Economists: Farm income ahead of higher input costs for now
VAIL, Colo. — Although the costs of inputs such as seed, fertilizer and gasoline have risen, farmers will likely have positive cash incomes this year due to high commodity prices, two economists told the nation’s sugar growers here last week.
Bart Fischer, the co-director of the Agricultural and Food Policy Center at Texas A&M in College Station, Texas, whose work is based on sets of representative farms of different sizes, said that even though commodity prices now are not quite as high as in 2021, “high commodity prices will likely still result in positive net cash farm income for most of the AFCS representative farms.”
The noticeable outlier is rice, with two-thirds of the rice farms facing losses in 2022, Fischer said.
Tanner Ehmke, the lead economist for the Dairy and Specialty Crops Knowledge Exchange Division at CoBank in Denver, agreed.
Between the pandemic payments, which he described as “a phenomenal transfer of wealth from taxpayers to farmers” and the high commodity prices, Ehmke said “farmers will be going into 2023 in a very strong and stable financial position.”
Ehmke also noted that rice growers are the exception.
But both Ehmke and Fischer warned the future could be different.
Ehmke said there are “sobering times ahead,” although with current economic indicators ”it is really hard to say” if the United States is in a recession.
“If this is a recession, folks, this is a very, very odd recession,” he said.
But Ehmke said commodity prices are likely to remain volatile and it is likely the Federal Reserve will continue to raise interest rates, which will increase farmers’ costs of borrowing.
The market anticipates the fed will continue to raise rates, then reduce them, he said.
Debt is not on anyone’s radar but it keeps getting bigger in the form of real estate debt, Ehmke said, noting that competition for farmland put up for sale usually amounts to the two biggest farmers in the county battling each other,
Farmland values keep rising, but the question is how long buyers can service the debt with higher interest rates, he said.
Cash rents have been climbing, Ehmke said, adding the rents “are not at their peaks,” but “cash rents are sticky. Once you are locked in it is hard to get out of them.”
Farmers’ debt-to-asset ratio is climbing, but not at a concerning level, he added.
There are factors that the fed has no tools to deal with such as labor shortages due to people retiring and women staying home to raise children, Ehmke noted.
Farm working capital will come down, which “is a bit concerning,” Ehmke concluded.
Fischer emphasized that the current farm safety net “is not designed to address rapidly rising costs of production” and that “there are growing concerns in the countryside about the need for additional assistance.”
In developing the next farm bill, lawmakers have to deal with “budget realities,” Fischer said.
The Supplemental Nutrition Assistance Program could cost more than a trillion dollars over the life of the next farm bill, he said, while the the Agriculture Risk and Price Loss Coverage programs make up only a tiny percentage of the farm bill and the entire bill makes up only a small percentage of the federal budget.
“You end up with irrational conversations that if you just got rid of the farm bill you would balance the federal budget,” Fischer said.
There have been proposals to extend the current farm bill if deficits are an issue, but Fischer said, “I still hope we stick to our guns and get a new farm bill done with much needed improvements.”
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