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FARM CREDIT SYSTEM REVIEWS AG'S CURRENT ECONOMIC CONDITIONS
Apr. 12, 2021
Source: Farm Credit Administration news release
McLean, VA - At its monthly meeting today, the Farm Credit Administration board received a quarterly report (PDF) on economic issues affecting agriculture, together with an update on the financial condition and performance of the Farm Credit System (System) as of Dec. 31, 2020.
Record agricultural exports are contributing to favorable economic conditions for the U.S. farm sector. Exports to China have risen to record levels, with increases in soybeans, corn, wheat, and cotton. High crop prices and strong producer margins are expected to bring more acreage into production, but continuing drought in much of the western United States is a concern.
Rising crop prices are translating to higher feed costs and lower margins for livestock producers. Cow-calf margins are expected to be near breakeven despite the higher costs. For the hog industry, margins have deteriorated, but relatively strong demand and lower hog inventory are helping support prices. Income variability continues to trouble dairy farms. Small and high-cost producers will struggle to produce profits.
Farm sector income is expected to remain above average in 2021. Stronger market prices and receipts are expected to mostly offset the decline in government payments. Strong farmland values, especially in the Midwest, reflect current income prospects, increased interest from both farmers and investors, and low interest rates.
Another development that may affect the farm economy is that policymakers have begun to focus more on climate and conservation recently. Because of its long and rich history of conservation, U.S. agriculture can significantly contribute toward efforts to slow climate change and support conservation. No-till farming and the use of cover crops to sequester carbon are just a couple practices farmers can use to support these efforts. Although selling sequestered carbon may generate additional income streams for farmers, the activity also carries costs and risks, particularly when farmers must deliver and maintain specific carbon benefits.
Despite the shock of the pandemic to the U.S. economy and agriculture, the System remained safe and financially sound in 2020. For the year, the System reported strong results, including robust loan growth driven by real estate lending, higher earnings, and increased capital. The System's portfolio performed well throughout the year and loan quality remained sound. Credit risk continues to be elevated for certain agricultural sectors and geographic regions, but System institutions are well positioned to support agricultural producers and rural America.
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