Agricultural economic news from 2011 has basically been positive, which in turn seems to always mean there is some kind of negative lurking around the corner.
As the Department of Agriculture announced that farm exports in fiscal year 2011 reached a record high of $137.4 billion—exceeding past highs by $22.5 billion—and farm income is setting a record at a projected $103.6 billion, a well respected agricultural economist was telling agricultural bankers that farmers will face increased financial risk in 2012 because of higher operating costs and volatile commodity prices.
Michael Boehlje with Purdue University reported about 2011 and the outlook for 2012 to the American Bankers Association Agricultural Bankers annual meeting in Indianapolis. “We’ve seen a combination of more price volatility, but we’ve also seen cost volatility that we didn’t see in that prior 15 years.” Boehlje was quoted by an Indianapolis Business Journal reporter covering the annual ag banking conference.
The reporter wrote that Boehlje noted how the volatility of profit margins over the last five years is three times what it was during the prior 15 years. The result of this volatility, Boehlje said, is that farm lenders may have to increase requirements for working capital because there are more “fluctuations in potential income.” Land prices and cash rents are up, the operation cost per acre has tripled, and fertilizer and seed chemicals have doubled for grain operations.
Boehlje reportedly warned the ag bankers that with the operating risk for farmers increasing “dramatically,” lenders “have to be much more cautious than you might have been in the past on financing. You have to be much more conservative on the financing side, which implies that you need to be conservative in how willing you are to finance.”
Boehlje also projected profit margins for farmers will be a somewhat lower in 2012 than 2011 but that farm income will accumulate to a total farm income in the U.S. above those of the last 20 years. Whether the profit margins for commodities at harvest in 2012 will continue at reasonably high levels is a concern that Boehlje noted.
Statement on Exports
As for the positive export news of fiscal 2011, Agriculture Secretary Tom Vilsack said the $137.4 billion farm exports supported 1.15 million jobs in the U.S.
“Furthermore, agriculture continues to bolster our nation's economy by contributing a trade surplus year after year. This year, that surplus hit a record $42.7 billion. And next year looks equally strong for the U.S. agricultural economy,” Vilsack said.
He is basing a positive outlook partly on final enactment of free trade agreements between the U.S. and South Korea, Colombia and Panama. He projects these will add “an additional $2.3 billion to our export total and support nearly 20,000 American jobs.”
“China was the lead export market for farm products, buying almost $20 billion of goods such as soybeans, cotton, tree nuts and hides. There is no doubt that the Asia Pacific region recognizes the United States as a reliable supplier of the highest-quality food and agricultural products, and that's the message I will take to our trading partners when I travel next week to Vietnam and China to help expand markets and remove barriers to trade for U.S. farm products. Partnerships with growing markets like those in Vietnam and China are integral to the strength of the U.S. economy in the decades ahead,” Vilsack said.