Falling Farm Incomes And The Loss Of Working Capital - What Do You Do?

By Chris Peacock

09 /09 /19

What created the lower net farm income levels?  Farm incomes dropped nearly 50% since the record high in 2013 of $123 billion in 2018. While rebounding slightly in 2019, projections are now above $80 B, this income decrease is due to multiple years of production exceeding demand creating an over-supply, challenging trade negotiations, increased interest rates, and tariffs implemented by large importers of U.S. agriculture products.  Unless something changes, look for the current net farm income trend to continue into 2020.

What does history tell us about our current farm income challenges?  Throughout history, there have been three periods of above average income.  These include the 1940’s, the early 1970’s, and 2010 – 2014.  Following the 1940’s and early 1970’s, we had 20 to 25 years of largely below average farm income.  We just experienced five depressed income years with 2019 and 2020 projected to continue this downward trend.  It is interesting to note that even with the significantly declining net farm income, cropland values only decreased 15% to 20%.

What direction are farm income levels moving?  Farm income projections for the near future are projected to remain near their current low levels and are dependent on the following:

  1. Trade agreements and tariffs: How quickly will these be resolved and how quickly can demand increase and U.S. agriculture rebound due to higher commodity prices?
  2. S. and world crop production: Will we continue with our current trend line of greater agriculture production or will we have some crop production challenges to limit supply? After six straight years without a production hiccup, one is likely to occur somewhere in the world.
  3. World economies and value of the U.S. dollar: How strong will the economies remain for our trade partners and can they afford to import our Ag products?
  4. Interest rates:  Agriculture is a somewhat leveraged industry.  After interest rate increases over the past 18 months, then a reduction of .25% this summer, what direction will interest rates move?

What should farmers do in case of loss of working capital?

  1. Know your financial position and build accurate budgets.
  2. Communicate well with your accountant. Your accountant can only be as accurate as the information you share with them and your budgets and financial considerations can only be as helpful as the accuracy of your financial information.
  3. Maintain a good relationship with your lender. Make sure they understand your business plan and request their input on your financial position.
  4. Utilize top farm management tools. These can include Measuring and Analyzing Farm Financial Performance from the Cooperative Extension Service (EC-712 W) or FINPACK or similar farm financial assistance and planning programs that are available today.
  5. Input purchasing and production marketing: Implement a purchasing and marketing plan that compliments your management strengths and compensates for your management shortcomings.  Strive to become the lowest cost producer and the top marketer.

It is important that farm operators and owners each seek professional advice when difficult questions arise.  We are often called to help when challenges have escalated to a breaking point.  Do not let concerns get to that point.  At Halderman’s, we have 89 years of experience in helping farm owners and operators with farm challenges.  We have the knowledge and experience to help you with tough decisions to help you achieve your goals.  Give us a call at (800) 424-2324 so that we can help you.