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Nov. 19, 2019 Source: Farmers National Company news release For six years now since 2013, everyone involved in agriculture has been watching farm incomes decline, working capital get ever tighter, and overall ag debt rise to the highest inflation adjusted level ever. Producers have struggled with an overabundance of moisture and at times pockets of drought. The 2019 season is historic for the drastic effect weather has had on crops and incomes. Add in trade issues that are distorting short and long-term export prospects and one begins to wonder how resilient is agriculture and can it take much more. There has been an increase in ag bankruptcies this year, but not a large jump in the overall picture. Although this is a discouraging trend, it remains a small portion of ag producers who face this financial challenge. Lenders are seeing more refinancing of debt than normal as profit margins and working capital decline. Overall though, agriculture maintains a very low debt to asset ratio. Financial troubles are on the individual producer level and there are signs that there will be an increase in the number of farmers facing financial problems. Looking at a 90 year period of inflation adjusted net farm income from 1929 to today, agriculture spent almost half the time with below average net farm income, about one quarter with average incomes, and another quarter of the time with above average net farm income. Right now, we are working through a period of average to below net farm income, which means financial challenges will remain in agriculture. The question becomes, why isn't overall US agriculture struggling even more than it currently is? The answer is that producers and owners are doggedly resilient during tough times. A number of supporting factors are in place that help farmers and ranchers weather this financial storm so far. One supporting component is that land values have not fallen as far as first thought and are mostly steady for good quality land. Low interest rates support land values lower production costs. In addition, government support in the form of Market Facilitation Program payments, direct payments, and crop insurance support have contributed over one-third of net farm income in 2019. US agriculture is in the midst of many challenges, but overall, it is a resilient industry with continued support coming from several fronts, including having the most efficient producers in the world. Despite today's challenges, farmers, ranchers and landowners are resilient and keep moving forward. Tweet |
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