U.S. Secretary of Agriculture Sonny Perdue indicated in February that the amount of debt held by America’s farmers has risen rapidly to nearly 1980s levels, and this suggests a strain on the Farm Belt. The USDA projected in March that net farm income should increase about 10% in 2019, but it will still be well below the average level for the past two decades and far less than recent peaks.
In order to better understand what is occurring in terms of debt and farm profitability, we asked four ASFMRA-accredited farm managers for their thoughts on farm debt, farm profitability and what scenarios would dramatically impact their outlook. Their insights follow.
AFM, Farmers National Company, Omaha, Neb.
“Farm debt is now concentrated into far fewer hands than it was in the 1980s. Each bankruptcy today represents substantially more acres or bigger livestock operations than the 1980s. The low of FSA loan delinquencies in the past nine years was 16%, and the previous high was 18.8% compared to the 19.4% currently. And we know these are usually the worst credit risks. Secondly, only 498 Chapter 12 bankruptcies were filed in 2018 compared to over 5,000 in the ’80s. Things are not good and could get worse very easily. We also have to think about how many fewer commercial-sized farmers there are today compared to 1980, which divides out the net farm income into fewer hands now.
“2019 could be a pivotal year in farm profitability. With the possibility of an El Niño affecting the U.S. this year and above-normal snowfall in much of the western and northern Corn Belt, this could cause some delays in planting, which could affect prices. Land values are still staying relatively good for now.”
AFM, Halderman Farm Management, Wabash, Ind.
“The value of the assets serving as collateral is significantly higher than back in the 1980s, and therefore, the debt-to-asset ratio is one-half of what it was during that crisis. Debt-to-income ratio is over 5:1, and that indicates a warning sign as it did in the late 1970s, so it bears watching, but we are not at that point yet.
“In terms of farm profitability, the USDA is predicting about 10% more net farm income versus 2018, assuming no Market Facilitation Payments. We are close to profitable prices for November beans and December corn currently on the Chicago Mercantile Exchange for many producers. Steady is what I foresee in 2019 for land rents and land values.
“Resolution of the trade disputes would help a lot, and commodity prices would increase some. Export demand increases or any weather issues could take the corn price to $4.15 per bushel and soybeans to $10—not unreasonable levels—and then, many producers would be profitable at those levels.”
Corey Prins AFM, Northwestern Farm Management, Marshall, Minn.
“In terms of farm profitability, this year’s margins are very tight to negative. Most operators are paying cash rents that are based on a projected budget that will produce no or negative returns. Producers will need above-average yields and high prices to produce a profit in 2019. Resolution of trade disputes could help increase commodity prices, especially soybeans. Knowing the cost of production is critical to any successful operation, but knowing where costs can be trimmed without impacting yield will be a critical part of generating a profit this year.”
Tim Fevold AFM, Hertz Farm Management, Nevada, Iowa
“Although farm debt has risen to 1980s levels, we are not anywhere near the same crisis levels as we were back then. The debt is structured differently and is not as widespread. According to the 2017 Iowa Farmland Ownership and Tenure Survey, 82% of all Iowa farmland is debt-free. Bankruptcy filings in 2018 were lower than 2010 and 2011 when farmers were coming out of the 2008-09 recession. According to USDA’s Economic Research Service, delinquency rates in 2018 were just 1.66% compared to rates of 7% in the mid-1980s. Profit margins are thin. In our area, excellent yields have overcome lower grain prices and higher input costs. The excellent yields and the Market Facilitation Program payments should provide relief through 2019.
“What would change things drastically? Well, agriculture is cyclical. The only sure bet is that things will change. My primary concern is the ethanol industry and Renewable Fuel Standard (RFS). Ethanol accounts for 30% to 40% of the U.S. corn crop and provides thousands of jobs in rural America. Weakening or eliminating the RFS would have devastating consequences.”