Farm debt in 2016 will be five times larger than net income, up for a third straight year and the highest ratio since 1985, USDA data show. At the same time, sales have fallen for the likes of tractor-maker Deere & Co. and seed supplier Monsanto Co.
The crop glut may be worsening. Inventories of corn, wheat and soybeans will rise 38 percent to the largest since 1988, the USDA said Nov. 9. An October survey of farmers by Purdue University showed growing pessimism. About 79 percent of 400 respondents said they expect bad financial times over the next 12 months. According to the University of Illinois, farmers in the central part of the state will lose $28 an acre on corn in 2016, compared with a record $382 profit in 2011, and they will earn $67 on soybeans, down from $229 in 2010. Bank View
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“Most of the problems are with producers who kept trying to grow at the end of the boom cycle by buying more land, equipment and bidding up cash rents,” said Joe Kessie, senior vice president at Lake City Bank in Warsaw, Indiana, and chairman of the agriculture committee at the American Bankers Association. “The biggest problems are with younger farmers and producers who don’t have a big land base to refinance operating and equipment loans. I have had to pass on some deals that just won’t work.”
The outlook isn’t all bad. Most producers remain profitable, aided in part by the highest crop yields ever. And an increasing share of U.S. agricultural output comes from bigger producers with deeper pockets. With long-term growth in food demand, farm values should be rallying again by 2020, according to MetLife.
“Fortunately, most farmers understood the cyclical nature of commodities,” said CoBank’s Kowalski. “There is an opportunity coming for those producers who played the boom period conservatively.”
Bloomberg.com
