Ag Policy Blog

Farmdoc Economists Offer Farm Outlook

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
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Overall agriculture credit markets appear to be strengthening, as short-term agricultural interest rates increased slightly in 2017 and can be expected to continue to rise as the broader United States economy strengthens, an economist with farmdoc at the University of Illinois at Urbana-Champaign said during a webinar on Friday.

Todd Kuethe, clinical assistant professor in land economics at Illinois, said recent quarterly surveys of agricultural bankers in Illinois federal reserve districts report repayment rates of ag loans are lower than one year ago.

"This is a negative but has been trending upward since 2016," he said, "meaning we are less likely to see defaults."

Illinois' Federal Reserve districts also include Iowa, Michigan, parts of Iowa, Wisconsin, Missouri, Tennessee, Arkansas, Mississippi, Indiana and Kentucky.

Kuethe said the same surveys show farmer requests for renewals and extension of loans are coming down.

Fixed-interest operating loans have held "relatively constant," Kuethe said.

"We're still at a position where we have historically low interest rates," he said, pointing out that interest rates are expected to rise but there's uncertainty about how fast.

Kuethe said interest rate increases "won't be like the 1980s when we saw drastic increase overnight."

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The webinar also provided an outlook for crop farm income, cash rents and farmland prices.

Farmdoc economists said corn yields are down as well as prices, lower fertilizer prices are a positive for farmers, but seed prices remain virtually unchanged despite struggles in other parts of the farm economy.

Gary Schnitkey, a professor and farm management specialist in the Department of Agricultural and Consumer Economics, University of Illinois, said Illinois farms are following the broader national trend showing net farm income declines.

In 2016, an Illinois farm with an average size of about 1,500 acres, reported a net income of about $90,000. That is down to between $50,000 and $60,000 in 2017.

"At $60,000 net income farmers will have tough cash flows and tough decisions coming," Schnitkey said.

The economists said Agricultural Risk Coverage payments in Illinois will range from $0 to $60 per base acre.

The major factor driving the downturn is lower yields, he said. The Aug. 10 USDA national forecast on corn yield is 169.5 bushels per acre, with the Illinois forecast at 188 bushels.

"Prices have not rebounded accordingly," Schnitkey said.

The World Agricultural Supply and Demand Estimates, or WASDE, projections from USDA for 2017 corn was $3.30 and $9.30 on soybeans. Aug. 31 bids from east-central Illinois were at $3.20 for corn and $9.05 on beans.

On the bright side, Schnitkey said non-land costs came down in central Illinois from 2013 to 2016 with fertilizer leading the charge with a $39 per-acre drop. Despite that, farmers continue to pay more for seed. Schnitkey said seed prices in central Illinois have increased from about $114 an acre in 2013, to about $118 an acre in 2016.

Fertilizer prices, he said, can expect to continue to decline into 2018.

Since 2014, Schnitkey said, operating returns on soybeans have been growing with increased exports to China. This means farmers will continue to move corn acres to beans.

Farmland values of all classes of land in Illinois have declined in the first half of 2017, compared to 2016, anywhere from 1.6% to 4.4% depending on the type of land.

Farmdoc said, however, cash rents on professionally managed farmland are down only slightly across the board compared to 2016.

The 2017 market volume for farmland in Illinois is similar to 2016. If tight inventories continue, farmdoc said farmland prices will stabilize.

Todd Neeley can be reached at todd.neeley@dtn.com

Follow him on Twitter @toddneeleyDTN

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