U.S. farm income to be half of 2013 peak, farm debt to rise by 5 percent
The government forecast U.S. net farm income at $62.3 billion this year, the lowest since 2009 and only half of the record income of 2013 at the crest of the agricultural boom. In inflation-adjusted terms, 2017 net farm income would be the lowest since 2002. Farm debt was forecast to increase by $19.4 billion this year, part of a 25 percent increase since commodity prices collapsed four years ago.
In their first forecast of 2017 farm income, USDA economists said crop and livestock revenue would be stagnant and, after two years of belt tightening, production expenses would be flat. Income would shrink by nearly 9 percent from 2016 because growers are emptying some of their grain bins (and net farm income includes the value of crops in storage). Because of the sales, net cash farm income, a narrower measure of liquidity, is expected to rise by 2 percent this year, its first increase since 2013.
“The balance sheet forecast indicates farm solvency is high overall, despite a fifth consecutive year in which farm solvency ratios have weakened,” said USDA. The debt-to-asset ratio, a commonly used gauge of financial stress is forecast for 13.9 percent this year, the highest since 15 percent in 2002. At the bottom of the agricultural recession of the mid-1980s, the hardest times in in decades, the debt to asset ratio was 22 percent.
With the collapse of the agricultural boom in 2013, market prices for the major U.S. crops, including corn, soybeans, wheat and cotton, have sunk to the levels of a decade ago. Prices remain high by historical standards, but the abrupt plunge has led to dour descriptions of the farm sector.
“Our farmers and ranchers are facing hard times,” said House Agriculture chairman Michael Conaway of Texas at the start of the month, and the slump in income “shows no signs of letting up.”
Farm debt rose by 5 percent last year and is forecast to climb by an additional 5 percent this year. Debt has been on the rise since 2003. According to USDA, it will be up by nearly $80 billion, or 25 percent, since 2013.
Coupled with the decline in farmland values, the larger debt load is eroding farm equity. The debt-to-equity ratio is forecast at 16.1 percent this year, up by 1.1 points from 2016. In 1985, it was 28.5 percent, at the nadir of the agricultural recession.
Pat Westhoff of the Food and Agricultural Policy Research Institute said the University of Missouri think tank will release its agricultural baseline around March 1. “I don’t expect our 2017 story to be sharply different from theirs,” he said, referring to USDA’s forecasts.