Rural America’s Economy Relies On Farmers

February 26, 2018 04:54 PM
The struggling farm economy will hit rural America where it hurts –the rural economy.

The struggling farm economy will hit rural America where it hurts –the rural economy.

Last week, USDA released their annual net farm income forecast prior to kicking off their annual agriculture outlook forum. USDA says farm income will decrease by $4.3 billion (6.7%) this year to $59.5 billion. That would be the lowest net farm income level in nominal dollars since 2006.

Rightfully, many in agriculture are worried not only how that will affect farm families, but also how it will impact rural America. Particularly because the Federal Reserve has promised to increase interest rates three to four times throughout 2018.

“That’s got the ears and attention of a lot of people,” Roger Bernard, an analyst with Informa Economics told AgriTalk radio host Chip Flory on Friday. “We are looking at higher interest cost, but thank goodness nowhere near disastrous levels that struck agriculture in the 1980s.”

While that’s good news, the bad news is that interest cost isn’t the only financial indicator of struggle.

“It seems like even though some things look snot as bad as the 80s the debt load is very high,” said Iowa farmer Pam Johnson adding that some farmers have been forced to make interest-only payments on their debt.

“To me, that’s the canary in the coal mine,” she told Flory.

When the agriculture sector struggles, rural America struggles too.

“I’m long in the tooth, so I know how a small community like mine’s ability to stay functional with a hospital and good schools and ability to attract new manufacturing is all wound up in this,” Jonson said.

According to Greg Henderson, editor of Drovers magazine, parts of rural America that solely rely on livestock production are particularly hurting.

“A lot of these western high plains areas where there’s not as much farming that are really focused on livestock, those communities are really suffering,” he said. “The jobs revolve around ag and oil, and when both of those things are in the tank, it’s hard for these towns to maintain.”

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Spell Check

Western, NE
2/28/2018 09:07 AM

  Surprised how many investors are still paying horrendous prices for ag land. ROI on that investment is low enough that it doesn't cover the cost of money or for those without debt the cost of equity. Why is that? Because what banks pay on savings, etc. is less than 1%. Banks have been raping the saver since the Bush administration. I for one will be happy to see savings rates return to 5% or more. That means an increase in loan rates. Best banks should be making money at 3% over their cost of money. So, think about that when you're renewing your operating loans. Farmers are getting screwed on any loan rate above 3.5%!

Kearney, NE
2/28/2018 09:43 AM

  I'm with you Zorcan. Cheap interest rates are harming Ag, not helping it. By fostering the illusion that low interest means low-no risk, we have propped input prices up way beyond what commodity prices at current levels warrant. Since we need to export a lot of Ag production, and a lot of our competitors are 3rd world countries, to thrive in Ag, one must be a low cost producer- high land prices destroy any opportunity for becoming that. We are left with producers struggling to eke out a sub minimum wage existence to make up for those high inputs. When interest rates do go up, the wheels are going to fall off for many, as they will have used up their working capital trying to hold on. This time is not "different". The destination is the same, it's just going to take longer to get there.


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