Pressure on farm finances is likely to continue, according to the latest analysis of national and global agricultural trends from the University of Missouri’s Food & Agricultural Policy Research Institute (FAPRI). The analysis calls for an increase in net farm income in 2019, but net farm income is still expected to come in below the 2014 through 2017 average. And long-term projections suggest little change in real net farm income over the next decade, which would increase the farm sector’s debt-to-asset ratio, according to the report.
The assumptions used in the report are based on information available in February 2019 and an outlook from IHS Markit for moderate growth in the U.S. and global economies. Of particular note, the baseline assumes a continuation of 2018t farm bill policies and trade policies, including the tariffs on U.S. farm products from China, Mexico and other countries in 2018. The FAPRI report notes that varying scenarios generate significantly higher or lower results versus what it is reporting today. It highlights the following:
- Projected prices for U.S. soybeans and other products affected by current trade disputes remain below levels that would prevail if foreign tariffs were removed. Marketing-year-average (MYA) soybean prices stay below $9.00 per bu. for a second straight year in 2019-20.
- Projected corn prices increase for a second straight year in 2019-20.
- Further recovery in wheat prices could be limited by continued large global supplies, while cotton prices could fall in 2019-20 in response to increased U.S. production.
- These estimates were prepared before the March 29 USDA planting intentions report was released. That report suggests slightly more acres of corn and fewer acres of wheat and cotton than reported here. Actual 2019 acreage will also depend on spring weather and other factors.
- Increasing U.S. meat supplies continue to weigh on livestock and poultry prices in 2019. The possible impacts of African swine fever (ASF) in China and other countries have pushed up pork futures prices since these estimates were prepared.
- Under the 2018 farm bill, more corn, soybean and wheat producers are projected to choose the Price Loss Coverage (PLC) program when they have a chance to make new program elections in 2019.
- Projected PLC payments total an average of $5 billion per year over the next decade, with other commodity programs adding another $1 billion per year in payments.
- Crop insurance net indemnities (payments for losses minus producer-paid premiums) average more than $6 billion per year over the next 10 years. Both commodity program and crop insurance benefits are very sensitive to weather and market conditions.
- Although it remains well below the levels of the 1980s, the ratio of U.S. farm debts to assets has increased from 11.3% in 2012 to 13.5% in 2018. The outlook is for continued stress on farm finances, with the debt-to-asset ratio averaging 14.8% between 2020 and 2028.
- After a period of exceptionally low food price inflation, the index of consumer food prices is projected to increase by about 2% in 2019 and subsequent years, similar to the overall rate of inflation in the U.S. economy.
You can find the full 10-year baseline projection for U.S. ag markets, farm program spending, farm income and more here.