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Farm financial conditions worse, uncertain, but compared to what?Farm financial conditions worse, uncertain, but compared to what?

2025 Economic Outlook Series: Economists challenge producers to look at the overall financial outlook through a broader lens than outlier years.

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Where does the agricultural industry stand in terms of financial position and outlook for 2025?Shelley E. Huguley

*This is the fifth article in our 2025 Southwest Economic Outlook series. Oklahoma State University and OSU Extension Service, and Texas A&M University and TAMU AgriLife Extension Service economists weigh in on the 2025 outlook. A digital copy of the Economic Outlook Issue is also available online.

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After several years of well-above-average and even record-setting net farm incomes across the U.S., profits are projected to continue the recent trend of declining back toward longer-term average measures across the country. Drivers of the decreasing income statistics at an overall national level include declining crop commodity prices over the past year, relatively high operating input prices, and interest rates. In addition to these factors, locally in much of the Southern U.S. production challenges such as persistent drought conditions have also contributed to reductions in net income. These challenges are, at least to some degree, partially offset by the solid profits being earned, at least at the cow-calf level, in the beef sector, which is a significant enterprise in the Southern region. 

More specifically, where does the agricultural industry stand in terms of financial position and outlook for the upcoming year? As mentioned, income measures have been trending down, but down from record levels just a few years ago, and down to levels consistent with long-term averages – so discouraging certainly, but now not disastrous, at least on average.  

Related:Ag trade outlook: Navigating uncertainty amid policy shifts

At the national level, farm income measures based on cash accounting and based on accrual accounting are trending together and not diverging from one another. This is at least a simple indicator that inventories are not being “drawn down” from one year to the next, and producers in general are not in a mode of “living off of depreciation,” which have both historically been indicators of more significant and widespread financial stress.  

Crop commodity prices fell rapidly in the past year, causing an increase in liquidity concerns. Much like net farm income, available data suggests that while liquidity ratios have declined somewhat from recent levels, they are on average still somewhat higher (better) than the levels of the 2016 – 2019 time period. Overall solvency measures are still very strong in the agriculture sector as a whole, with debt-to-asset and debt-to-equity ratios at near-record-low levels on average (yes, debt levels are increasing, but asset values are also increasing).   

There are some indications of modest increases in debt repayment concerns in individual situations, but that has not yet translated into a significant increase in serious farm solvency issues. Overall, the current farm financial situation is the result of a return to longer-term financial performance measures.  

Related:Current economic factors influence farm bill needs in 2025

By nature, our memories are often biased toward the most recent history, which in this case is a few years of exceptionally positive agricultural sector financial performance, so as an industry, the return to conditions reflecting longer-term averages can feel somewhat painful.  

Of course, each individual farming operation can vary from the overall average, with some faring much better, and some faring much worse. In addition, the sheer magnitude of the dollars involved due to inflation and viable farm size growth trends can contribute to increased concerns today. 

What does the near-term future hold? The answer to that is tremendous uncertainty. What will be the focus and the details of the next farm bill? Will interest rates decline, when, and by how much? How will the policies of the new incoming administration impact agriculture?  

The rapid pace of the decline in financial conditions over the past year is concerning to some. Recent (post-election) surveys indicate that, in general, producers are optimistic about the future but have concerns about the passage of a farm bill and agricultural-related legislation, risks associated with trade policies, and the state of the overall economy, which will likely determine where interest rates are headed. Although looking at trends over time is difficult, we encourage people to look at the overall financial outlook through a broader lens than the most recent outlier years. Hang on, it will be an interesting ride. 

Related:U.S. economy stable in 2025, challenges remain for ag

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Farm Debt

About the Authors

Courtney Bir

Assistant Professor, Department of Agricultural Economics, Oklahoma State University

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