The slump in commodity prices that has accompanied the ongoing tit-for-tat trade war has sapped the farm economy this summer and poses financial risks going into the fall, said Federal Reserve banks in Chicago and Kansas City on Thursday. “Income was expected to remain subdued across [the central and southern Plains] in coming months, but that effect could be exacerbated in states more heavily concentrated in commodities — such as soybeans — that have been targeted by retaliatory tariffs,” said the Kansas City Fed.
Farm bankers in the Midwest “emphasized their concerns (and farmers’ concerns) about the negative impacts to the agricultural sector from recent changes in trade policy,” said the Chicago Fed in its quarterly AgLetter. It quoted an Indiana banker as saying, “Commodity prices are becoming a greater concern. If they persist at present levels, it will cause some farmers to make major changes or exit their operations.”
In its quarterly Ag Credit Survey, the Kansas City Fed said the farm economy in the Plains had “slipped alongside a sharp drop in the prices of key agricultural commodities.”
“If crop prices remain low through harvest,” the Kansas City Fed continued, “many farm borrowers likely will face additional increases in financial stress, and the future path of agricultural credit conditions may hinge on the strength of farmland markets.” Farmland often makes up 80 percent of a farmer’s assets.
Farmland values in the central and southern Plains were marginally — 1 percent — lower this spring than in spring 2017, said the Kansas City Fed. Midwestern land values were 1 percent higher on July 1 than they were a year earlier, said the Chicago Fed.