By: Don McCabe
Low commodity prices and declining farm incomes have some folks believing the ag economy has entered a “new normal.” But Tina Barrett, executive director of Nebraska Farm Business Inc., says the current conditions are more like a return to the “old normal” of the late 1970s to the mid-2000s.
“The good times lasted long enough that we forgot the previous 20 years,” she says. “We’re witnessing new struggles for crop producers we haven’t seen in many years.”
The ag economy isn’t likely to improve next year, either, she says, and the impact of steadily rising property taxes weighs on the bottom line.
Barrett leads a farm business firm with 120 members who have a financial analysis conducted annually on their farms. Those operations, scattered across the state, vary in size and are predominately crop-based enterprises, although several have livestock. She says these client operations are fairly representative of most of the state’s cropping operations.
NFBI also has another 400 clients for whom either tax preparation, accounting or other financial services are provided.
Average net farm income for member crop operations (those with 70% of their gross income from crop sales) dropped almost 50%, from $196,870 in 2013 to $99,630 in 2014. Twenty-three percent of NFBI member farms actually saw negative farm incomes last year, and almost all of them were crop operations.
Numbers like this often lead non-farmers to think all farmers are getting rich and make considerably more than those living in town. But Barrett points out that items like principal payments on land and equipment, family living expenses and income and Social Security taxes are paid out of net farm income.
“The other thing to remember is that it takes a significant investment to farm,” she says. “It would be similar to having money invested in the stock market and expecting a 4 to 5% return. The net income last year is less than 5% of the amount invested in the farm which means that there was really no return to the average producer’s labor and equipment.”
Those members with income from both crops and cattle had net farm income rise in 2014 by 56%,” she adds. But with the recent downturn in the beef market, that scenario is doubtful when member farms are analyzed in 2015.
What’s important to note that in the period from 1996 to 2005, government payments were higher than net farm income in seven of those years. Government commodity program support is much less today.
Also troubling is the rise in debt load among member farms. In 2014, average total debt rose to $1,009,704, the first time the average climbed above $1 million. That figure varied widely, with some borrowing little or nothing. Producers have a wide range of production costs and debt load. “This includes not only inputs but a wide range of land costs from both cash rents or ground that is paid for,” she adds.
Barrett lists three scenarios that will likely cause problems:
- high-costs producers, including those locked into high cash rents,
- farmers who didn’t take the opportunity in recent years to pay down debt, and
- farms with high living expenses. “If you meet just one of these cases, you may still be OK, but if you fit two or three, it’s a problem.”
Impacts on local communities will occur or have already been felt, she says, because farmers won’t have the money to spend locally. Family living expenses need to be controlled, but Barrett says that’s an expense that is difficult to control.
Businesses tied to agriculture, locally and statewide, will ultimately be affected negatively, she adds.
The Nebraska economy will also be affected, in terms of lower sales and income tax receipts, which will have implications down the road.
Barrett says crop producers must figure cost of production and use those numbers to make changes in their operation. “Purchases for new equipment and precision technologies that were made four to five years ago may not make sense today. Production decisions need to be evaluated as to which seed to purchase and how much fertilizer to apply. While trimming expenses is important, be careful to avoid doing so with expenses that make you money,” she adds.