Farmers and ranchers are currently experiencing one of the biggest economic downturns in history with many parallels seen to the 1980s.
Meanwhile, commodity outlooks remain pessimistic, indicating tight financial conditions for farmers into the future.
With those issues as a scene-setter, Kansas State University Research and Extension Agricultural Economics held a series of programs across the state entitled “Top 10 Considerations to Navigate a Struggling Farm Economy.”
The programs focused on a host of different topics to help producers start thinking critically about how the farm or ranch operation might withstand these hard times. By dividing the program into topics of consideration, a decision framework could be built of how producers can evaluate what viable options or opportunities exist to become more efficient and to strengthen their business.
While the list wouldn’t likely have made it on David Letterman’s old television show, the “Top 10” was nonetheless seen as important considerations:
1.) Cost of Production-Crops & Livestock
2.) Opportunities To Save On The Cost of Production
3.) Maintaining Working Capital and Restructuring Debt
4.) Utilizing FSA Loan Programs
5.) How Long Can I Afford to Lose Money on Rented Ground?
6.) Managing Machinery Expenses
7.) Farm Safety Nets
8.) Income Tax Management
9.) Is it Time to Retire? What About The Next Generation?
10.) Family Living Expenses
More than 100 producers attended a recent meeting in Hays, Kansas.
In an opening overview, Allen Featherstone, Ph.D., professor and head of the K-State Department of Agricultural Economics and director of masters of agribusiness program at Kansas State University; and Mykel Taylor, Ph.D., assistant professor in the department, told the crowd it’s hard to find a bright spot in the farm economy.
Accrual net farm income for 2015, as reported by the Kansas Farm Management Association, was reported at $4,568, down more than 95 percent from the net income level of $128,731 in 2014 and down from a five-year average of nearly $120,000.
“For a long time, Kansas farm income tracked pretty close to national, USDA figures,” Featherstone said. “It kind of separated in 2014 and by 2015, those numbers really fell.
“It’s not so much a national problem, but it is a Midwest problem. In Illinois, their net income fell to negative $2,500 per farm. In Kansas, it’s looking like 2016 will be a repeat of 2015. In the western part of Kansas, it probably will be less. In the eastern part of Kansas, where there are soybeans, it’ll likely be more.”
Unlike many years, where livestock income can often offset losses in grain income, both sectors of the agricultural economy have fallen off dramatically, Featherstone said.
Added Taylor, “This falloff was very abrupt.”
Because of that, the ability to pay both principal and interest off farm loans have declined, as well, leading to an uptick in probability of default, with 2017 continuing to be more negative yet unless adjustments are made.
“Forecasts are showing that this price structure we’re seeing won’t be changing in the next two years,” Taylor said. “We’re all just sitting steady. So, we need to find a way to make things profitable again.”
Featherstone primarily looked at maintaining working capital and restructuring debt, at least as an immediate way to keep operating. By his own experience with KFMA members, he said some debt restructuring is already occurring.
“One statistic worth noting is that farm repayment capacity fell from 152.8 percent in 1979 to 16.3 percent in 1981,” Featherstone said. “Even though this economy is tough, we’re about where we were in 1979.”
However, it’s predicted the Federal Reserve Open Market Committee will vote later this year to raise interest rates to lenders, which will mean higher rates for borrowers. Add to this the decline in farm production and uncertainty in land values as some producers liquidate land holdings to cover debt, and repayment capacity could be the worst ever unless adjustments are made.
“It’s all going to affect what your lender looks at as he looks at your balance sheet,” Taylor said.
Extension specialists and agents across the country are here to help, they said. Feel free to contact the local Extension office or a state university agricultural economics department for more information and assistance.
Larry Dreiling can be reached at 785-628-1117 or firstname.lastname@example.org.