Economists concerned about low farm incomes, crop conditions, weather | TheFencePost.com

Economists concerned about low farm incomes, crop conditions, weather

The Hagstrom Report

BONITA SPRINGS, Fla. — Farm incomes are down, but other indicators show that farmers' personal situations are not as bad as they were in the 1980s while there are some regional variations, USDA Chief Economist Robert Johannson and a panel of agricultural economists said in Bonita Springs on Feb. 2.

Johannson spoke before the Agriculture Department's Economic Research Service released the latest estimates on farm income and his comments were not based on the latest data.

Johannson noted that farm income is down, but debt-to-asset ratios remain low. The percentages of highly leveraged and extremely leveraged farms are trending upward, particularly in the cotton, dairy and wheat sectors, he said.

Real estate farm debt is approaching the peak of the early 1980s, but the situation today is much different because interest rates are low, he said.

“Whatever comes out of trade negotiations, the U.S. will continue to trade a lot with Canada, Mexico and China.” Robert JohannsonUSDA Chief Economist

Delinquency rates are edging up, but still low and bankruptcies are "extremely low," Johannson said.

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Farmland rents are falling slowly because "renegotiating cash rents is a sticky process. It takes time for them to come down," he said.

Trade will continue to be important because the U.S. continues to produce more grains and meat and Americans can only consume so much.

"Whatever comes out" of trade negotiations, the U.S. will continue to trade a lot with Canada, Mexico and China, Johannson said.

STRESSFUL SITUATION

Michel Paggi, the director of the Center for Agricultural Business at Fresno State University in California, who moderated a discussion with three economists, noted that all the Federal Reserve regional banks have said recently that farmers are under stress.

Randy Fortenbery, a professor at Washington State University in Pullman, said that wheat farmers in the Pacific Northwest have been particularly troubled by what's called "low falling numbers" in white wheat, which means that the wheat is of lower quality when it is used in pastries, Asian noodles and flatbread. The wheat with the low falling numbers can only be sold at lower prices for feed use, Fortenbery said, because bread made with it would have holes in it.

The problem cannot be solved by blending the low-quality wheat with other wheat, he added.

In addition to bringing low prices, the wheat with the low falling numbers also leads the Risk Management Agency to reduce the farmer's yield for crop insurance purposes, Fortenbery said.

Farmers would like to resolve the RMA problem and also have the option to shift from the Agriculture Risk Coverage and Price Loss Coverage now that several years of lower prices are lowering the benefits under the ARC program.

"Prices are lower than what people expected when they signed up for the program," Fortenbery said. "I think there will be a push for major changes in the farm program and in crop insurance design."

Gary Schnitkey, a professor at the University of Illinois-Champaign-Urbana, said that after very low incomes in 2015 final incomes will be up slightly in Illinois in 2016 due to high yields and in 2017 somewhere between the 2015 and 2016 levels.

DRY CONDITIONS

Schnitkey said he would not describe the current situation as a crisis because bankruptcies are low.

But comparing the farmers' current financial situation with the weather, he said these are not drought conditions, but "The ground is really dry and we need some rain."

During the years of high prices, "farmers were prudent, they bought machinery," but now their working capital is going down, he said.

Fertilizer and seed costs are down while chemicals are about the same price, Schnitkey said.

For cash rents to come down substantially there would have to be "a signal event" such as a big farmer not being able to make his payments, Schnitkey added.

James Richardson of Texas A&M University's Agricultural and Food Policy Center has analyzed representative farms around the country for the congressional agriculture committees since 1988.

The center's representative farms now show more farms in trouble than in recent years, but a lot depends on whether the farm can keep down expenses.

When some farmers can't get financing from their bankers, they are choosing to go into retirement, Richardson noted.❖

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