When the commodity boom collapsed in 2014, U.S. farm income plunged along with it. While there are signs that income is stabilizing, economists Brent Gloy and Dave Widmar say their foremost concern “is more about the duration than the magnitude” with the fourth year of persistently low income going into the books.
“The longer that the downturn lasts, the more financial erosion will take place,” they write at the Agricultural Economic Insights blog. “It will be critical to carefully monitor farm financial conditions. It is important not to become complacent about conditions that are ‘somewhat poor’ but last for a long time.” If current conditions continue, there will be pressure to reduce production costs, which would hit land values and land rental rates. The USDA said farm income is being pulled down this year by the higher spending on production costs.
Gloy and Widmar say, “One must wonder about the current dip in expected farm income and how much is attributable to the trade war,” considering USDA has estimated $11 billion in impact on the agriculture sector from trade turmoil. The USDA will revise its estimate of farm income in early 2019. “One big piece will be the Market Facilitation payment, or trade aid,” say the economists. “The timing of these payments will be key. Also, will the USDA decide to make a payment on the second half of production?”