Exclusive: Despite Downturn, Farm Bankruptcies "Muted"
The grim outlook on the farm economy is a broken record for farmers. Farmers have faced four years of negative net farm income. However, new numbers from the U.S. Department of Agriculture signal signs of improvement, forecasting a 13 percent jump in net farm income this year. That’s a revision from the flat net farm income USDA anticipated in its February report.
“I think it's probably better than we expected, but still nowhere near where we want it to be,” says Jackson Takach, Director of Economic Research for Farmer Mac. “There have been signs of improvement for a lot of different productive types. If you look at the dairy industry, if you look at the cattle industry, hogs and poultry, cash receipts look to be up this year compared to 2016; much higher than we expected at the beginning of the year.”
It’s not the same story for grain prices, with corn contracts pressured from higher than average stocks, meaning the carryover is a wet blanket on prices today. With prospects for another large crop in 2017, questions surround farmers being able to out produce the lower prices this year like many did in 2016.
“Volume sometimes makes up for the price declines,” Takach says. “The two are very interrelated when you have a lot of volume high supplies you tend to have lower prices. This year, I think there are a little bit lower quantities and a little bit lower price maybe than last year. So, that's going to hurt revenue.”
Lower prices are also eating into liquidity on farms, with some producers weathering the headwinds better than others. Farmer Mac releasing its latest quarterly perspective on agriculture this week, called “The Feed.” In an early exclusive with Farm Journal, Takach says one refreshing facts is economists aren’t seeing a spike in farm bankruptcies.
“Today there may be a few more (farmers) that fail just because we've had several years of these lower prices, so the highly leveraged farmers, the one who has high financial leverage, but also high production leverage,” Takach says.
He says producers paying too much for cash rents, unable to negotiate lower prices, are facing greater financial pain. It’s also farmers overextended by hefty equipment purchases who are having trouble putting pencil to paper and making the numbers work.
“So, that type of over leverage, in both financial as well as our production capacity, those are the people who might run into a few more problems now after four years of lower prices,” he says.
While highly leveraged producers may be forced out of farming, Takach says it’s not consuming the industry right now.
“My expectations are for it to be fairly muted,” he says. “I think we were so good for so many years from 2012 to 2015, I think things were so good during that period that people built up a lot of protection in their balance sheet.”
Takach notes USDA is forecasting a drop in some of the “cushion” producers secured during years showcasing high commodity prices, but overall, that equity is what’s saving most grain farmers now.
“It was so good for so many years, I think that's really what saved us these last few years of being able to have that working capital drawn down,” he says. “So, I don't expect it to be a widespread problem, but certainly you do see an uptick in reported delinquencies for bank and farm credits, and that's one of the first indicators of stress in the system.”
Takach telling AgWeb delinquency rates are still relatively low compared to the levels economists saw in 2009 during the Great Recession.
“So, I think that's a pretty positive sign looking forward,” Takach says.
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