Ag Economist Points to Cost of Production Concerns

DTN Special Correspondent Elizabeth Williams reported yesterday that, “Some Grain Belt analysts question USDA’s latest 2016 farm income estimates as overly optimistic. They doubt growers were able to shed as much in input costs this season as USDA’s revised August estimates indicated.

“Kansas State University economist Allen Featherstone made that case at a joint KSU-Washburn Law School symposium last week. He painted a scenario more dire than USDA’s aggregate farm numbers indicate, potentially setting the stage for hard choices when borrowers seek financing this winter.

Kansas farmers eked out a small profit last year: $4,500 was the average net farm income for Kansas farms, reported Featherstone, who heads the department of agricultural economics at KSU. That sounds only slightly better when you compare it to the Illinois Farm Business Farm Management Association numbers which showed the average Illinois farmer lost $2,971 last year. (For more details go to…).”

Ms. Williams indicated that, “Featherstone wasn’t all doom and gloom. Farmers and ranchers have built up their equity compared to the 1980s, so will possess more staying power to weather tough times. In general, debt is low and interest rates are at historic low levels. However, repayment capacity is shrinking. In 2015 in Kansas, there was $4 in debt per $1 of earnings.

Repayment capacity numbers are a little alarming, he said. One hundred percent repayment capacity means you have cash available after paying farm expenses to pay debt, family living expense and taxes. Above 100% you have more than enough, below 100% means you can’t cover family living expense, debt and taxes.

“‘Let’s look at the drop in repayment capacity from 1979 to 1981,’ Featherstone noted. In 1979, Kansas producers achieved 153% repayment capacity. By 1981, repayment capacity sunk to a meager 16%. What worries Featherstone is Kansas producers have gone from 149% repayment capacity in 2009 down to only 17% in 2015.”

The DTN article added that, “Another worry is the government safety net is not very strong.”

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