FarmPolicy

September 22, 2017

Kansas City Fed Report: “U.S. Farm Economy Slumps into the Fourth Quarter”

Nathan Kauffman indicated in a column posted yesterday at the Federal Reserve Bank of Kansas City Online (“U.S. Farm Economy Slumps into the Fourth Quarter“) that, “In August, expectations for 2016 farm income were revised up modestly from the February forecast, but income was still expected to decline notably from a year ago. The U.S. Department of Agriculture’s August revision can be interpreted as both positive and negative for the farm sector. On the positive side, farm income expectations for 2015 and 2016 were revised up by 43 percent and 31 percent, respectively (Chart 1). On the negative side, however, the expected decline in farm income from 2015 to 2016 widened from 3 percent earlier in the year to 11 percent in the most recent report. Essentially, farm income was higher than initially forecasted, but the deterioration from a year ago is now believed to be sharper than expected.”

Dr. Kauffman stated that, “The improvement in farm income expectations was largely due to downward revisions in production costs for the farm sector as revenue expectations continued to weaken.”

The Fed report added that, “Although U.S. farm income expectations were revised up in August, profit margins for many producers of major U.S. agricultural commodities weakened significantly in the third quarter. In the crop sector, the range of average monthly prices throughout 2016 has left very few opportunities for producers to sell at a profit (Charts 4a, 4b, 4c4d). Since 2013, profit margins have dropped precipitously for corn, soybeans, wheat, and cotton, and both wheat and corn prices were hovering at or near 10-year lows in September.”

Yesterday’s report also pointed out that, “The downturn in the agricultural economy has continued to affect credit conditions in the sector. From 2010 to 2014, borrowers had few problems repaying loans. Since 2014, though, bankers in the Tenth Federal Reserve District have consistently reported an increase in the severity of loan repayment problems (Chart 6). As of the second quarter of this year, Tenth District bankers indicated that more than 7 percent of their agricultural loans were experiencing either ‘major’ or ‘severe’ repayment problems, an increase from just 4 percent in 2015.”

And yesterday’s report also noted that, “Bankers in the Kansas City Fed District also continued to point to spillover effects from the softening farm economy to Main Street business activity.”

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