015. Optimism began rising last November, when Republican Donald Trump was elected president, and it skyrocketed into the new year.

The upturn in producer sentiment was akin to the stock market rally, called the Trump Bump, that followed Election Day. Soybean, cattle, and hog prices improved early this year, and four out of 10 operators surveyed by Purdue for its Ag Economy Barometer said they expect an improved regulatory environment over the next five years.

“The biggest contributor to the large uptick in optimism since October has been producers’ increasingly favorable expectations about the future,” said James Mintert, director of Purdue’s Center for Commercial Agriculture, in early February. 

More farmers say they expect their operations will be in better financial shape a year from now. It’s a minority, 39% in the January survey, but larger than the 32% recorded at the end of 2016. Similarly, fewer farmers say they are worse off than a year ago, but it’s still a 58% majority. The overall barometer reading of 153 was up by 61 points in three months.

USDA estimates a 2% upturn in cash farm income this year, the first increase since commodity prices collapsed four years ago. All the same, income of $93.5 billion would be 31% less than the record set in 2013 and second lowest since 2009. Crop and livestock revenue will be stagnant, and after two years of belt-tightening, production expenses would be flat. Custom work, machine hire, and similar activities would provide the boost in income. 

“Our farmers and ranchers are facing hard times,” says House Agriculture chairman Michael Conaway (R-TX), and the slump in income “shows no signs of letting up.”

“The balance sheet forecast indicates farm solvency is high overall, despite a fifth consecutive year in which farm solvency ratios have weakened,” says USDA.

The debt-to-asset ratio is forecast for 13.9% this year, the highest since 15% in 2002. At the bottom of the agricultural recession of the mid-1980s, the debt-to-asset ratio was 22%.

Farm debt, on the rise since 2003, is forecast to grow by 5% this year. According to USDA, debt will reach $395 billion this year, up by $80 billion, or 25%, since 2013. Coupled with a decline in land values, the larger debt load is eroding farm equity. The debt-to-equity ratio is forecast at 16.1% this year, up by 1.1 points from 2016. In 1985, it was 28.5% at the nadir of the farm recession.

Financial stress on producers is not severe yet because producers had a long run of money-making years. Even in 2014 and 2015, following the collapse in commodity prices, net farm income exceeded the long-run average when adjusted for inflation, says University of Illinois economist Scott Irwin. “At the same time, (we) cannot continue at these low levels too much longer without causing more severe financial pressures,” 
Irwin says.

This article was produced in collaboration with the Food & Environment Reporting Network, an independent, nonprofit news organization producing investigative reporting on food, agriculture, and environmental health.

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