The News & What it Means – U.S. Farmers Still at Financial Risk Amid Government Bailout

By John DePutter & Dave Milne – September 3, 2019
The news:

U.S. net farm income, a broad measure of profits, is forecast to increase $4.0 billion (4.8 percent) to $88.0 billion in 2019, after increasing in both 2017 and 2018.

USDA, August 30, 2019
What is means:

Don’t let the headline numbers fool you; American farmers are feeling the pinch.

Amid generally weak market prices and China cutting back its purchases of a host of U.S. agricultural products, how can net farm income actually be higher? The easy answer is more government aid. Direct government farm payments are forecast to skyrocket 42.4% or $5.8 billion to $19.5 billion in 2019, with most of the increase due to higher anticipated payments from the Market Facilitation Program, unveiled by the White House to offset the cost of its ongoing trade wars.

In other words, U.S. farm income is being artificially propped up via government support. Returns from the market, meanwhile, tell a very different story.

Market receipts projected lower

According to the USDA forecast, total U.S. crop receipts are expected to decrease $3.3 billion or 1.7% in nominal terms from 2018 levels following expected decreases in soybean receipts. The hardest hit by the Trump Administration’s trade war with China, soybean returns are projected to plummet more than 14% or $5.7 billion.

Total animal/animal product receipts are forecast to increase marginally (up about 0.5%) in 2019, but honest-to-goodness overall returns from the marketplace for the U.S. farmer are nevertheless still expected to decrease $2.4 billion or 0.6% this year.

Farm debt rising, liquidity declining

But wait, the news gets even worse.

Most farm liquidity measures are expected to weaken, with working capital levels forecast down 18.7% to $56.9 billion. Farm sector debt is forecast to rise 3.4% to $415.7 billion, with real estate debt forecast to rise 4.6% to $257.1 billion. Debt-to-asset levels for the sector are forecast to rise again in 2019, continuing an upward trend since 2012. As the chart below shows, American farm debt is now getting back to where it was during the dark days of the 1980s.

Way down from 2013 peak

If the USDA numbers are accurate, projected U.S. net farm income in 2019 would be down more than one-third (-35.5%) from its peak of $136.5 billion in 2013 and below its 2000-18 average ($90.1 billion). Just imagine where it would be if the American government let its farmers bear the brunt of the trade wars on their own.

All of this is not a pile of unique profitability issues in just the U.S. Canadian farmers are seeing the same generally depressed commodity prices their American counterparts are suffering from. Farm debt this side of the border is rising. Farmers in lots of parts of the world are under financial pressure in varying degrees.

It’s not all that surprising. For several years the DePutter reports warned of a multi-year phase of tougher times, following the commodity boom of 2008-2012.

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