There is an old quote attributed to Mark Twain that reads: “If you don’t read the newspaper, you’re uninformed. If you read the newspaper, you’re misinformed.” This brings to mind an even older saying: “It’s only funny because it’s true.” This year’s news reports have been full of stories about farmers and livestock producers who are struggling due to prices and weather. This is absolutely a fact, but is it news?
Every year there are farmers and livestock producers struggling due to prices and weather. This perpetual struggle defines the agricultural commodity production space. No one should treat the farmers’ struggle lightly, but that’s also true of restaurant owners and food manufacturers as well. It is how individuals deal with the struggle that makes them successful, or not.
A couple of recent news trends involve the lack of profitability in agriculture and the tightening of access to credit. A typical news story would cite some ominous events or issues, and then jump right to a couple of carefully curated examples of the consequences of those events or issues. The story typically ends with a simple policy solution offered by a politician that would solve all the problems, and not cause new ones. It must be a successful formula for generating reader interest since it gets used so much, but are things really that dire in agriculture as a whole? I guess we could do the unthinkable again and check the numbers.
The most recent farm income estimate from the USDA (updated in late November 2019) was revised to $93 billion, up from $84 billion in 2018. The weather and trade dispute were already clearly in progress, which implies that both have been factored into the estimate. Since the August release, there has been a modest improvement in the impact on agriculture from the Chinese trade dispute. The emergence of African Swine Fever and some tentative negotiating has seen the Chinese agricultural trade balance improve slightly on a year-over-year basis through September. This does not mean that the drag on U.S. agriculture has been reversed, but it shows the resiliency of global commodity markets in dealing with the never-ending disruptions and opportunities.
One thing that always pops up in the comment section on an agriculture article is the government support payments. The commenters typically offer up some very large number as proof that agriculture would not be profitable without government intervention, but they seldom frame that number relative to other numbers to give it relatability.
Current estimates show government direct payments will be $22 billion in 2019 versus $374 billion in crop and livestock revenue.1 This year’s payments are important, but it doesn’t make sense to say the payments drive agricultural producers. This number doesn’t include government subsidized crop insurance, which is not a direct payment, and farmers must take the risk and pay their portion to receive it. The 2018 crop insurance subsidy was total direct cost of $6.7 billion. 2019 will most likely end up with a higher cost due to the weather challenges, but it won’t exceed 2012’s drought-induced record of $13.4 billion.1
Another thing that is seldom mentioned in the comment section is the $15 billion in property taxes that agricultural producers are paying in 2019. This record level of tax payments has farmers in some areas of Indiana, Nebraska, and other states in a lather. Farmers are allergic to two things ─ cash and taxes. The property taxes constitute a major cost in farming in these areas. In some cases, the property taxes almost equal the cost of seed and fertilizer per acre, typically the two largest cash expenses behind cash rent. What has agricultural producers hot and bothered is that these property taxes go up without regard to crop prices. Both seed and fertilizer prices get related to crop prices, and they have dropped back from their record highs as well. But, no matter whether farmers plant or don’t plant, they know that property taxes will be due. This tension between crop revenues and property taxes will continue to be a major stress.
So, has 2019 left agricultural operators unable to borrow more money? Once again, the USDA says that is not the case. Borrowing rose from $402 billion in 2018 to $416 billion in 2019, an increase of 3.4%. Most of the increase was directed at land debt as shown in the chart above, but even so, operating debt increased by $2 billion, or 1.5%. This makes sense with the historically low cost of borrowing for long-term assets such as land. Even so, it makes it difficult to claim that the sector as a whole had trouble borrowing in 2019. In any competitive segment, the large gap between top and bottom performers creates the turnover and difference in opportunities. This is true of access to borrowing. No one should make or take a loan that doesn’t factor the ability to repay it into consideration. Good banking relationships bring clarity to the ability to repay loans, combined with pragmatism and empathy at the same time.
So the public numbers put out by the USDA don’t show a decline in overall farm income or borrowings. It appears that reporters have mistaken inductive reasoning with deductive reasoning, and that leaves their readers misinformed. Will 2020 be different? It appears that some of the livestock markets will have improved pricing on global demand growth and slowdowns in U.S. production growth. Likewise, crop price should be relatively flat even without a trade agreement between the U.S. and China. A trade agreement could bring a nice demand bump that would give some to the top-line growth of the crop sector overall. Farmers and livestock operators will deal with any scenario that occurs with their typical resiliency by making tough choices even as they grumble about them.