Real net farm income in the U.S. hit a definitive peak in 2013 – topping out at $134 billion – following a commodity price spike spurred by severe drought the prior year. But over the past five years, farm income has fallen dramatically to level out at around $66 billion in 2018.
Another year of low commodity prices looms, and that will continue to weigh on farm income, according to USDA chief economist Robert Johansson, speaking at the 2019 Agricultural Outlook Forum in Washington, D.C.
“Looking forward, we expect net farm income to rise slightly from the current level, but we expect it to remain below $80 billion annually for the next decade,” he said.
Johansson didn’t have only bad news to share, noting that some measures of financial farm solvency remain firm, thanks in part to relatively high land values and relatively low interest rates.
“The debt-to-asset ratio remains relatively low – under 15% for the sector – compared to more than 20% in the mid-1980s,” he said.
Even so, debt financing accounted for 25% of net farm income last year, reaching the highest levels since 1988 and more likely to cause significant cash-flow problems for farmers without significant land equity. And although the number of highly leveraged farms have remained more-or-less steady for the past several years, about one of every 10 row-crop operations fits this definition (meaning a debt-to-asset ratio higher than 0.40).
At the forum, USDA released some new season-average price estimates for 2019. The agency anticipates grain commodity prices will improve slightly this year:
- Corn – $3.65/bu (up 1.4% from 2018)
- Soybeans – $8.80/bu (up 2.3% from 2018)
- Wheat – $5.20/bu (up 1.0% from 2018)
Barring any dramatic weather-related production decreases, longer-term grain price gains will almost certainly require increased access and more robust trade with existing export partners – starting with China.
This is especially true when it comes to the ongoing U.S.-China trade spat, which soured soybean prices last summer and have yet to fully recover. So far, 2018/19 soybean exports are about 496 million bushels lower year-over-year, as a sharp drop in Chinese commitments overpowered small year-over-year gains from other areas such as Argentina, the European Union, Egypt, Mexico and Taiwan.
“It is clear that trade will remain vital to maintaining farm income,” Johansson said. “Success will depend on access to key markets.”
Hopefully, tariffs imposed by both the U.S. and China will be resolved “sooner rather than later,” added USDA Secretary Sonny Perdue.
But China is hardly the only country with which the U.S. is seeking to improve trade relations, Perdue added, pointing to the newly forged USMCA deal that could supersede NAFTA by this summer if it is approved by Congress. Perdue said removing the 232 tariffs on aluminum and steel imposed against Canada and Mexico may help seal the deal.
That move could provide some direct benefits to U.S. farmers and ranchers, he said.
“Producers in our country have taken a double whammy with the cost of machinery going up while the prices of their commodities have seen decreases [in the wake of tariffs],” he noted.
An emerging middle class in many countries across the world may prove to be a major market-mover in the coming decade, Johansson said. The number of food-insecure people is expected to fall dramatically by 2028, despite a larger global population. Will the trend create more customers for U.S. grain?
“These numbers mean an expanding market for U.S. producers and more opportunities to grow and to sell globally,” Johansson said.