Each year in late February, the USDA “Ag Outlook Forum” is held in Washington, DC. The Ag Outlook Forum is usually the first USDA projection for expected crop acreage for the coming growing season, as well as other current economic conditions in the agriculture industry. The latest Forum was no different, with projections for significant increases in U.S. soybean acreage for 2017, as well as forecasts for continued tight profit margins and reduced farm income levels for the coming year.

 2017 U.S. crop acreage projections from the USDA Ag Outlook Forum ……  

Most grain market analysts predicted 2017 crop acreage totals similar to the USDA acreage projections, with increased soybean acreage, and reduced acreage for corn and wheat. The analysts expect this scenario to put some market pressure on the soybean market in the coming months, particularly if we get favorable growing conditions. On the other hand, the reduced 2017 acreage for corn and wheat could create some pricing opportunities in future months for the 2017 crop, especially if there are any production challenges. Besides the monthly USDA Supply and Demand Reports, the next important USDA crop data will occur with the USDA “Planting Intentions Report” on March 31.

 Farm Income Forecast ……

USDA is projecting the inflation-adjusted U.S. farm income for 2017 to be at the lowest level since 2002; however, USDA also pointed out that overall farm debt-to-asset ratios continue to remain at very low levels. Most observers agreed that the overall financial health of U.S. agriculture is in better shape than was projected at last year’s Ag Outlook Conference, but admitted that there still continues to be farm profitability concerns going forward. There were some reports of farm operators being denied farm operating loans for the coming year; however, this was not seen as a widespread concern.

Some experts feel the biggest concern with farm operating loans may be for the 2018 growing season, especially if crop prices stay relatively low, and crop yields in the Upper Midwest return closer to trend line yields, following the record corn and soybean yields in Minnesota, Iowa, and other States in both 2015 and 2016. Many farm operators have already reduced input costs and used up excess working capital to deal with tight crop production profit margins in recent years, so there may not be as much flexibility for adjustments for the 2018 crop year.

Economists at the USDA Forum expect farm land values in most major crop producing areas of the U.S to decline moderately in the next 12 months; however, they do not anticipate a sharp collapse in land values, similar to the 1980’s. In addition to level of farm profitability, increases in interest rates by the Federal Reserve in the next couple of years is also likely to have a negative impact on land values.

Many ag lenders reported much tighter scrutiny by Federal and State Bank examiners on agriculture related loans, which may could make ag credit more difficult for farm operators facing financial challenges. However, most ag lenders also indicated that to this point, the number of problem ag loans has been quite manageable. Most of the agriculture financial experts are expecting some tight margins and increasing farm financial challenges in the next couple of years; however, none of the experts were predicting a repeat of the farm financial crisis of the 1980’s.