2016 Will Be a Pivotal Year in Production Agriculture

A news release from the House Agriculture Committee today stated that, “Today, Rep. Austin Scott (GA-8), Chairman of the House Agriculture Committee’s Subcommittee on Commodity Exchanges, Energy, and Credit, held a hearing to examine tightening credit conditions in farm country. This is the second in a series of hearings entitled Focus on the Farm Economy, where each subcommittee will examine the growing pressure in rural America from the perspective of the subcommittee [a summary of the first hearing in this series is available here]. Members heard from a series of witnesses who explained the impact the collapse in net farm income is having on the availability of credit, financial stress on both producers and credit providers, and the value of key producer assets such as land.”

In part, Subcommittee Chairman Scott noted that, “While providing credit to America’s farmers and ranchers is vital, it is a growing challenge for many lenders in the United States. Perhaps no one knows this better than lenders in cotton country. After a recent period of historic highs, crop prices have plummeted due to various factors which were discussed at last week’s hearing before the General Farm Commodities and Risk Management subcommittee. While input costs have softened, they remain near historic highs, and some of our biggest foreign competitors are sharply increasing their subsidies, tariffs, and non-tariff trade barriers…[M]eanwhile, farmland values are on a downward trend, and, while some livestock producers are rebounding on the balance sheet with lower feed costs, our western producers are struggling with consecutive years of drought. It is in times like these that our farmers and ranchers are most in need of reliable sources of credit at competitive rates.”

Kansas State University agricultural economist Allen M. Featherstone indicated at today’s hearing that, “[T]he declining net farm income in 2015, has made for an uncertain agricultural lending environment. The agricultural production sector and the agricultural lending sectors are intertwined causing many lenders to be asking the same questions as agricultural producers regarding the future of production agriculture as they make decisions regarding loan restructuring and other normal lending decisions…2016 will be a pivotal year in production agriculture. Given that average net farm income in some regions were the lowest they have been since 1985, a repeat of that in 2016 will cause some agricultural producers and lenders to make difficult decisions before entering the spring of 2017.”

Randy Nelson, President of CHS Capital, LLC added at today’s hearing that, “With the current stockpiles of grain and number of acres projected to be planted, the outlook through 2016 and into 2017 is for crop prices to remain depressed. A weather issue in one of the major growing regions could positively impact prices. CHS Capital estimates the breakeven cash price for many growers to be in the range of $3.90 – $4.25/bu. for corn. If prices remain low throughout 2016 and the outlook is not positive, CHS Capital believes that many farmers will choose to preserve their equity and will rent out their farmland or liquidate assets.”

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