farm income

Despite the strong foundation of the farm sector, "it is clear financial stress is increasing and some producers are more exposed to financial risk," said Agriculture Secretary Tom Vilsack in Senate testimony that balanced concern with falling farm income with a valedictory list of the administration's eight-year record in agriculture.

If there was any doubt, the agricultural boom ended in red ink for relatively large-scale Illinois farmers last year — an average loss of $2,971 per farm just one year after they notched a net farm income of $107,290, say three University of Illinois economists. Low crop prices were the culprit in Illinois, and across the nation, with comparatively low farm income expected for several years to come.

U.S. farm income is down sharply from the records set in 2013, with little improvement forecast in the near term. "If something doesn't change between now and 2018, we will be in a big crisis," said Zippy Duvall, president of the largest U.S. farm group, during a luncheon session with reporters, referring to the target date for Congress to overhaul farm policy law.

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."

U.S. farm income will fall for the third year in a row, said the Agriculture Department, but the impact is not expected to be as severe as feared at the start of the year. In a tri-annual forecast, the USDA estimated net farm income — the net value of production — at $71.5 billion, much better than the $54.8 billion that it estimated in February although far below the record $123.8 billion of 2013 as the seven-year agricultural boom collapsed under the weight of large crops worldwide.

Persistently weak cash flow has prompted U.S. farmers and ranchers to borrow far more money in short-term operating loans than usual, said the Kansas City Federal Reserve Bank. Loan volume of around $55 billion was 50 percent above the 10-year average, said the bank, while the soft farm economy was pulling down farmland prices throughout the western Corn Belt and Plains.

Once again, the United States — one of the agricultural giants of the world and the largest farm exporter — is awash in grain. Stockpiles of corn and soybeans are far larger than expected and the fall harvest could see record corn production and the third bumper soybean crop in a row.

The Conservation Reserve, the largest U.S. land-idling program, has shrunk to its smallest size since the late 1980s, when it was only a couple of years old. With low commodity prices forecast for years into the future, putting a pinch on farm income, economist David Widmar says a proposal to expand the reserve, which pays landowners an annual rent in exchange for retiring fragile farmland for 10 years or longer, "is likely to capture broad political appeal."

Ag bankers across the Farm Belt expect the slump in farm income to persist through spring, with producers economizing on household spending and big-ticket purchases due to low commodity prices, according to reports by Federal Reserve banks in the Midwest and Plains.