Farm incomes are expected to drop again this year, but farmers are still better situated than they were during the farm crisis.
“A repeat of 1980 is unlikely in the current conditions,” said Ani Katchova, who heads Ohio State University’s Farm Income Enhancement Program.
Katchova spoke at the university’s Agricultural Policy and Outlook Conference last month in Columbus.
U.S. farmers did well from 2012 to 2014, when growing demand from China and biofuel manufacturers pushed grain prices to giddy heights.
In the years since that boom fizzled, farm income has fallen by half.
The downward trend will likely continue this year — the 2018 numbers aren’t final yet.
The projected decline dashes hopes that last year’s slight uptick in net farm income would continue, Katchova said.
In Ohio, the income declines have been almost as bad as they were at some points in the 1980s, though the current downturn hasn’t gone on as long as the farm crisis — at least not yet.
“I think the question right now is shifting to ‘How long will these low farm incomes last?’” Katchova said.
The seeds of the farm crisis were sown in the 1970s. Enticed by strong commodity prices, farmers increased borrowing — at the era’s high interest rates.
In the decade that followed, commodity and land prices crumbled, pushing many heavily indebted farmers into bankruptcy, according to USDA’s Economic Research Service.
But despite today’s pain from low farm incomes and commodity prices, farmers are keeping up with their debts better than they did during the ’80s.
Rates of loan delinquency and bankruptcy remain quite low, and farmers’ debt-to-asset ratio, a measure of solvency, is more favorable than it was during the farm crisis.
It helps that interest rates are much lower today than they were 40 years ago, and that crop insurance has expanded greatly over that time, Katchova said.
Adjusted for inflation, farmers also earned a lot more money in the years before the current downturn than they did before the farm crisis.
And ag lenders have adopted more prudent practices since the ’80s, Wendong Zhang, an Iowa State University economist, wrote last year.
Still, farmers could be in trouble in the coming years if their debt continues to grow faster than the value of their assets and equity, Katchova said.
Falling land values, another problem in the ‘80s, could be another sign of trouble to come.
This year, though, farmland values are expected to tick up 1 percent nationwide, to an average $4,130 per acre of crop ground.
After two years of decline, Ohio land values are expected to grow 1.2 percent to $5,850 per acre, Katchova said.
Land values in nearby states are expected to be even higher — $6,260 per acre in Pennsylvania and $12,900, the highest in the country, in New Jersey.
Pennsylvania land values are expected to grow 4.3 percent this year, the second-fastest pace in the country.
Nationally, cash rents increased slightly to $138 per acre, while Ohio rents remained flat at $152.
Ohio cash rents could be seen as “sticky,” Katchova said. “When times are good, they go up, but when times get bad, they just don’t come back down.”
Rents are highest in the Corn Belt and West Coast, as high as $340 an acre in California. Pennsylvania’s average cash rent is $81.
Ohio farmers should get some help from the state’s preferential property tax assessments for farmland.
Similar to Pennsylvania’s Clean and Green tax program, Ohio allows farmland to be taxed based on potential production income rather than the land’s market value.
These land values are expected to decline for the next two years, which would be the fifth and sixth straight years of decline.
The declines should reduce Ohio farmers’ tax bills and weaken the incentive for landlords to increase rent, Katchova said.
Meanwhile, farmers nationwide will benefit from the Market Facilitation Program, the Trump administration’s new system of direct payments to compensate for the damage tariffs have done to ag markets.
But those payments, and the knowledge that times were in some ways worse during the 1980s, may be cold comfort to farmers looking at their lean milk checks and grain elevator receipts.
Farmers may not breathe easier till commodity prices recover, and it’s anyone’s guess when that will happen.