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Are Ag Forecasts Getting Less Bleak?

Since the collapse of the agriculture boom in 2013, the start-of-the-year forecasts for the farm economy have been as uniformly dreary as midwinter in the Midwest: big stockpiles and the lowest season-average commodity prices in a decade. It’s hard to turn a profit, and USDA chief economist Robert Johansson says the stress is mounting for some producers.

One in 10 crop growers and an equal portion of livestock operators are highly leveraged, meaning they carry debts that exceed 40% of their assets, a rocky position. “It’s been picking up lately,” Johansson says. “It (had) been fairly flat for the last 10 years or so.” 

Highly leveraged operators tend to be growers with a high proportion of rented land and recent entrants to farming, who have limited reserves. Only 6.5% of crop farms and 6% of livestock operations were highly leveraged four years ago.

In a Successful Farming magazine interview, Johansson says delinquencies on farm loans are rising but bankruptcies remain low. The debt-to-asset ratio, a commonly used gauge of financial stress, was 13.2% in 2016 and “will tick up this year as land values fall,” perhaps as high as 14%. That would be the highest since 15% in 2002 but far below 22.2% in 1985 (at the worst of the agricultural recession). “The situation is much different than it was then,” notes Johansson.

The sector is also adjusting to expectations that commodity prices are not likely to improve much for years to come. Farmers are tightening the screws on production expenses and idling less productive land. Grain, soybean, and cotton plantings are expected to decline by more than 6 million acres from 2016.

Cash rental rates for farmland are likely to fall by 5% this year, says Johansson. “I don’t see land values coming down as quickly on a percentage basis.” Low interest rates support land values by making it easier for farmers to afford to buy land when it comes on the market.

It’s a common theme among agricultural economists that the farm economy this year will look a lot like last year. 

A University of Missouri think tank says farm income will be up by $1 billion, a marginal improvement. Crop prices may be slightly higher this year, but production will be smaller than last year’s record-setting corn and soybean crops, so revenue should be roughly similar. 

On the broader front, U.S. and world economic growth are forecast higher, pointing to higher demand for farm goods. The impact could be offset by rising inflation and interest rates as well as petroleum prices.

“There are a lot of things out there that could change” the economic picture, says Johansson. Exports account for 20% of U.S. farm income, so large-scale change in trade agreements could influence foreign sales, for better or worse. Since China is the number one market for U.S. exports, its decisions, such as opening the door to U.S. beef or throttling back on pork, could have an especial impact. Similarly, if economic growth overseas accelerates above the 2.7% assumed by USDA, U.S. farm exports could benefit.

There is the perennial question of how weather or disease will affect production. Brazil, the top U.S. competitor in soybeans, is on track for a record crop, due to large plantings and good conditions early in the growing season. The crop has a ways to go. February is the main pod-filling month with harvest mainly in March. If Europe, and particularly France, rebounds from the poor wheat crop of 2016, it could add to record-large world wheat stocks. South Korea culled its flocks of domestic fowl, cutting egg production by 30% because of an outbreak of avian influenza. As a result, it began importing U.S. eggs in January, a welcome outlet for U.S. egg farmers, who have rebuilt flocks from losses in the worst-ever U.S. bird flu epidemic in 2014-2015.

Around the world, there are key countries and markets where U.S. exports and, indirectly, farm income ride on local events. “In any given region, you could pick one,” says Johansson.

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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