While U.S. farmer net income is forecast to rise this year for the first time since 2013, according to USDA’s forecast, expectations for farm profitability will remain subdued for the remainder 2017 and into 2018.
But, there are a few silver linings.
“We’ll have tight cash flows, tough decisions with lenders and continued interest in cutting costs,” says Gary Schnitkey, ag economist at the University of Illinois. “The good news is we’re going to have lower costs in 2017, and that will continue into 2018.”
These four charts from Schnitkey, Todd Kuethe, clinical assistant professor at the Unviersity of Illinois and David Klein, managing real estate broker for Soy Capital Bank & Trust Company, explain the current picture for the farm economy.
Farm Loan Demand High; Repayment Rate Challenges
When looking at data from the Chicago Federal Reserve Bank, Todd Kuethe, clinical assistant professor at the Unviersity of Illinois, says loan demand by farmers has increased since 2014.
At the same time, more bankers report a lower repayment rate from their farmer customers.
“This means there are more challenges with farmers repaying their loans,” Kuethe says.
Additionally, more farmers are extending or renewing farm loans. The good news, Kuethe says, is that all three agricultural credit factors are starting to move in the right direction, after they all peaked in 2016.
“Hopefully this is a sign we’re seeing strengthening in credit,” he says.
Lower Corn Yields = Likely Lower Revenue
A major factor pressuring farm income in 2017is lower yields, Schnitkey says. USDA’s current national corn yield estimate is 169.5 bu. per acre, per its August Crop Production report. That’s 2.6 bu. per acre above trend yield.
For Illinois, USDA is predicting a 188 bu. per acre state yield, which is 10 bu. per acre lower than the 2016 state yield, but 10 bu. per acre higher than trend yield.
“Prices are the same as last year with lower yields expected in 2017, which results in lower income,” he says.
Relief for Input Costs
A positive for farmers is lower expected input costs for 2018. Schnitkey says 2018 costs will be lower than 2017 levels, particularly in the fertilizer area.
“Input costs will continue down, but not as fast as our revenue,” he says.
For central Illinois, per-acre input costs went up $313 from 2006 to 2013. But from 2013 to 2016, prices have dropped $49.
Slight Shave to Cash Rent Costs
Cash rent rates in Illinois are expected to be in line with recent years, according to a recent survey by the Illinois Society of Professional Farm Managers and Rural Appraisers (ISPFMRA).
“Respondents expect slight decreases in rents going into 2018, reflecting the same trends as land values changes by productivity class,” says Klein, a member of ISPFMRA.
Cash rent levels are expected to drop $5 to $10 across each land classes in Illinois.
The decreases stems from anticipated lower yields and corn prices that are expected to average $3.66 for 2018, Klein says.
Schnitkey, Kuethe and Klein presented their outlook for crop farm income, cash rents, farmland prices and agricultural credit during a farmdoc Webinar on Sept. 1, 2017. View the recording and download the slides.