USDA Sees 2016 Farm Income Crashing As Farmer Leverage Spikes to 34 Year Highs

Farm Management


USDA Sees 2016 Farm Income Crashing As Farmer Leverage Spikes to 34 Year Highs

SASKFARMER3's Avatar Sep 1, 2016 | 06:42 1 The plight of the American farmer has been a frequent topic for us over the past couple of months. A few weeks ago we pointed out how declining corn, wheat and soybean prices were leading to the first declines in farmland values in the Midwest since the 80s (see "Farmland Bubble Bursts As Ag Credit Conditions Crumble"). We also questioned whether California farmland was overvalued by $70 billion as almond prices have been cut in half over the past year and drought conditions threaten farming sustainability in many regions of the Central Valley (see "Is California Farmland Overvalued By $70 Billion?").

Most food grown in the U.S. has come under extreme pressure in 2016 due primarily to lower Chinese consumption resulting from the combined effect both a weak Chinese economy and a relatively strong U.S. dollar. This slack in demand has resulted in massive supply gluts for several commodities as producers failed to adjust supply quickly enough to meet new levels of demand.

Unfortunately, per the USDA's latest farming income forecast for 2016 (released yesterday), conditions only look to be getting worse for farmers as demand still remains low but supply has been slow to adjust in the wake of improving yields. Below are a couple of the key takeaways from the USDA's 2016 forecast.

Real farm incomes in 2016 are expected to sink below 2010 levels which represents a 34% decline from the recent peak and 14% decline YoY.And finally, farmer returns have crashed to the lowest levels ever. We're not sure about you but a 2% ROIC seems a "little low" even in our current rigged interest rate environment. So, there's only a couple of ways to fix that problem...either commodity prices have to recover quickly or farmland prices need to come down substantially. Which do you think will happen first?

Yes this is in the USA but do any of us really believe in Canada its not happening also. Reply With Quote
farmaholic's Avatar Sep 1, 2016 | 06:49 2 I think crop inputs will fall in lock-step with our commodity prices. Hahahahaha. Hahahahahaaaaaaa hahaaa ahahahahaaaaahhhhaa, hahahaaa ahahaha ahahahahahahahaha. Ahahah.....

Time to go to work, I'm delusional. Reply With Quote
SASKFARMER3's Avatar Sep 1, 2016 | 06:57 3 Im waiting for parts. Timmy's and wait till 7:30. Reply With Quote
Sep 1, 2016 | 07:24 4 We were totally down all day yesterday -both combines. You'd think they were Fords. Now to figure out how to cut the Canola. Anyone else have way too much material? Reply With Quote
farmaholic's Avatar Sep 1, 2016 | 07:27 5 Sumdumguy....M150 Reply With Quote
Sep 1, 2016 | 07:47 6 Farm debt levels are much higher in Canuckistan than the US. The difference is that the USD is the reserve currency and the loonie is not. Every one knows that the B of C will cut interest rates further trashing the CDN loonie when the debt looks to be creating a crisis making higher debt levels much more comfortable up here. This is why Canuckistan is a third world country. Reply With Quote
Sep 1, 2016 | 08:01 7 So long as interest rates stay low, do not see land price decline but likely to stay where it is. Kicker could be changes in currency value. Do expect pressure on rent prices.
Having lived through similar over production of grain in past, would expect same response from growers this time. Hedging production at profitable levels was often ignored to our later regret.
Diversification and cutting back on inputs did not work very well.
Nor did keeping grain in bin and waiting for price to increase. Reply With Quote
Sep 1, 2016 | 14:32 8 Zirp is robbing the pensioners and savers blind, all so govt can continue taking on debt due to deflation in the commodity world. How long till there's zero appetite for govt debt? Their track record for defaulting is abysmal. Like us they got drunk on high commod prices thinking it would never end. Imo 8 years of low rates without recovery is proof govt can't control Jack shit. They are just along for the ride like everyone else. Except it's costing Canadians more to maintain govt then ourselves. We need some separation to lob off cost of govt. Reply With Quote
Sep 1, 2016 | 17:02 9 Grain prices will go up eventually. It is harvest pressure and the continual rhetoric that Canada has a huge crop of everything. Buyers and terminals are enjoying buying with discounts and downgrades. Its their most wonderful time of year!
Those three years of strong profits gave farmers a chance to push down debt, there are some very wealthy farms around here they just dont flaunt it too much. Reply With Quote
SASKFARMER's Avatar Sep 1, 2016 | 17:13 10 But what if the Australian crop is also big and then SA has a good crop like always then the USA has another big one were F$&ked real bad with today's costs!

Yes I have seen lots of dips and dives but not at today's input costs.

We're screwed! Try to get prices on next years crop can you say nothing pencils out!

Oh farming is such a good occupation!

Wait lenders will be real interesting on some next spring!

Think boys it's not getting better or harvest pressure! Reply With Quote
Sep 1, 2016 | 20:02 11
Quote Originally Posted by wiseguy View Post
Hop along ! There is no over production of grain ! They tell you that to give you less !

# kids starving all over the world !
Only a couple billion. But they don't have money so it is a surplus after all. Reply With Quote
Sep 1, 2016 | 21:39 12 They may not much but there governments who buy the food do - but they spend too much on WMD and arms from the U.S. , and Russia . You know important stuff Reply With Quote
Sep 2, 2016 | 06:08 13 When commodity prices were high a couple of years ago, were any of you on here paying off debt or putting money away, you all knew those prices were not going to last for ever? Now you come on her complaining about governments, inputs, and who ever else you can think of to blame. This is how free markets operate supply and demand dictates price not whining and complaining.


I doubt you even know what a third world country looks like, you should do a little travelling and then you'll see how good you really have it. You don't like Canada just move. Reply With Quote
SASKFARMER3's Avatar Sep 2, 2016 | 06:15 14 Forage I told you over and over and over that not every one had the boom. Some had a year here or there but most just got buy. Some had lotto max and won big time with yields and prices.

But yes I did say look out the shit is going to hit the fan.

No buying and some ask why. Real easy the shit is going to escalate downwards and its going to be one hell of a ride.

If Sa and USA next year produce another big one this thing could last years.

Yes its farming but funny our price we get is still same as it was in 1934 isn't that amazing are cows still worth what they were back then. Reply With Quote
Sep 2, 2016 | 08:39 15 Forage always stirring the pot. In my case my goal over the last 4 years I have worked at eliminating my machinery debt and getting some better lower houred equipment. For the most part this goal has been accomplished. It doesn't make 4.50 CPS wheat any more profitable. When big companies like Agrium and Patash corp have their margins squeezed they talk mergers, efficiencies and of course controlling the market. Farmers can only control costs. If Harper was still in power everyone would be blaming him for this merger, with Trudeau nothing is said. Can't see that the Prime Minister is doing much for western Canada. I guess he did get China to push the canola decision forward. Reply With Quote
Sep 2, 2016 | 08:42 16 We all know grain / oilseed and cattle markets cycle . What this is going to hurt is the absolute fact the most inputs , and for sure machinery land and rents have been over inflated the past years and that is what is going to kill farm income for some.
Everyone in Ag keeps wanting and taking a bigger piece of the pie leaving farmers with very little wiggle room even at moderate prices. Reply With Quote