After a review of farm-sector financial indicators, economist Brent Gloy says, “Caution going forward would be appropriate,” particularly for operators who are borrowing money. The commonly used debt-to-asset ratio is low, Gloy writes at the Agricultural Economic Insights blog a day before USDA updates its farm-income forecast, but lesser-known yardsticks, such as the debt-service ratio and times-interest-earned ratio “indicate that financial conditions are as poor as any seen for some time.”
“We would expect that capital investment will continue to fall in the sector,” says Gloy. “Further, cash rent is another expense that can be managed and we would look for further declines in rents, or at least fewer farmers willing to pay high rents.”
Early this year, USDA forecast net farm income, a measure of wealth from production, at $54.8 billion this year, down 3 percent from 2015 and less than half of the record $123.3 billion of 2013, at the end of the agricultural boom. The estimate assumed that crop and livestock prices would stabilize after slumping badly in 2014.
“In the case of the farm economy in 2016, the barn has caught fire,” said president Zippy Duvall of the American Farm Bureau Federation, the largest U.S. farm group. Farm subsidy costs are on the rise. In an essay, Duvall said “anyone who criticizes” the spending on farm families at this critical time should remember that’s what the farm bill is designed to do” — to be a safety net. “Make no mistake, we are going through challenging times in farm country right now and many farm families are dipping into reserves as they face [commodity] prices at break-even levels or below.”
Congress is expected to begin the groundwork next year for the 2018 farm-subsidy law. “It is clear Congress needs to address program shortfalls for cotton and dairy producers,” said Duvall. “We also need to consider ways to overcome discrepancies in how some programs offer vastly different levels of support, sometimes even to neighboring farms.”
The 2014 farm law, enacted two years later than planned, expanded the federally subsidized crop insurance program; gave grain and soybean farmers the choice of two differently structured subsidy schemes; and created insurance-like programs for cotton and dairy farmers. Enrollment in the cotton and dairy programs has been low and payments also have been small in the face of low prices.
Agriculture spending, around $14 billion this fiscal year, is forecast to leap to $19 billion in the fiscal year that opens Oct. 1, and to be $19 billion again in fiscal 2018 before receding, the Congressional Budget Office said last week. By contrast, food stamp costs would fall.
“While the CBO’s forecast does not go into great detail, these new projections are likely the result of higher-than-expected spending on farm subsidies, which flow to the largest, most successful farm businesses and not small family farms,” said Craig Cox, of the Environmental Working Group, a proponent of larger spending on land stewardship.
“If past is prologue, proponents of expanding farm subsidies in the next farm bill will leverage the fact that commodity prices have leveled off to historic averages. But Congress would be wise to recognize that an increase in payments would come at an ever-growing expense to most farmers and the environment, and would, of course, cost taxpayers a lot of cheese,” wrote Cox in an EWG blog.
USDA will make its first forecast of calendar 2017 farm income in February. Its initial forecast of farm exports in fiscal 2017, up 5 percent, or $6 billion, from this year’s $127 billion, suggests some improvement for the sector in the months ahead. Exports account for 20 percent of farm income. Higher soybean prices and a record volume of sales will be the primary driver for the increase, the agency said.