Farmers aren’t expecting good news when they close the books on 2018 in a month or so. But their bottom line may be slightly better than it looked this summer when the trade war between the U.S. and China began to escalate.
USDA’s latest financial forecast shows net farm income down $9.1 billion from 2017, falling 12% to $66.3 billion. The new figure is at least an improvement from the agency’s previous estimate in August. But the $635 million gain came completely from the government’s Market Facilitation Program payments that weren’t included before. Absent the help to offset losses from the trade dispute and income would have fallen significantly below the August outlook.
Corn prices and yields that improved modestly this fall added about $2.5 billion in revenues, though that figure could change once final production is determined in January. Revenues from all crops rose from 2017 levels. But livestock receipts headed in the other direction, falling to $176.8 billion thanks to lower prices for diary, cattle and hogs. Stronger poultry and egg values helped offset most of that decline.
Other farm-related income – a catchall category including everything from forest products to the value of farm houses – helped take the actual value of farm production higher for 2018. But production costs rose some $21 billion.
Interest costs were part of that tab. Higher debt and interest rates raised the cost of loans by 18%. Total farm debt is up 4.2%, with most of the increase coming on real estate. Farm values rose, but by only 2.1%. Values of stored grain and other working capital were down sharply as farmers struggled to maintain liquidity.
As a result, the debt-to-assets ratio for the farm sector rose for the sixth consecutive year, moving from 13.1% to 13.5%. That’s still well below the crushing levels seen during the 1980s farm crisis, but was the highest since 2002 if it holds.
Indeed, the current malaise in farm country is not so much about debt as it is about profits. Ag’s profit margin ratio slipped to 20% this year, matching its lowest level since at least 1960. And the return on farm equity of just 2.4% is nearly as bad as the levels seen 35 years ago.