Numbers put current ag picture in perspective
AMES — Trade wars. Tariffs. Widespread flooding. Delayed planting. Seems like many farmers in Iowa and beyond can’t get a break this spring, and the numbers help tell the story.
“U.S. agriculture’s debt-to-asset ratio for 2019 is forecast at 13.9 percent, meaning it’s moving in the wrong direction,” said Dr. John Newton, chief economist for the American Farm Bureau Federation, who spoke at the 92nd annual Soil Management Land Valuation Conference in Ames recently. “This ratio has increased seven consecutive years, plus it’s the highest level in nearly 20 years.”
Economists to auctioneers recently shared their insights into current financial trends in Midwestern agriculture during the conference, which was sponsored by Iowa State University’s College of Agriculture and Life Sciences and ISU Extension.
One of the hot topics among the hundreds of agribusiness professionals who attended the event included Iowa farmland values. The 2018 ISU Land Value Survey showed a 0.8 percent decrease in average Iowa farmland values from November 2017 to November 2018, noted Dr. Wendong Zhang, an assistant professor of economics at ISU. The average statewide value of an acre of farmland was estimated at $7,264.
This modest drop is the fourth decline during the past five years and represents a 17 percent decrease from the 2013 peak in nominal land values, or a 24 percent drop in inflation-adjusted values.
The 2018 ISU Land Value Survey revealed that the majority of farmland sales (72 percent) were to existing farmers, while investors represented 21 percent of land sales. Estate sales were still the main source of sales, followed by sales from retired farmers.
Attendees at the 2019 Soil Management Land Valuation Conference were asked for their estimates of Iowa farmland value trends as of May 2019. Most expected a continued modest drop in farmland prices.
“The group expects a 2 percent drop in farmland value in the next six months,” Zhang said.
If interest rates continue to rise, this could put downward pressure on farmland prices.
“Overall, though, people still have a bullish view of the Iowa land market for the long term,” Zhang said.
USDA offers surprising farm profit projection
A number of factors beyond farmland prices are influencing Iowa agriculture’s profitability, including:
• Planting delays. By mid-May 2019, planting was at the slowest pace nationwide since 2013. Things didn’t get any better as more rain continued to fall through the end of the month, keeping farmers out the fields in many areas that were already saturated. The situation was even more devastating in major corn-producing states like Illinois, Newton said.
• Competition in the meat case. Plant-based products continue to take a bigger share of the market that red meat products once dominated. Now there’s laboratory-produced meat, too, Newton noted.
“These products will eat into the market share of traditionally-produced, animal-based livestock proteins,” he said, adding that competition in the meat case is expected to remain robust. The dairy industry has been fighting a similar challenge for more than 20 years as products like soy milk and almond milk capture more market share.
• More bankruptcies. While the total number of Chapter 12 farm bankruptcies nationwide dropped in 2018, Chapter 12 bankruptcies filings rose 19 percent in the Midwest last year, Newton said.
• Lower rates of return. The rate of return remains low throughout production agriculture. It’s projected at 1.3 percent for 2019 and has been less than 2 percent for the past five consecutive years, Newton noted.
Despite all this, the Farm Income Forecast from the U.S. Department of Agriculture’s Economic Research Service predicted in early March 2019 that U.S. farm sector profits were expected to increase in 2019. Net farm income, a broad measure of profits, was forecast to rise 10 percent ($6.3 billion) from 2018 levels to $69.4 billion in 2019.
Newton is less optimistic, though. “How can this be, with all these trade headwinds we’re facing? Take this with a grain of salt.”
Even if USDA’s projection is realized, inflation-adjusted net farm income in 2019 would still be 49 percent below its highest level of $136.1 billion in 2013 and below its historical average from 2000-17 ($90 billion). Despite all this, there’s still room for hope. “USDA’s long-term projection is a return to normal,” Newton said.