Earlier this week, bankers, economists and industry experts met in Chicago to discuss the current farm economy and where it could be headed next. The group also discussed what indicators should be considered red flags for trouble to come. Here are two things American Farm Bureau Federation economist Bob Young is watching.
1. Land as Collateral. Young says he watches the proportion of loans made where the collateral used to secure the note was the farmland itself.
“That took a significant uptick in 2016,” he says. “That concerns me.”
According to Young, farmers don’t use land as collateral because it’s part of some great business plan. Usually they do it because it’s the only asset they have left to fall back upon.
2. FSA Loan Defaults. In Young’s experience, another good indicator of struggles on the horizon for the farm economy is an uptick in defaults on FSA loans during the first quarter of the year.
According to USDA, U.S. net farm income is expected to drop again in 2016 to $66.9 billion. The agency cites weak prices for livestock, dairy and poultry farms as cause for the drop. However, many economists point to low grain prices as a contributor to the decline.
Bankers, farmers and economists alike are watching markets closely, hoping for a turnaround in the near future.