Amid trade disruptions, production uncertainty, and large global stocks, the Food and Agricultural Policy Research Institute projects crop prices to remain weak, the Farm Credit Administration board learned at its September quarterly meeting. As a net exporter, the U.S. farm sector depends on global demand for its agricultural products. Slower economic growth in key U.S. agricultural export markets is a growing concern.
Also, in part because of retaliatory tariffs by China, U.S. exports are down overall from 2018 — even though shipments have increased to other markets. To help offset the impact of retaliatory tariffs, USDA outlined a 2019 Market Facilitation Program in late July. These program payments represent considerable support for the U.S. farm sector. In areas with good yields, the payments could lift average crop margins from at or below breakeven levels to positive levels. Elsewhere, producers will depend on crop insurance indemnities to recoup some of their production losses.
Land values generally have remained stable, supported by the limited supply of farmland for sale. Farm sector real estate debt has been rising for the past several years and is approaching the historical 10-year average. Also, total farm debt relative to income in 2019 is high, but the MFP has slowed its advance.
For the first six months of 2019, the Farm Credit System reported steady earnings and higher capital, but a decline in loan quality. Although the levels of portfolio credit risk are acceptable, they are rising, and this increase underscores the significant operating challenges facing FCS borrowers. Overall, the Farm Credit System remains financially safe, strongly capitalized, and well-positioned.