The agriculture industry isn’t all doom and gloom.
“Yes, conditions in agriculture are tough, but there are a few good nuggets buried in the bad news,” ag economists David Widmar and Brent Gloy write in their latest “Agricultural Economic Insights” blog.
Specifically, they point out seven positive trends that could inject a bit of optimism into farming this year.
1. Fertilizer prices are down. The economists say on average, potassium prices are 25% lower than a year ago, and nitrogen prices and phosphate prices are down 20% and 15%, repectively.
2. Fuel prices are down. Farm fuel prices are 50% lower than they were in 2014 and down 30% from January 2015 levels.
3. Fixed costs are in decline. “Reductions in land values and rents are a mixed blessing,” the economists admit. “While falling land rents mean that times are tough and have been for a while, at least they are falling to help stabilize profits.”
4. Interest rates are still historically low. This is especially important because the agricultural sector has been adding debt during profitable years, Widmar and Gloy contend.
5. Inflation is low, too. That’s a major difference between today’s farm economy climate and that of the 1970s and 1980s, the economists say.
6. Farm income forecasts only show modest declines. According to USDA, net income declines could be around 3% lower than in 2015. That may not sound like good news, but it is – at least relatively speaking. There were declines of 27% in 2014 and 38% in 2015.
7. The farm financial situation remains resilient. The Kansas City Federal Reserve noted in January that overall loan performance in 2015 has generally remained strong. Even so, Gloy adds: “While sector level indications suggest that the debt load is manageable, debts are not repaid at the sector level. Some farms and agribusinesses will undoubtedly be over levered and experience financial difficulty. Whether this presents serious systematic problems will depend on how many farmers find themselves in this situation.”
Widmar and Gloy expand on these insights at http://ageconomists.com/2016/03/28/6-positive-stories-production-agriculture-2016/.