An excerpt from testimony by U.S. Agriculture Secretary Sonny Perdue before the United States House Committee on Agriculture, Feb. 27, 2019.
Ever since the record prices and farm income levels reached in 2013 the U.S. farm sector has faced declines, leaving producers increasingly vulnerable to production disruptions posed by natural disasters and market disruptions. Net farm income has fallen nearly 50 per cent from its peak in 2013, as most commodity prices have fallen over the past five years while global stock levels have rebounded with several years of record production. We saw the largest U.S. soybean crop ever in 2017 and again in 2018, U.S. corn production was the second highest ever in 2017 and third highest ever in 2018.
However, other countries have also seen high production numbers. In 2019, global production will continue to expand, trade challenges will persist, and these factors will continue to impact commodity prices. As a result, many farmers will continue to face tight bottom lines with fewer resources.
Our chief economist at USDA calculated that working capital has decreased by 70 per cent since 2012. However, total cash receipts are forecast to be slightly higher in 2019 across crop and livestock commodities and average net farm income is forecast to be higher in 2019 compared to 2018. Overall, the record levels of crop and livestock production we have seen over the past few years have helped to stabilize farm incomes, despite their contribution to continuing low prices. Producers have reduced spending on inputs and tapped a combination of savings, loans, and off-farm income and assets to remain in business in the face of continuing stresses in the farm economy.
After five years, however, those resources are dwindling for many. Farm debt has been rising more rapidly over the last five years, increasing by 30 per cent since 2013 — up from $315 billion to $409 billion, according to USDA data, and up from $385 billion in just the last year — to levels seen in the 1980s. Demand for commercial farm operating loans continues to increase in most regions despite a steady, if slow, rise in interest rates on agricultural loans.
Although the Farm Service Agency’s (FSA) Farm Loan Program saw another slight annual decline in lending in 2018 following a year of bumper crops, loan demand remains historically high. Increasing farm financial stress could lead commercial lenders to seek more loan guarantees. FSA may see an increase in repayment difficulties with continued low commodity prices and expected increases in costs, though delinquencies have been stable and restructuring of direct loans fell slightly in 2018. Relatively firm land values have kept farmer debt-to-asset levels low by historical standards at 13.5 per cent and continued low interest rates have kept the cost of borrowing relatively affordable. But those average values mask areas of greater vulnerability. The strength of land values varies geographically, with some regions seeing greater weakness even as others hold steady or see modest increases. Debt-to-asset ratios vary among farm businesses by commodity specialization.