Author: Clinton Hardy
Planning Unit: Daviess County CES
Major Program: Farm Management
Plan of Work: Increasing Agricultural Profitability
Outcome: Intermediate Outcome
The agricultural economy is in a recession that began in 2014 and is projected to continue. The market year average for corn in 2013/14 was $3.70. This year is forecast to be $3.20. Price increase is expected to be subtle for the next 10 years according to USDA supply and demand estimates for commodities that only project a market year average price of $3.60 in 2027. This slide in revenue coincides during a period of expansion in other sectors of the economy spurring recent interest rate increases with three additional Federal Reserve interest increases forecast in 2018. Also, current administration policies project a shrinking of the agricultural trade surplus which farmers have benefited from. New farm bill discussions are underway and changes to the government subsidized crop insurance risk protection which has protected risk are on the horizon.
Agricultural lenders are at a cross road regarding farm businesses they serve. Machinery and land acquired during the 2008-2013 period are being paid for with shrinking profits, forcing many clients to refinance short term debt to intermediate debt in order to acquire working capital needed to operate. This is dangerous because in the recent words of Dr. David Kohl walking businesses further out on the pier only results in deeper water. Meaning, refinancing debt for certain farms may only be prolonging the inevitable failure to repay. The alternative is suggesting these most at risk businesses exit now before all owner equity in the business is depleted.
To help our agricultural lenders gain perspective of the greater agricultural economy, the annual Agricultural Lenders Conference was conducted by Green River Area Extension offices and Ohio Valley Farm Business Analysis inviting Extension Agricultural Economists of all major commodity areas to speak on the current enterprises which they address. At the conclusion of the event, a survey asking if the information shared in the annual meeting is useful in helping them guide and advise their borrowers.All agreed the session is very important to their knowledge and lending institution.
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