Mid-Year Checkup on Farm Finances
Directionless, aimless, or drifting are words which come to mind when thinking about conditions in agriculture. Corn, soybean, and wheat prices are lower compared to January. Cattle prices are higher. Input costs have moderated, especially fuel costs, yet remain high. Interest rates are higher. Land values are unimpeded. Exports of goods important to Nebraska, like corn, soybeans, and red meat, are lower. Domestic consumption of beef, pork, and poultry is stable. Drought conditions continue, but recent rains have lessened the impacts. Agriculture continues to move forward, but for the moment lacks a direction or a true course. It’s as if agriculture is adrift on an ocean, waiting for a stronger current to carry it one direction or another. Directionless, aimless, or drifting are words which come to mind when thinking about conditions in agriculture. Corn, soybean, and wheat prices are lower compared to January. Cattle prices are higher. Input costs have moderated, especially fuel costs, yet remain high. Interest rates are higher. Land values are unimpeded. Exports of goods important to Nebraska, like corn, soybeans, and red meat, are lower. Domestic consumption of beef, pork, and poultry is stable. Drought conditions continue, but recent rains have lessened the impacts. Agriculture continues to move forward, but for the moment lacks a direction or a true course. It’s as if agriculture is adrift on an ocean, waiting for a stronger current to carry it one direction or another.
While the signals are mixed, financial conditions for Nebraska farms and ranches are sound. March projections of this year’s net farm income by the University of Nebraska-Lincoln forecast an income of $7.3 billion, a level similar to last year. About 40 percent of commercial bankers surveyed by the Kansas City Federal Reserve Bank, including bankers in Nebraska, reported that income in the first quarter of the year was higher than a year ago and 25 percent reported it was lower. Loan repayment rates are stable, farm bankruptcies are low, and land values remain strong—all signs of sound financial conditions.
Yet, clouds are peaking over the horizon. Figure 1 shows commercial bankers’ expectations for the coming months regarding several financial measurements. For Nebraska, bankers expect farm income to fall, borrower liquidity to fall, and loan demand to increase. Loan repayment rates are expected to remain stable. The June survey of U.S. producers by the Purdue University/CME Group Ag Economy Barometer is reflective of the financial uncertainties. Of the producers surveyed, 32 percent indicated they would be financially worse off a year from now and 20 percent indicated they would be better off.
FIGURE 1. EXPECTATIONS IN FARM FINANCIAL METRICS
Source: Nate Kauffman and Ty Kreitman, Credit Conditions Hold Strong as Interest Rates Rise, Ag Credit Survey, Kansas City Federal Reserve Bank, May 11, 2023.
For Nebraska producers, crop yields and production will suffer again this year due to drought. Crop prices will likely be lower this year as well. Cattle prices are higher, but herd liquidation due to drought means fewer calves are available for sale. This year’s net farm income might soften, but still be respectable from a historical perspective. As a result, farm and ranch finances are stable, but drifting, waiting for the next wave to carry them either up or down.
