A recent update of farm income projections in Nebraska points toward a fourth straight year of lower farm income in Nebraska before a modest recovery over the next couple years. The estimate of $3.7 billion in aggregate net farm income in Nebraska for 2017 was part of the overall economic forecast for Nebraska produced by the University of Nebraska-Lincoln's Bureau of Business Research and the Nebraska Business Forecast Council released in June.

The challenge for agriculture is not just the low of $3.7 billion in net farm income, but the rapid drop from the record $7.5 billion in 2013 and 2011.The 50% decline in net farm income over the past four years is certainly challenging agricultural producer finances. Declining cash farm incomes have hurt working capital and tightened liquidity for producers. Strong balance sheets for most producers mean refinancing and extending out current obligations has been an option, but continued income shortfalls would keep hitting at the overall solvency of the operations as well.

Projections of lower farm income
The projections forward are based on substantial assumptions, but relatively flat crop price projections don't offer much promise beyond the possible production concerns and price shocks. Rather, the only growth may come from continued productivity and yield gains over time. The livestock outlook looks slightly stronger, as long as the gains from trade deals such as the U.S.-China agreement on beef trade keep ahead of the continued uncertainty surrounding international trade agreements and negotiations.

Another important factor in the projected modest farm income recovery after 2017 is the continued effort to whittle down expenses. Producers have been pulling back on expenses by reducing major capital purchases, backing off on production inputs, and reducing land costs through slightly lower cash rents and land values. That has helped producers address the income shortfall over the past two years, and the expectation is for continued efforts to hold tight on expenses going forward, although further reductions on inputs may be difficult to achieve.

While producers are managing through the farm income downturn, the impact is certainly significant in the agricultural sector and in the broader Nebraska economy as well. As noted in the economic outlook, the lower farm income projections hamper growth in the overall economy. Reduced farm spending on inputs and capital investments like machinery and reduced family spending all have an impact on Main Street businesses as well as the statewide economy. We've already seen the impact of lower farm income numbers translated into slower economic growth and reduced state tax revenue receipts, causing the Nebraska Legislature and the governor to work through significant budget challenges.

Nebraska perspectives
The fact that the agricultural downturn is dragging on Nebraska's overall economic growth is not surprising. Past analysis suggests that the agricultural sector broadly defined accounts for 25% of the state's economy. That sector, including production agriculture and bioenergy, were booming in the first decade of the 2000s and helped Nebraska outpace the nation and come through the national economic recession in good financial shape. Now, the production agriculture sector has pulled back, and the Nebraska economy is on a slower track than the rest of the country.

Comparing the general economic downturn of 2008-09 with the agricultural downturn of the past four years provides some perspective on how the outlook affects Nebraskans. The 2017 Rural Poll provides an opportunity to compare the attitudes of Nebraskans during the two periods and assess the differing impacts. The Rural Poll is an annual research effort of the University's Department of Agricultural Economics in partnership with the University's Rural Futures Institute, and surveys rural Nebraskans outside of the greater Lincoln and Omaha metropolitan areas (the Grand Island area is now also defined as metropolitan, but was historically defined as rural and is still included in the poll).

The surveys of 2009 and 2017 both asked rural Nebraskans their opinions and attitudes on a number of issues, including the impact of current economic conditions. From the 2017 results, more than half of rural Nebraskans said their financial situation is dependent on the well-being of agricultural industry, while more than 80% believe the well-being of their community is dependent on agriculture. As noted, agriculture is a major driver of Nebraska's overall economy and is obviously even more significant in rural Nebraska.

However, linking the current ag downturn and the importance of agriculture to the rural economy together is not cause for despair. In response to one of the poll questions, most rural Nebraskans said their job and income security is about the same as it was a year ago, even as a slower ag sector ripples through rural economies. A little less than one-third of rural Nebraskans are more concerned about their job and income security this year compared to last year. By comparison, more than 6 in 10 answered the same question with concern about job and income security in 2009 during the national economic recession.

Not surprisingly, agricultural producers were more concerned now as compared to 2009, as were individuals from the sales and office support sector, perhaps one of the first sectors to feel the impact of reduced farm spending on Main Street business. While nonfarm economic growth continues to provide opportunities and security for many, there are clearly some sectors concerned about the current ag downturn.

Comparing economic downturns
Another question asked for a comparison of the ag downturn with previous ag downturns. It seems most Nebraskans are taking the current downturn in stride as part of a cyclical agricultural economy. More than half of respondents said the current downturn was about the same or better than previous downturns. Just less than one-fourth said this downturn is worse, while fully one-fourth said they did not know.

Being able to put the current downturn in context can be difficult for those outside of the production agriculture sector or even for those producers who have not lived or worked through previous downturns. Young agricultural producers in their 20s or 30s generally have not even experienced the last significant ag economic downturn of the late 1990s. While there have been droughts, and market or income challenges in certain sectors since, the widespread ag economy was generally rolling along well through most of the past 15 years. Going back to the farm challenges of the 1980s, only producers in their late 40s or beyond could have any real firsthand experience with the financial challenges of that decade.

Age and experience
A further analysis of the survey data showed the impact of age and experience. Looking just at ag producer respondents, young producers not surprisingly were more likely to report that they did not know how this downturn compared to previous downturns. Among those with an opinion, more of the producers in the youngest group and the oldest group rated the current downturn as worse. While difficult to explain the dichotomy, it could be that younger producers don't yet have the experience of how challenging agriculture can be at times and that older producers are seeing the effects of a downturn exactly at the time they are considering cashing out their lifelong investment in the business. Regardless, most producers in all age categories saw the current downturn as about the same as opposed to either better or worse than previous downturns (except the youngest, where the split was even), suggesting the sector has perspective when analyzing current conditions.

In sum, while the current projections point to a continued decline in farm income in Nebraska in 2017, before only modest recovery in the coming years, the outlook is not all sour. A growing nonfarm economy is helping Nebraska along, even if statewide growth lags the nation as a whole, because of the significance of agriculture in the state. Rural Nebraskans meanwhile seem to be coping with the current downturn, having more confidence in general now than during the 2008-09 national recession. And even among agricultural producers that are feeling the brunt of the current downturn, the perspective of how this downturn ranks with other downturns suggests that most recognize the cyclical nature of the ag economy.

More details on the economic forecast are available in the Business in Nebraska report from the Bureau of Business Research at UNL. More details on the Rural Poll and the upcoming reports of 2017 survey results are available at ruralpoll.unl.edu.

Lubben is an Extension Policy Specialist at the University of Nebraska-Lincoln.