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Farm incomes weakening -- Fed study

Jeff Caldwell 05/16/2013 @ 9:33am Agricultural content creator and marketer.

There have been signs here and there lately that may indicate a reversal in the years-long climb in farmland values. And that's a key indicator of the direction of farm incomes down the road.

Market experts have seen the door open for farmland values and rents to turn lower in the near future: A new survey shows in Iowa, for example, the climb in land rents has slowed. Looking long-term, there are big-picture trends that could indicate a forthcoming slide in farm incomes. There's new data from the Federal Reserve that show this foreshadowing could be right on target, and a slide in farm financial prosperity is already here and slated to grow. However, there is no single factor behind the slowing income growth.

"Rising production costs and falling crop prices curbed farm income growth in the first quarter of 2013. High feed and forage costs continued to stifle profitability in the livestock sector, where losses were compounded by declines in livestock prices and the persistence of intense drought," says Nathan Kauffman, economist with the Federal Reserve Bank of Kansas City, in a recent report. "Crop production expenses, particularly for seed and fertilizer, climbed higher as planting season approached. Higher-than-expected inventories dampened crop prices at the end of the quarter, further limiting farm income gains."

While land values continue to climb, that rise has eased, and in the Kansas City Fed's latest survey of ag credit conditions, Kauffman says more ag lenders said they're watching debt levels rise because of the land market.

"Land values climbed further in the first quarter of 2013. District cropland values rose 20%, and ranchland values rose 14% year-over-year, a modest slowdown compared with the first quarter of 2012. Rising land values strengthened the balance sheet of farmers who own land but boosted debt levels for others financing farmland purchases," Kauffman says. "Even though most bankers commented that debt levels have remained manageable, some noted that record land prices were raising the debt obligations for young and beginning farmers and producers expanding their operations. Bankers also indicated that livestock producers were more highly leveraged due to recent losses accentuated by drought."

The key term here is manageable. Farm incomes are still relatively high despite slipping crop prices in the most recent quarter, Kauffman says. But prices for things like livestock feed, crop seed, and fertilizer continue to step higher, which will likely continue to limit potential income gains over the next few months. For this reason, Kauffman says the Fed's latest survey of ag lenders shows that many expect a general slide in farm incomes in the near future.

"Bankers expected farm income to weaken over the next quarter. Wheat prices fell in the first quarter, which could keep farm income in the District subdued through this year’s spring harvest. Futures markets also suggest that corn and soybean prices may drop if normal weather patterns return, boosting U.S. crop supplies," he says. "Lower crop prices, however, could eventually lead to improved profit margins in the livestock and ethanol sectors. Still, despite the potential for falling prices, crop insurance prices for corn and soybeans were set at levels that should ensure strong income for many crop producers in 2013."

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Unacceptable! 05/16/2013 @ 5:11pm This is unacceptable. As a farmer, God made me on the 8th day and its my God given right to drive a fancy new truck every year and pay $13K per acre for my neighbor's farmland. These non-farm people need to bow down immediately and send me even more subsidies and let me burn even more of their food up into ethanol! Don't they know that I am an "Agvocate" and a member of the landed gentry that deserves subsidized credit (FCS)? What I really need is for the taxpayer to pay the premium on "Revenue Protection" from "Shallow Losses" that let's me roll the dice and take on even more risk with no consequences whatsoever! Only in America (or the former Soviet Union)!

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Re: Re: Unacceptable! 07/07/2013 @ 7:59am Why such anger? It is your right to take a stand against something that you believe is wrong, but you should try to use facts instead of opinion to make your point. AND your argument might be taken more seriously if you would leave the anger and resentment out of it.

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