U.S. net farm income will be a stronger-than-expected $151 billion this year, the second-highest total on record, estimated the Agriculture Department on Thursday. That’s roughly $10 billion higher than the August forecast and due chiefly to cost cutting by producers, aided by lower fertilizer, fuel, and feed prices.
Ag bankers say farmers are tapping their savings from recent boom years instead of borrowing money at what are the highest interest rates since 2007. The average operating loan issued this past summer was nearly 20 percent smaller than the average a year ago, the lenders said in surveys by regional Federal Reserve banks.
Although farmland values are strong, some ag bankers report a downturn in prices in the central Plains after a three-year run-up in values, said senior economist Cortney Cowley of the Kansas City Federal Reserve on Wednesday. The majority of bankers, however, expect farmland values to hold steady or increase moderately.
The Biden administration is broadening the U.S. agricultural economy through climate-smart and bioproduct initiatives while Congress is seemingly stymied over the new farm bill, said Agriculture Secretary Tom Vilsack on Monday. He warned against raiding conservation funding to pay for higher reference prices for corn, soybeans, and other row crops, a leading goal of farm groups.
Congress should provide a “meaningful enhancement” of crop subsidies and the crop insurance program in light of declining farm income, said Republican staff workers on the Senate Agriculture Committee on Thursday. “Headwinds persist in the U.S. farm economy,” they said in a report, pointing to a slowdown in farm exports, weakening commodity prices, high production costs, and rising interest rates.
Agricultural credit conditions are likely to remain strong through the end of this year, although bankers expect farm income and loan repayment rates, now the healthiest since 2010, to soften in the months ahead, said the Kansas City Federal Reserve on Thursday.
The farm real estate market was resilient in the face of higher interest rates and "some moderation" in the farm economy this spring, according to commercial lenders surveyed by five regional Federal Reserve banks.
Interest rates doubled in the past year for agricultural loans, the fastest increase since the early 1980s, with the least-profitable farmers feeling the impact the most, said the Minneapolis Federal Reserve Bank. “All producers should prepare for elevated interest rates by incorporating higher interest expenses into cash flow projections regardless of profitability and debt levels,” it said.
With interest rates sharply higher, farmers are increasingly relying on savings or tightening their belts instead of seeking bank loans to cover their expenses, according to ag lenders nationwide. “The outlook for the U.S. farm economy has moderated in recent months as risks of more limited profit opportunities have grown alongside softening in commodity markets and elevated production expenses,” said the Kansas City Federal Reserve Bank.
A survey released this week shows that farmers are losing an average of $3,348 per year to repair downtime and restrictions because farm equipment makers limit their ability to fix tractors, combines, and other equipment.
High commodity prices supported "profit opportunities for many producers across the farm sector" ahead of the spring planting season, although there were concerns about operating expenses, higher interest rates and drought, said the Kansas City Federal Reserve Bank.
After describing the farm economy in apocalyptic terms, the House Agriculture Committee voted unanimously on Thursday to seek “additional resources” of an unspecified amount “to enact a strong farm bill in 2023.” The committee also said it would consider whether to divert all or part of the $20 billion awarded to the USDA for climate mitigation to other needy programs.
In a decade, government outlays to subsidize crop insurance increased 60 percent, expanding in step with the rapid growth in acreage covered by the policies, according to Risk Management Agency data released Sunday.
The new farm bill could cost nearly $130 billion a year — the highest price tag ever — with public nutrition programs getting more than $4 of every $5, wrote associate professor Roman Keeney in Purdue’s annual agricultural economics review. “The overall budget, and particularly spending on the nutrition title (primarily food assistance for low-income households), should continue to be the most politically divisive component of the farm bill debate.”
The Farm Bureau Federation and John Deere signed a memorandum of understanding on farmers' right to repair their equipment on Sunday — potentially a breakthrough after years of complaints that manufacturers prevented access to the increasingly computerized controls of tractors, combines and other equipment.
The highest interest rates in years will complicate farm finances, and operators should expect higher rates to persist for several years as part of efforts to quash inflation, said a team of agricultural economists on Wednesday. Farmers will pay more when they borrow money, face higher break-even levels on investments, and feel downward pressure on the value of farmland, their largest asset.
High commodity prices will combine with strong demand to hold farmland values at near-record levels in 2023, said Farmers National Co., a farm real estate and management company, on Wednesday.
Strong harvest-time commodity prices pushed farmer confidence to its highest level in 16 months, said a Purdue University poll of large operators released on Tuesday. The abrupt 24-point climb in the Ag Economy Barometer "was motivated by producers' stronger perception of current financial conditions on their farms," said agricultural economists James Mintert and Michael Langemeier.
High commodity prices and low interest rates helped drive farmland values in Iowa to an average of $11,411 an acre, up 17 percent from 2021, when they rose 29 percent, said Iowa State University’s annual Land Value Survey.