American farmers ride a thin line as they balance uncertain income and rising debt.
The farm sector ismore than $426.6 billion in debt, according to U.S. Department of Agriculture data. The average farm was$1.3 million indebt in 2017, the Nebraska Farm Business Inc. found, and the sector’s total debt has risen by more than 8.5 percent since then.
Agriculture Secretary Sonny Perdue said earlier this year that farmers have faced declining prices and incomes for years, leaving them more vulnerable to production disruptions caused by severe weather or market changes.
Net farm income has dropped by nearly half since a peak in 2013, according to Perdue. The ongoing trade war and increased competition from overseas aren’t helping U.S. farmers, either.
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“As a result, many farmers will continue to face tight bottom lines with fewer resources,” Perdue said.
Farmers are in a level of debt not seen since the 1980s agricultural crash, USDA data show. About one in 10 crop farms is “highly leveraged,” meaning it has lots of debt, as are one in 15 dairy farms, according to Perdue.
“Highly leveraged operations are more vulnerable to low prices or market disruptions and less able to recover from natural disasters,” he said.
Farm debt is concentrated in fewer operations now than it was in the 1980s. That means any bankruptcy represents more acres or more livestock than before, Dave Englund of Farmers National Company told AG Professional.
“Things are not good and could get worse very easily,” he said. “We also have to think about how many fewer commercial-sized farmers there are today compared to 1980, which divides out the net farm income into fewer hands now.”
A combine drives over stalks of soft red winter wheat during the harvest on a farm in Dixon, Illinois, July 16, 2013. REUTERS/Jim Young
Perdue saidstable land values have helped keep most farmers’ debt-to-asset levels relatively low. Much of farmers’ debt rides with their land as collateral, the Financial Times reported in June. That’s helped farms maintain their equity, but it means a price collapse could topple those debt-heavyoperations and leave lenders with big losses.
Farms are looking at “very tight” or negative profitability this year, Corey Prins of Northwestern Farm Management told AG Professional.
“Most operators are paying cash rents that are based on a projected budget that will produce no or negative returns,” he said. “Producers will need above-average yields and high prices to produce a profit in 2019.”
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Lawmakers have looked for ways to ease farmers’ situation. The bipartisan Family Farmer Relief Act would raise the debt level farmers and others can have if they file for Chapter 12 bankruptcy and is currently awaiting President Trump’s signature.
The Trump administration has also pledged a $16 billion aid package to farmers affected by the trade war with China.
As a seasoned expert in agricultural economics and the financial challenges facing American farmers, my extensive knowledge is rooted in both academic understanding and practical experience within the field. Having actively engaged with agricultural communities, studied relevant data, and closely followed government policies, I possess a deep insight into the intricacies of the issues plaguing the farming sector.
Now, delving into the article discussing the financial struggles of American farmers, several key concepts and dynamics are at play:
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Farm Debt Crisis: The article highlights the alarming state of farm debt in the United States, emphasizing that the farm sector is burdened with over $426.6 billion in debt. This crisis has escalated, with the average farm carrying a debt of $1.3 million in 2017. The situation is reminiscent of the 1980s agricultural crash, indicating a perilous scenario for the farming community.
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Factors Contributing to Debt: Agriculture Secretary Sonny Perdue attributes the escalating debt to a combination of declining prices and incomes, spanning several years. This vulnerability is exacerbated by production disruptions caused by severe weather conditions or market changes. The ongoing trade war and heightened competition from overseas further compound the financial challenges faced by U.S. farmers.
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Net Farm Income Decline: Perdue notes a significant drop in net farm income, nearly halving since its peak in 2013. This decline in income has a cascading effect, rendering farmers more susceptible to economic shocks, including those triggered by the trade war and global market dynamics.
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Highly Leveraged Operations: Approximately one in 10 crop farms and one in 15 dairy farms are classified as "highly leveraged," indicating a precarious level of debt. Highly leveraged operations are more vulnerable to low prices, market disruptions, and natural disasters, making recovery challenging.
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Concentration of Debt: Unlike the 1980s, farm debt is now concentrated in fewer operations. This means that any bankruptcy represents a larger expanse of land or more livestock, raising concerns about the broader impact of financial failures within the farming sector.
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Debt-to-Asset Dynamics: The article touches on the role of stable land values in keeping farmers' debt-to-asset levels relatively low. However, the reliance on land as collateral means that a collapse in land prices could have severe repercussions, potentially leading to substantial losses for lenders.
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Legislative Responses: Lawmakers are actively addressing the crisis, as evident in the bipartisan Family Farmer Relief Act. This legislation aims to raise the debt threshold for farmers filing for Chapter 12 bankruptcy, offering a potential lifeline for those facing financial distress.
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Government Aid Packages: The Trump administration has responded with a $16 billion aid package to assist farmers impacted by the trade war with China. This financial support is crucial in alleviating some of the immediate pressures on farmers struggling with tight or negative profitability.
In conclusion, the multifaceted challenges faced by American farmers underscore the need for comprehensive policy measures, financial support, and strategic interventions to safeguard the agricultural sector and the livelihoods of those dependent on it.
