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Challenging times face rural AmericaChallenging times face rural America

Senate Agriculture Committee hearing focuses on state of rural economy with lower commodity prices, pressured farmland values and weaker margins.

Jacqui Fatka

May 25, 2017

4 Min Read
Challenging times face rural America

“Times are challenging right now in farm country,” Senate Agriculture Committee chairman Pat Roberts said in his opening comments on a hearing to examine the economic landscape of rural America.

Members heard testimony from U.S. Department of Agriculture chief economist Robert Johansson, who spoke about several domestic and global factors contributing to low commodity prices and the financial implication for farmers. Additional witnesses included Nathan Kauffman, assistant vice president and Omaha, Neb., branch executive with the Federal Reserve Bank of Kansas City, Mo.; Bruce Weber, professor emeritus of applied economics and director of the rural studies program at Oregon State University, and Alec Sheffer, director of retail sales for Agri-AFC.

Johansson noted that many producers face pressure from continued low commodity prices, including corn and soybean producers who actually face lower commodity prices than previously projected earlier in the year.

For the livestock, dairy and poultry sectors, Johansson said USDA projects that total meat and poultry production will be record high again in 2018, at 103.1 billion lb., as production of beef, pork and broilers all increase. “With those increases in production in all categories, prices are expected to soften into 2018, but solid domestic demand and export growth are expected to moderate the price declines,” he said.

Johansson pointed out that U.S. agriculture faces a friendlier macroeconomic environment than in the previous two years. “The dollar will be less of a headwind, and growing economies, especially in emerging markets, will demand more and better-quality food and feed," he added. "U.S. producers have demonstrated their competiveness by continuing to export at high levels despite the difficult economic environments in 2015 and 2016.”

Kauffman cited a recent survey of agricultural banks conducted by the Kansas City Fed in which about 85% of lenders in the region in the central U.S. identified the current environment of low commodity prices as a leading concern.

“Financial stress in the farm sector has increased more significantly in regions where cropland is generally less productive and in regions concentrated in markets that have been particularly weak, such as cattle and wheat. In other areas, strong crop yields last fall resulted in cash flows that were better than expected, and financial conditions have been more stable recently in those regions,” Kauffman said.

Federal Reserve Bank surveys show that the average value of high-quality cropland has fallen by about 10-20% since 2013 in states with a high concentration of crop production. Since the beginning of 2015, however, farmland values have decreased more significantly in regions where the land is considered to be less productive or where the local farm economy has weakened more dramatically.

Despite regional variation, the relative strength in farm real estate markets has likely shielded the farm economy from potentially more severe financial stress, since farmland accounts for more than 80% of the value of farm sector assets and is an important source of collateral for other farm loans.

When asked why cash rents and land values have not come down in step with the lower commodity prices, Johansson responded that cash rents specifically deal with longer-term contracts, which haven’t had time to adjust. Land prices remain relatively strong, considering that a limited amount of land is coming onto the market, that some producers still have cash resources and that interest rates remain historically low.

Johansson said land values have actually increased in some parts of the country, such as Texas, where strength in the cattle sector has helped support values.

Since profit margins have remained weak, solvency has pulled on farmland values. Kauffman noted that because there hasn’t been a lot of forced asset liquidation, that has supported land values as well. If more farms need to undergo forced liquidation, it could lead to additional problems.

“Alongside the reductions in farm income the past four years, agricultural credit conditions have weakened steadily, and farm real estate values have trended lower,” Kauffman said. “In general, I expect these downward trends to continue in the near term as global supplies are likely to continue to weigh on agricultural commodity prices and profit margins. Although a farm crisis does not appear imminent, some regions appear to be notably weaker than others, and there are still risks that could lead to more widespread challenges in the coming years.”

"America's retail farm suppliers have been hit hard by the downturn in the agricultural economy over the past decade," Sheffer said. "There are a growing number of factors that have led to this decline, including a steep drop in farm commodity prices, increased regulatory burdens and market uncertainty. As an agricultural retailer, we have seen this firsthand with our customer spending and declining revenues."

Sheffer has pressed several policy priorities for the Agricultural Retailers Assn. such as tax reform, crop insurance, repeal of the National Pollutant Discharge Elimination System pesticide general permit requirement and the review of the "waters of the U.S." rule.

About the Author(s)

Jacqui Fatka

Policy editor, Farm Futures

Jacqui Fatka grew up on a diversified livestock and grain farm in southwest Iowa and graduated from Iowa State University with a bachelor’s degree in journalism and mass communications, with a minor in agriculture education, in 2003. She’s been writing for agricultural audiences ever since. In college, she interned with Wallaces Farmer and cultivated her love of ag policy during an internship with the Iowa Pork Producers Association, working in Sen. Chuck Grassley’s Capitol Hill press office. In 2003, she started full time for Farm Progress companies’ state and regional publications as the e-content editor, and became Farm Futures’ policy editor in 2004. A few years later, she began covering grain and biofuels markets for the weekly newspaper Feedstuffs. As the current policy editor for Farm Progress, she covers the ongoing developments in ag policy, trade, regulations and court rulings. Fatka also serves as the interim executive secretary-treasurer for the North American Agricultural Journalists. She lives on a small acreage in central Ohio with her husband and three children.

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