WASHINGTON, Feb. 25, 2015 – Despite USDA’s well-publicized forecast for a 32 percent decline in net farm income from last year’s record high, the farm sector overall is in reasonably good shape, speakers at last week’s annual Agricultural Outlook Forum agreed. And despite weakening farmland in most areas, they say farmers’ financial prospects bear no relation to the collapse experienced three decades ago.
“Producers’ debts relative to assets are at a historic low point,” said USDA acting Chief Economist Robert Johansson. While net farm income is projected at $73.6 billion, the 10.9 percent debt-to-asset ratio still is less than half the levels seen during the 1980s financial crisis.
That view was echoed by Stephen Gabriel, chief economist at the Farm Credit Administration. “The farm sector in good financial shape despite the decline in farm income we’ve been talking about,” he said. “Agriculture has gone through some pretty good times.”
On average, farm debt is not at burdensome levels for the level of cash income generated in agriculture, he added, while warning, “There is no such thing as an average farmer. There are going to be some out there who have burdensome levels of debt.”
Nevertheless, Gabriel sees “some potential for a rough patch” with lower crop receipts, growing protein supplies, a strong dollar limiting export growth and potentially higher long-term interest rates likely to depress land values. “An 18 to 36 percent drop in farmland prices is what we might reasonably expect, at least within the realm of the possible,” he added.
“The good news is that I don’t expect a farmland bust,” he said. “We can look for a correction; it is in the process of happening.” But, in contrast to the experience of the 1980s, “farm mortgage underwriting has been conservative, based on what I’ve been hearing from FCA examiners and bank examiners we’re in touch with. That’s pretty comforting.”
Although this year’s crop and livestock receipts are forecast to decline significantly from last year, government payments are expected to increase by 15 percent because of new farm bill programs, said Economic Research Service (ERS) economist Kevin Patrick.
Lower input costs could help overall profitability. Fuel oil expenses are forecast to drop by 27 percent in 2015, while seed, fertilizer and pesticide expenses are forecast to drop only 0.8 percent, combined.
Farms with significant off-farm earnings will be better situated to weather the downturn. Despite shrinking farm receipts, USDA projects total income for all farm households to increase slightly this year because of gains in these households’ off-farm income, said ERS economist Daniel Prager. USDA sees farm households with an average total income of $71,697, compared with all U.S. household income of $51,939.
Although farm household income lagged behind that of non-farm households for most of the past century, total income in farm households has outstripped that of all U.S. households since 1988, he said. Average annual growth rate since 1991 has been 2.3 percent for farm households and 0.1 percent for all U.S. households, he said.
“The typical farm household is not hit very hard,” he said, “although some will be affected.” USDA-defined “residence farms,” the 1.16 million households that depend mostly on off-farm income, “typically lose money on farming” and most will continue to do so,” Prager said.
“Overall, crop farm households don’t have worrying debt-to-asset ratios,” he said. By contrast, contract hog and poultry growers and dairy producers are more leveraged – poultry grower ratios average 23 percent, hog producers 15 percent and dairy farms 12 percent, he added.
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