U.S. farmers face financial 'perfect storm'

Farmers told Congress last week that natural disasters, low prices, low crop insurance and trade uncertainty have pushed their budgets into the red.

U.S. farmers and ranchers are staring straight into their sixth consecutive year of low commodity prices and dismal returns, and financial pressure is mounting.

Across the nation, net farm income is down by half since 2013, real farm debt is the highest it’s been since the 1980s and the ratio of debt to assets is steadily rising.

The state of the farm economy was the focus of a hearing last week by the U.S. House Agriculture Committee’s Subcommittee on General Farm Commodities and Risk Management.

“The farm economy in the Coastal Bend of Texas is lousy. It is bad,” said Matthew Huie, a Beeville, Texas, farmer.

“The stakes have never been higher than they are right now,” he said.

The crop insurance safety net has declined, as has the ability to borrow money, and farmers are likely looking at another year of negative cash flows and enormous exposure, he said.

“The tension in the farm community because you can’t look out and see a profit a year or two or three from now is palpable,” he said.

The price outlook remains bleak for the cotton and peanuts Bart Davis grows in southeast Georgia and the economic climate makes it difficult for crop farmers to remain viable, he said.

“The economic condition is a result of multiple factors that have combined to create almost a perfect storm for farmers in most parts of the country,” he said.

Flat to downward-trending commodity prices, severe natural disasters in the past two years and export market disruption due to trade policy uncertainty are the main factors, he said.

The situation is making it difficult for farmers to obtain credit.

Most credit is calculated on historical production multiplied by a given price, Huie said.

“As prices decrease so does your ability to finance up to that level,” he said.

And as crop insurance values decrease, the ability to collateralize crop insurance decreases. So both things have put a squeeze on credit, he said.

Minnesota farmer Mike Peterson said on-farm storage has allowed him to forward contract in the past and show favorable numbers to his lender.

But this year, he doesn’t see a lot of positives in the market and it’s hard to price any of the commodities he’s growing. He can’t show cash flow, but his longtime lender has stuck by him.

“We’re trusted friends, I guess, because the numbers aren’t working,” he said.

In the Southeast, the continuing delay in disaster assistance following Hurricane Michael last fall isn’t helping.

Since that time, producers and lenders thought federal assistance would be made available to help offset the historic losses, Davis said.

In addition to traditional lenders, seed, chemical, fertilizer and equipment dealers have also extended credit where repayment could be dependent on getting a disaster bill passed, he said.

Unless Congress and the administration resolve the remaining differences to ensure a disaster bill is enacted soon, many producers will likely not be able to stay in business, he said.

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