The farm economy: Just how bad is it? | income | Michigan Farm News

The farm economy: Just how bad is it?

Category: People, Markets & Weather

by Brent Gloy, Agricultural Economic Insights, LLC

The last three years have seen income between 59.5 and 65 billion dollars, down 44 percent from the peak of 2013. In fact, to find three consecutive years with a lower average income level than this period, you must go back to the early and mid-1980s.

Maybe it’s just me, but it seems that there have been a large number of recent articles in the press about the negative situation in the farm economy. This was further driven home when a friend recently called to ask just how bad economic conditions are on the farm. I thought it might be a good time to provide some analysis of the current situation.

There is no question that net farm income in the U.S. has fallen and remains at very low levels. Figure 1 provides a historical perspective. For 2018 income, real net farm income is forecast at $59.5 billion, which is 44 percent of the 2013 peak.

We have arrived at that level through a series of repeated declines. The first two years of the decline left income at levels that were still reasonable, but the last three years have seen income between 59.5 and 65 billion dollars. These three years are very near the bottom of the historical range. In fact, to find three consecutive years with a lower average income level than this period you must go back to the early and mid-1980s.

Figure 1. Real (2018 USD) Net Farm Income, U.S. 1970-2018f.

Low income in all regions

The economic pain in the Corn Belt is well documented for our readers, but I wanted to take a broader look here. The Economic Research Service (ERS) divides the country into farm resource regions which are shown in the map below along with the percentage change in the farm business average net cash farm income from 2017 to 2018.

Figure 2. The Economic Research Service’s Map of Changes in Forecast Farm Business Net Cash Farm Income from 2017 to 2018.

The data in this figure are based on changes in farm business net cash income. According to ERS Farm businesses are identified as follows:

“Farm businesses (farms with annual gross cash farm income of over $350,000 or smaller operations where farming is reported as the operator’s primary occupation) account for less than half of U.S. farms, but contribute over 90 percent of the farm sector’s value of production and hold the majority of its assets and debt.”

As one can see even with a poor 2017, the situation is projected to deteriorate in every region of the U.S. in 2018. The Heartland region, which encompasses the majority of the Corn Belt, shows a decline of 6.2 percent for the year. Other regions are expected to fare even worse. Of note are the Mississippi portal and Northern Crescent which are expected to see double-digit declines. The best forecast, only a 2.6 percent decline, is for the Prairie Gateway.

To look how the economic situation varies across the country, we calculated the average farm business net cash income from 2010 to 2015 (a generally good period) and compared it to 2018’s forecast (shown in the blue bars). We also compared 2018 to the highest net cash income achieved in each region from 2010 to 2015 (shown in the red bars).

Figure 3. 2018 Farm Business Net Cash Income as a Percent of Previous Periods.

This graphic shows that the ERS’s 2018 forecast is generally bad for nearly every region. The blue bars show most regions at near 80 percent of the average from 2010-2015. When compared to the maximum net cash income over the period, the depth of the downturn is even more evident. This is particularly true in the Eastern Uplands, Basin and Range, Mississippi Portal and Northern Great Plains.

The conditions in the Prairie Gateway surprised me a bit given the amount of wheat grown in that region (and we know wheat hasn’t been good lately). So we calculated the same ratios by commodity. These are shown in Figure 4.