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Experts predict 2017 economic outlook more of the same for farmers

Bill Johnson, right, with Farm Credit Services of America, says they are expecting another challenging year for farmers. Michelle Rook / Special to Forum News Service1 / 2
Nathan Kauffman, economist with the Federal Reserve Bank of Kansas City, says the economic cycle is not like the crisis of the 1980s. Michelle Rook / Special to Forum News Service2 / 2

SIOUX FALLS, S.D. — The U.S. Department of Agriculture predicts another challenging year for farmers in the United States, with farm income declining an additional 8.7 percent in 2017 to $62.3 billion.

This would be the fourth consecutive year of declines and represents a 46 percent drop from the record high in 2013. The lower income reflects three years of record crops, and grain prices that are in most cases below break evens.

Farmers are feeling a little better about the future with good yields last fall, a pickup in demand and improvements in the general economy.

"We're starting to feel better, we're hoping that the bottom is here, but still a little bit cautious," said Ray Gaesser, a Corning, Iowa, farmer.

Agricultural economists and bankers are also cautious about farm income in the crop year ahead and leery about calling a bottom to the recent economic downturn.

"Just getting through the last two years has given some farmers some confidence, but the outlook is still pretty challenging as we look at 2017," said Bill Johnson, with Farm Credit Services of America.

Nathan Kauffman, economist with the Federal Reserve Bank of Kansas City, said historically this economic cycle is nowhere near the farm crisis of the 1980s, but it has been a real adjustment.

"The downturn has been significant, but it's been gradual and I think that a lot of producers are just looking at how to get through this period of transition," he said.

He said there are a few bright spots. New crop soybean prices were above break even during the first quarter of the year, which provided farmers an opportunity to hedge at profitable levels. Plus, he sees a little relief on expenses for the 2017 crop.

"There has been a decline in input costs as well," Kauffman said. "Certainly, we're seeing lower fertilizer costs, cash rents have come down a little bit, not a lot, and seed costs may be a bit lower."

Farmers reacted to the recent economic downturn by first cutting back on discretionary spending like machinery, but as that economic cycle continues they're having to manage down to every acre.

"Farmers aren't buying anything and that's one way they've been able to reduce their costs. Another is they're looking at lower-priced seed, maybe not buying all of the traits that they want," said Ron Moore, American Soybean Association president and Illinois farmer.

Viola, Ill., farmer Shane Ryan agrees with Moore.

"One thing we've done is really sharpened our pencil. We probably know our numbers inside and out better than we ever have in our operation," Ryan said. "We're trying to find the products that are going to treat the most bushels for us and create that lowest number as possible for our cost of production."

Johnson said they have seen this trend during this year's renewal season.

"If nothing else, it's really creating more of an intense pressure on making sure each part of the farming operation is actually profitable," he said.

Farmers are also watching fixed costs with the recent increase in interest rates and more projected to be on the way. Kauffman said rates are still historically very low.

"I would say that the interest costs in terms of the debt that's actually involved in terms of operations is a relatively small component of producer expenses," he said.

However, ag bankers are still recommending locking in rates on capital costs like land.

"That takes one big risk off the table for many farming operations if they can lock that interest rate in at today's rates," Johnson said.

Wells Fargo economist Michael Swanson said good management is the key to surviving this cycle.

"I think the exit for this part of the cycle is through input pricing and cash rents, which is a slow and painful process," he said. "Don't expect $5 corn and $14 beans to bail you out of this cycle."