Mid-Year Checkup on Farm Finances

Charles Dickens’ famous opening line from A Tale of Two Cities, “It was the best of times, it was the worst of times . . .” comes to mind when thinking about farm financial conditions mid-year 2022. Commodity and livestock prices moved higher over the first six months, although some of the gains have been given back over the past few weeks. Land values surged. The value of exports was higher. Demand for beef, pork, and poultry was strong. The usage of corn in ethanol production and soybeans for soybean oil to produce renewable diesel were robust.

On the other hand, costs for diesel, feedstuffs, fertilizer, chemicals, and parts and equipment rose considerably over the last six months. Global economic growth slowed, export quantities were off, inflation hit levels not seen since the early 1980s, and interest rates moved higher. The war in Ukraine, global food shortages, drought, supply chain bottlenecks, and labor shortages contributed to market volatility and created uncertainty.

Through it all, though, financial conditions for Nebraska farms and ranches have remained stable. Loan repayment rates are higher, delinquencies are lower, farm bankruptcies are down, and land values are markedly higher. But signs of a financial softening are starting to appear. Farm debt is modestly higher, loan activity is increasing, and net farm income is expected to be lower this year, although still above average. Figure 3 comes from Cortney Cowley, an economist with the Federal Reserve Branch Bank in Kansas City and shows survey responses from commercial bankers in the region regarding farm income. Responses suggest farm income will still be strong this year, particularly in Nebraska, Kansas, and Missouri, but less than last year.

Figure 3. Regional Farm Income

The remainder of the year will be a challenge for farmers and ranchers with higher input costs, drought, and volatile markets. Farmers’ concerns were evident in the latest Purdue University-CME Group Ag Economy Barometer survey which found 51 percent of farmers expected their farms to be worse off financially a year from now. Management and marketing skills are being tested this year with and patience a premium. Positive returns can be had but recognizing the opportunities and managing costs will be key.