Not so long ago, U.S. farmland - whose prices were until recently rising exponentially - was considered by many to be the next asset bubble. Then, almost overnight, the fairytale ended, and as reported in February, U.S. farmland saw its first price drop since 1986.
Looking ahead, very few bankers expect price appreciation and more than a quarter of survey respondents expect cropland values to decline further in the next three months.
And now, The Kansas City Fed warns that Agricultural credit conditions are worsening rapidly...
Credit conditions in the Federal Reserve's Tenth District weakened as farm income declined further in the first quarter of 2015. Persistently low crop prices and high input costs reduced profit margins and increased concerns about future loan repayment capacity. Funds were available to meet historically high loan demand, but loan repayment rates dropped considerably.Although profit margins in the livestock industry have remained stable, most bankers do not expect farm income or credit conditions to improve in the next three months.Loan Demand is surging... (to replace income's collapse or roll old debt)
On a more regional level, farm income declined in all District states except Oklahoma. In Oklahoma, farm income has steadily improved over the last three years due to revenue from mineral rights and cattle production but remained unchanged in the first quarter of 2015 .
Strains on the farm economy have begun to affect the overall economic outlook in some states. Through 2014, growth in per capita personal income was notably smaller in states most heavily concentrated in crop production.
Ninety-four percent of survey respondents expect farm income to remain the same or decline further in the next three months. Additional declines in farm income could continue to create economic challenges in states heavily dependent on crops.
The continued decline in farm income boosted demand for new loans as well as renewals and extensions on existing loans. During years of historically high farm income, some farmers were able to self-finance. However, as working capital has declined due to high production costs and lower crop revenues, more producers have needed external financing to pay for operating expenses and capital purchases. Loan demand was also supported by livestock loans on feeder cattle, which still command historically high prices. In fact, demand for non-real estate farm loans increased across all District states in the first quarter and is expected to remain elevated over the next three months.And paying back loans is slumping...
If expectations are met, the survey measure of loan demand would be the highest since the survey began in 1980.
Alongside reduced farm income and higher loan demand, loan repayment rates have declined significantly.As The Kansas City Fed concludes...
Bankers also expressed concerns over increased debt-to-asset ratios, especially for younger farmers with high borrowing needs.
Low crop prices placed added stress on net farm incomes and contributed to weaker credit conditions in the first quarter. As farm incomes fell, cropland values moderated and more producers depended on financing to cover operating expenses.All of which is summed up ominously by JPMorgan, writing in a downgrade not for Deere, that...
Sufficient funds were available to meet increases in loan demand, but declines in repayment rates as well as slight increases in carry-over debt, collateral requirements and loan renewals and extensions suggest that credit quality may become more of a concern moving forward.
We recently spent some time in the Midwest meeting various agriculture industry participants including dealers, farmers and industry experts. We believe it was clear from what we heard that the industry is currently in dire straits with the potential for a liquidity crunch for farmers into 2016.So that is why the government is pushing the young debt-laden student serfs into farming... to 'create' some demand...
Sources: JPMorgan, Kansas City Fed, Bloomberg
I've been looking at and working on growing some quality food -- and the more I learn the more puzzled I am at how anyone can actually make a living at farming. I know a few people manage to do it tho' many more just manage to barely hang on. To ethically raise food and make a living looks like some kind of magic from where I stand. That's not to discourage any from growing their own food - there are lots more important reasons to grow your own food than making money.
From looking at this article, it would be more helpful to see the figures of small farm vs factory farms - it might show a real trend of where the money is going.
Aside from that, seeing some macro economic figures helps flesh out what I've been seeing of political/corporate repression of small farming, most especially organic type farming. Together it paints a pretty grim picture if taken at face value.
However, I suspect this apparent devaluation of farms and farming is going to be very short-lived as obtaining food becomes more and more critical to more and more people. This looks a bit like intentional devaluation of an extremely desirable commodity (like manipulating the gold and silver markets) - all the better for it to be snapped up by those with lots of resources (who can't tolerate a level playing field or paying a fair price for whatever they lust after)
It looks to me like the best path is just what SOTT has been suggesting for years - start growing your own food as best you can. Even very small plots, windowbox planters even, can produce significant amounts of food. And it takes very little space to raise chickens - which can typically supply well over 200 eggs a year for each chicken. That amounts to some high quality protein and fat for not much input. Besides, they're kind of fun to have around.