U.S. farm­ers face some lean times

▶ U.S. agri­cul­ture strug­gles with crop sur­pluses and a strong dol­lar ▶ “Low rates pushed ag mar­kets and farm­land be­yond true value”

Bloomberg Businessweek (North America) - - Contents -

The Amer­i­can farm boom is all but over, and farm­ers will have to be­gin tight­en­ing their belts. Land val­ues are down from all-time highs. Global sur­pluses have pushed corn and soy­bean prices below the cost of pro­duc­tion. The amount of agri­cul­tural debt rel­a­tive to in­come has bal­looned to its high­est level in three decades, just as the Fed­eral Re­serve raised in­ter­est rates for the first time since 2006.

While many grow­ers re­main prof­itable, the global com­mod­ity slump is in­creas­ing pres­sure on a Mid­west econ­omy that was largely shielded from the worst of the fi­nan­cial cri­sis by high crop prices and in­creas­ing land val­ues. “The farm econ­omy had a near-per­fect five or six years,” built on record U.S. de­mand for corn­based ethanol in fuel, surg­ing food pur­chases in Asia, and near-ze­rop­er­cent in­ter­est rates that helped spur land in­vest­ment, says Brent Gloy, an agri­cul­tural econ­o­mist at Pur­due Univer­sity. With the oil slump erod­ing ethanol mar­gins, as re­fin­ers use less of the ad­di­tive, and a strong dol­lar re­duc­ing U. S. ex­ports, the Fed’s de­ci­sion last month to start rais­ing bor­row­ing costs “means there’s noth­ing left of the boom,” Gloy says. At the same time, sales are drop­ping for the likes of trac­tor maker Deere and seed sup­plier Mon­santo.

Farm in­come tum­bled in 2015 to $55.9 bil­lion, down 55 per­cent from a record $123.3 bil­lion in 2013, es­ti­mates the U. S. Depart­ment of Agri­cul­ture. Farm­ers’ debt in 2015 was 6.6 times larger than their in­come, up from 3.8 times a year ear­lier. That’s the high­est ra­tio since 1984, when farm fore­clo­sures were the most nu­mer­ous since the Great De­pres­sion, govern­ment data show. The debt-toin­come ra­tio is “like a warn­ing light that goes on in your car,” says Allen Feather­stone, an agri­cul­tural econ­o­mist at Kansas State Univer­sity. “You bet­ter pay at­ten­tion.”

The U.S. crop glut may be wors­en­ing. In­ven­to­ries of corn, wheat, and soy­beans on Dec. 1 were big­ger than they were a year ear­lier, the USDA said in a Jan­uary re­port, as farm­ers kept their bins full wait­ing for bet­ter prices. A sep­a­rate govern­ment re­port fore­cast record global wheat pro­duc­tion. Even as sur­pluses keep prices low, de­mand for Amer­i­can farm ex­ports is drop­ping. The strong dol­lar makes sup­plies from coun­tries in­clud­ing Brazil and Ukraine cheaper for im­porters. With U. S. ex­ports at a sixyear low and im­ports up, the na­tion’s trade sur­plus in agri­cul­ture will slump to $9.5 bil­lion in 2016, down 78 per­cent from a record $43.1 bil­lion in 2014, USDA data show.

Com­pound­ing the strain are higher bor­row­ing costs, which make it more dif­fi­cult for farm­ers to fi­nance op­er­a­tions or pur­chase land and equip­ment. The Fed raised in­ter­est rates by 0.25 per­cent­age points and sig­naled its in­tent to make fur­ther in­creases. Cheap loans and high crop prices had helped fuel a boom in the price of U. S. farm­land, with val­ues dou­bling over a decade.

Maybe it was too much help. “Low rates pushed ag mar­kets and farm­land be­yond true value,” says Jim Far­rell, pres­i­dent of Omaha-based

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