From Kansas Agland:
Kansas net farm income in 2015 hit a 30-year low, reaching a level not seen since the 1980s farm crisis.
Accrual net farm income across 1,159 Kansas Farm Management Association farms averaged $4,568, drastically down from a five-year average of $120,000.
Moreover, as a bountiful wheat harvest nears, executive director Kevin Herbel doesn’t expect the farm economy to change anytime soon, as farmers face another year of depressed crop prices and a softening of the cattle market. KFMA released its annual report last week.
“What makes it more noticeable this year is we are coming off a period of time of very good net income years,” Herbel said. “From 2007 to 2013, they were very good years.”
That last time state farms experienced similar income levels was in 1985 when net farm income averaged $4,822, said Herbel. Meanwhile, 1981 was the state’s lowest net farm income, at -$1,871 – the only time Herbel can tell that farm income dipped into negative profits.
The farm economy is struggling nationally, too, with net farm income forecast to be $54.8 billion. If realized, 2016 net farm income would be the lowest since 2002 – both real and nominal – a drop of 56 percent from its record high of $123.3 billion in 2013, according to the U.S. Department of Agriculture.
The softening follows a boom that has occurred for the past several years as crop prices and land values soared thanks to drought and rising demand for crops – including corn for ethanol and overseas buyers. From 2006 to 2011, Kansas farmers’ net farm income augmented by 250 percent.
Herbel added that this doesn’t mean Kansas farmers are at the point of a 1980s farm crisis. Back then, thousands of farmers across the Midwest went out of business as interest rates soared, global markets dried up and commodity prices dropped. Farmers found themselves faced with overwhelming debt.
Unlike the 1980s, interest rates are low and the average farm has a strong balance sheet with significantly more assets and less liability.
However, said Herbel, there are still some farmers “out on the edge in a difficult financial position.”
About 45 percent of the association’s farms saw a loss in net farm income in 2015. About 23 percent had a loss of greater than $50,000.
“The period of time we are in, this next year or two could be a real struggle for farms,” he said, adding that for those on the brink, the situation probably feels similar to the 1980s.
“If a farm family, a producer isn’t very wiling to carefully look at their financial position and willing to take steps they need to keep their current financial position strong, it could be tough,” Herbel said.
Farmers do have more debt – $580,000 compared to the five-year average of $430,000. With the better years and high commodity prices, farmers made equipment and land purchases.
Moreover, farmers have a higher cost structure than they did in the 1980s, he said. Once it moves up, it doesn’t adjust as quickly as grain prices do. Prices could always change quickly, depending on the global marketplace. But at present, Herbel doesn’t think it seems likely, as there is more grain in the world than demand. All factors point to 2016 being another year of tight margins for farms,” he said. However, it isn’t just the farmer affected by the downturn. Herbel noted machinery dealers have been making adjustments for the past few years as farmers tighten their belts. It also will affect Main Street.
“With lower grain prices and margins tight, that will have an impact on rural communities,” he said.