Farmers heading into harvest season have reason to believe the nation’s struggling agriculture economy won’t get much worse.
Still, there is only faint hope that it will get much better anytime soon.
Recent government data and surveys of farmers are sending mixed signals about whether a rebound is on the way after more than three years of plunging farm income, said University of Nebraska-Lincoln ag economist Brad Lubben.
Crop farmers especially are stretched thin and are looking for any sign of a boost in commodity prices that would put their businesses into profitable territory. Prices for corn, for instance, are down more than 50 percent in the past four years.
“Many of us won’t be able to survive much longer if we don’t have a recovery in market prices,” said Myles Ramsey, who represents the fourth generation on his family’s farm, growing corn and soybeans on about 2,600 acres near Kenesaw in south-central Nebraska.
Even with a government forecast showing net farm income in 2017 expected to inch higher, there isn’t much optimism for a full-fledged rebound, UNL’s Lubben said. At best, this might simply be the start of a long climb back from tough times on the farm, he said.
“Nobody expects that we can climb back as fast as we fell down,” Lubben said.
Farm profits have plunged since spiking in 2011 and hitting a record in 2013, when drought and new demand sent commodity prices soaring.
Today, prices have fallen faster than costs, pinching profits. Last year’s net farm income for producers across the U.S. came in at $61.5 billion, down more than half from 2013 highs of $129 billion. Nebraska saw a similar percentage decline; meanwhile, Iowa farm profits, without the buffer of a spike in cattle sales that Nebraska saw, fell even more sharply.
Now, after three years of declines, farm profits are at last expected to grow nationally this year by 3.1 percent compared with 2016, the U.S. Department of Agriculture said in a report late last month.
That prediction sounds like good news, except that the same report revised 2016 profit downward by 10 percent from earlier forecasts, so the growth isn’t as exciting as it might have been, Lubben said. Profits for 2017 are forecast at $63.4 billion.
Some areas of the ag economy are seeing big growth while others are losing money. Nearly all of the increase in revenue for farmers this year will come from livestock and animal products, while revenue from crops will be mostly unchanged, the USDA said.
Farms specializing in hogs will see a 38 percent bump in profits this year, USDA said.
Russ Vering of Scribner, who raises hogs in eastern Nebraska and also owns a livestock feed manufacturer, Central Plains Milling, said the pork industry is growing in Nebraska thanks to low grain prices, which bring down the price of pig feed, and strong export demand.
“We have corn prices on the lower side of the spectrum, so our feed prices are cut in half or more, and that creates opportunity for better profits,” he said.
Adding livestock is one way to diversify a row crop farm, and it adds jobs and infrastructure investment in rural Nebraska, he said.
To keep the growth going, pork producers need growing exports, said Terry O’Neel, who raises hogs near Friend, Nebraska, and serves as president of the National Pork Board.
“We must continue our current free trade agreements with other countries and strive to support additional free trade,” O’Neel wrote in an email from Tokyo, where he is on a trade trip. Ag industry groups have been pressing the Trump administration to preserve free trade deals and avoid any moves that bring uncertainty and new tariffs.
Trade disruptions are also a worry in the cattle business, where producers can also expect a good year, as they make up for somewhat lower prices with higher volume, the USDA said.
Local expectations in that business are for a positive year in 2017 “after a disastrous ’16,” says Tom Jensen. He’s senior vice president of ag lending at First National Bank of Omaha, which has $1.5 billion in farm loans on its book and is the ninth largest bank in the country in terms of such loans.
Profitability could be obliterated by a disruption in foreign trade, however. That’s the primary concern among borrowers and lenders in the cattle and pork businesses, which rely on foreign markets to buy about 13 percent of beef and about 27 percent of pork raised in the U.S., according to the U.S. Meat Export Federation.
Meanwhile, firms that do business with farmers see some signs of improvement, including Valmont and Lindsay, Omaha-based manufacturers of farm irrigation equipment.
Lindsay said in June that U.S. irrigation sales stabilized. Valmont in July said irrigation sales were up, including in North America, although it attributed that to farmers outside the Corn Belt, and said continued growth would depend on crop prices and farmer sentiment.
Farmer sentiment fell in August as both grain and soybean prices fell, but is still stronger than a year ago, according to an index from Purdue University and the CME Group.
The ripple effects of farmers’ belt-tightening have sent companies like Mid-Continent Irrigation in Fremont, a dealer of Valmont products, scrambling to find ways to offset slower sales.
Mid-Continent caught the wave of record farm income in 2013, a year in which it sold 330 pivots. Now, a good year is one in which farmers buy 30 to 35, said Jake Clark, the company’s service manager. So the focus has shifted to selling farmers on new technology that makes their existing pivots more efficient and easier to monitor.
Behlen Manufacturing in Columbus sees signs of a recovery in growing sales of irrigation and farm equipment. That leads Chief Executive Phil Raimondo to believe his grain bin sales may pick up, too. Those sales typically lag growth in the other parts of his business by a year to 18 months.
Raimondo predicts slow and steady growth. He doesn’t expect agriculture to come roaring back.
“We’re going to go from a bust, to less of a bust,” he said.
Farmers have been conservative on borrowing and will continue that pattern, helping them weather continued low prices, he said.
Loan officers have been spending more time meeting one-on-one with borrowers, says Brad Bauer, Pinnacle Bank’s senior vice president in charge of Nebraska locations. Pinnacle and its sister bank in Colorado have more than $1.6 billion in farm loans, making it one of the 10 largest farm lenders in the country, along with First National.
But demand for operating loans for things like fuel, fertilizer and other inputs is still on the rise, at least among Pinnacle borrowers. It’s because farmers have burned through piles of cash left over from the record-breaking 2012-2013 marketing year, when corn commonly brought $7 a bushel. On Wednesday, corn fetched $2.96 to $3.23 at rural Nebraska elevators.
Now a few years removed from those heady times, Bauer said more borrowers are pinched.
The portion of farm loans not being paid as agreed reflects the economic challenges facing the industry, according to a review of federal banking data.
Among all Nebraska banks insured by the Federal Deposit Insurance Corp., the share of real estate loans secured by farmland and loans to finance agricultural production not being paid as agreed climbed to $169.5 million as of June 30. That’s up 59 percent from $106.7 million at the same time last year. Still, it represents just a fraction of a percent of all loans.
Farm credit conditions weakened further this spring in a region including Nebraska, the Federal Reserve Bank of Kansas City said in an August report, but the pace of deterioration has slowed. For example, loan repayment problems worsened, but not as much as a year ago.