FirstLook

Despite Low Prices, Ag Is Stable

Dan Miller
By  Dan Miller , Progressive Farmer Senior Editor

Lower commodity prices may make it difficult for some farmers to meet their loan obligations and pay for production expenses, a new report from USDA’s Economic Research Service (ERS) finds. The report examines the health of U.S. farms. Here are its major findings:

> From 2012 to 2016, farm sector net cash income fell 33% ($49.0 billion) to $97.3 billion, adjusting for inflation. This is the largest multiyear decline since the 1970s. Prices for all major commodities fell, with many down 30% or more.

> Despite the sharp decline in farm income, the share of farms with negative income in 2016 remained about the same as the average share in 2007-16. The share of all farms with negative income was about 3 percentage points lower in 2016 than the 10-year average. Low prices are not causing a surge in farms reporting negative income.

> The debt-to-asset ratio--total farm debt divided by total farm assets--is an indicator of financial health. The debt-to-asset ratio spiked during the mid-1980s. But in more recent decades farm assets appreciate more rapidly than debt. From 1994 to 2016, farm sector assets grew in value by 110%, or 5% annually, driven by growth in land values up to 2014. As a result, the debt-to-asset ratio reached a historic low in 2012. Since then, the debt-to-asset ratio has trended upward, though it remains low. In 2018, the ratio is forecast to remain below the 1970-2016 average.

> Expected interest rate increases will not result in large increases in financial stress if cash flows remain near current levels.

> If farm income remains near current levels and interest rates increase as forecast, projected interest expense-to-farm earnings ratios suggest that the farm sector is unlikely to face extensive debt repayment challenges by 2019.

Find a copy of the entire report at https://bit.ly/….

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Dan Miller