Significant financial changes have been underway in the U.S. agricultural system. After a decade of increases in crop and livestock prices mirrored by corresponding increases in expenses, prices began declining dramatically in 2014.

A Farm Financial Health Survey conducted in July 2016 by the Nebraska Department of Agriculture and the University of Nebraska-Lincoln’s Department of Ag Economics indicated that 52% of Nebraska farmers and ranchers were financially stressed.

A survey of Nebraska agricultural crop and livestock producers was conducted in the summer 2016, with the overall goal of evaluating financial stress. While identifying stress is useful, identifying actions producers intend to take to help ensure farm survival is equally important. Using the same demographic and financial characteristics used in the stress model, the University of Nebraska-Lincoln Department of Agricultural Economics evaluated the characteristics contributing to producers’ stress: focusing on increasing revenue or lowering costs. Models were used to determine variables that impacted the likelihood producers were financially stressed, as well as how they were planning to react to it.

NET FARM INCOME: This chart shows yearly net farm income for Nebraska crop and livestock producers from 2000 to 2015. (Chart courtesy of USDA ERS)

Surveys were mailed to livestock and crop producers across Nebraska regarding their farm financial health. An online survey was also available and publicized by NDA through news releases and radio interviews, and through Nebraska Commodity Boards. A total of 1,000 surveys were returned with a total of 758 thoroughly completed and used in the analysis. While, on average, 52% of the respondents were financially stressed in Nebraska, there is variability across districts.

Producers were also asked a series of questions regarding actions they were taking to reduce operating costs or to increase income. There were 46.7% of the producers surveyed who indicated they were not taking any actions to increase their income. However, 32.2% indicated they would pursue off-farm income and 14.8% indicated they were engaged in custom operations to increase income.

Similarly, producers were asked if they would take any actions to reduce operating costs on their livestock or cropping operation. Twenty-one percent of the producers indicated they would not take any action to reduce operating costs on either a livestock or cropping operation. Of cropping operations, 45% indicated they were deferring machinery replacement and 43% indicated they were reducing family living expenses to reduce this year’s operating costs. For livestock operations, over 17% of the survey participants indicated they would reduce family living expenses or defer machinery replacement.

Models were used to estimate the likelihood producers with given demographic characteristics were financially stressed, indicated they were completing at least one action to reduce this year’s operating costs and indicated they were completing at least one action to increase income.

The variables that impact producers’ odds of agreeing to being financially stressed are found to be different than the variables that impact the odds of taking action to increase income or decrease operating costs.

Younger producers were more likely to be stressed, more likely to be trying to increase income and much more likely to attempt to decrease operating costs. Education level also impacted odds of being financially stressed and the odds of attempting to decrease operating costs but had no impact on the odds of attempting to increase income. Those with a high school degree or less were more likely to be financially stressed and attempting to decrease operating costs compared to those with a postdoctoral degree.

While the likelihood farmers would be financially stressed was higher if they had more than 31% of their income from crops compared to the mainly livestock group, only those producers with 63% to 94% of their income from crops had an increased likelihood of actively trying to increase income. While crop producers were more likely to be stressed than livestock producers, no differences were seen in the likelihood that they would be decreasing operating costs.

Producers who had lower levels of owner’s equity were more likely to be financially stressed and more likely to attempt to increase income, but were not different in the likelihood of trying to decrease costs. This shows that producers with lower equity built up in their operations feel stressed and are trying to find ways to increase income outside their current farming operation.

Results indicate that being self-financed (defined as over 80% of operating capital was self-financed) reduced the odds of being financially stressed, attempting to increase income, and attempting to decrease costs compared to those that are not self-financed (defined as less than 80% of operating capital was self-financed). This result indicates that having working capital to operate lowered stress among producers while also lowering their odds of both increasing revenue and lowering operating costs over those who were not self-financed.

A producer’s intention to expand land and the farms per square mile in the county had no impact on the odds of the producer being financially stressed, attempting to increase income, or attempting to decrease operating costs.

Finally, expectations for overall financial conditions had an impact. Producers with the expectation that financial conditions would be the same in 2017 were less likely to be stressed, less likely to attempt to increase income, and less likely to attempt to decrease operating costs compared to those who felt that financial conditions would be declining in 2017.

This result suggests that producers with a negative expectation for financial conditions were more stressed and more likely attempting to increase income and decrease operating costs to account for the weakening financial conditions.

This report comes from Cornhusker Economics.