Not the ‘80s, but watch farm income in coming years

OKLAHOMA CITY — The unknowns facing the agriculture sector are much greater today than in the past few years and possibly decade.

The good news is farmers’ balance sheets are generally stronger, largely because of the flow of government funding and low interest rates throughout the pandemic, coupled with commodity prices.

“What I’m seeing is the rearview mirror shows us that we came through from a period of really challenging times for ag bankers and for the ag sector, to a point where balance sheets are really cleaned up,” said Jim LaPierre, Federal Deposit Insurance Corporation regional director.

“I think all of us are looking at 2024 and thinking it’s probably not going to be quite as good as 2023 and not quite as good as 2022.”

Farmers and ag lenders are likely in store for a more challenging environment, said LaPierre during the Agricultural Bankers Conference in Oklahoma City.

The conference session focused on the evolving agricultural landscape, looking through the rearview mirror and windshield.

The previous low interest rate environment was an anomaly, said Sam Miller, an agribusiness adviser.

“The good news is the ag sector is in the best liquidity and solvency position it’s been in in decades,” Miller said.

A number of risks will challenge farmers in the coming year, including trade disputes, higher interest rates and inflation, Miller said.

But it’s certainly not comparable to the 1980s, the panelists agreed. Miller noted risk management tools are the best they’ve ever been.

According to the Center for Farm Financial Management at the University of Minnesota, which examines financial data from 3,500 farms in 11 states, crop and cattle farmers are more likely to finish 2023 in the black while dairy and hog producers are expected to report financial losses.

The median income for crop farmers within CFFM is estimated to decrease from $385,000 in 2022 to $171,000 in 2023.

Agcor CEO Chris Peacock focused on the generational shift now occurring.

“And in the not-too-distant future, not just on the farm, will be one of the largest transfers of wealth,” he said.

Every day in the United States, 10,000 people turn 65, and $38 trillion of wealth is going to exchange hands between now and 2035, noted moderator David Kohl, professor emeritus, agricultural finance and small business management entrepreneurship at Virginia Tech.

Miller said he’s carefully watching the global economy.

“If you look at the marginal sales of most ag commodities, it’s an export market, and that’s going to be something to keep an eye on,” he said. “And global unrest is a challenge in that regard.”

The panelists also zeroed in on weather impacts on the ag sector, specifically, transportation challenges related to weather, including low water levels on the Mississippi and Amazon rivers, as well as the Panama Canal.

Supply and demand also are key components, and what lies ahead for biodiesel and renewable diesel, and whether ethanol will qualify as a green fuel.

“That’s something I’m looking for down the windshield,” Miller said.

“I think that is, frankly, positive, it’s a good green shoot for agriculture,” he said. “If you look at why soybean prices are where they are, it’s because of renewable and biodiesel trade policy.”

From a regulator’s perspective, LaPierre advised ag bankers to continue to be diligent in the way they’re managing their portfolios.

“It’s easy when corn is $7 as a lender to say, ‘I can probably not require that financial statement,’ or ‘I could probably let some things go.’ And I would encourage you not to do that for two reasons: One, that’s not good for your institution to have those exceptions. … It’s also not good from your borrower’s perspective. They should expect you’re always going to be diligent, disciplined in the way you’re underwriting your credit,” LaPierre said.

This story was distributed through a cooperative project between Illinois Farm Bureau and the Illinois Press Association.