By Julie Deering and Ed Clark
The farm sector’s debt-to-asset ratio is expected to decline from a projected 10.6% at the end of 2012 to 10.2% at the end of 2013, according to USDA. Meanwhile, the debt-to-equity ratio is expected to decline from 11.9% in 2012 to 11.3% in 2013.
With such historically low levels of debt relative to assets and equity, farmers are better insulated from risks associated with commodity production, changing macroeconomic conditions and any fluctuations in farm asset values that might occur due to changing demand for agricultural assets.
Feed Demand Is Corn’s Bright Spot
The specter of a 1.8 billion bushel corn carryover for 2013-14 is sobering price news, but keep your eyes peeled on one of the most important demand hot spots that spells good news: livestock. Feed use of corn led all other categories in 2007-08, at 5.9 billion bushels, but for 2012-13 it was just 4.4 billion, according to USDA. That’s a 1.5 billion bushel drop in corn feed demand, and feed use today has fallen to the No. 2 demand spot behind ethanol. Just think where December 2013 corn futures would be with that 1.5 billion demand back right now.
"It is conceivable that feed use could increase to the 5.2-billion-bushel range in front of us as the livestock sectors grow," says Scott Brown, ag economist at the University of Missouri. That’s huge, and it would mean an additional 800 million bushels of corn demand, catapulting feed use back ahead of ethanol as the No. 1 use category.
What would allow feed use to rebound? The combination of cheaper feed costs, growing U.S. and global economies, and in many states the end of a multi-year drought would allow most livestock producers to become profitable this fall and into 2014, Brown says.