The struggles of the ag economy have been well-documented, especially since the trade war began with China. How deep do the struggles really go?
If you want to get an answer to that question, you turn to Dr. Ernie Goss, a professor of economics at Creighton University in Omaha, Neb. He surveys ag bankers once a month to get a boots-on-the-ground picture of what’s happening publishes it in a report called the Rural Mainstreet Index.
“We survey bankers in areas that depend heavily on agriculture,” Goss said. “The agriculture economy is struggling, with the degree of struggle depending on the type of agriculture in each area. For example, the livestock farmers and ranchers aren’t having as tough a go of it as some of the grain and row crop farmers are.
“When you combine the flooding earlier in the year with the tariffs and the trade war, it’s having some very significant impacts. All-in-all, it hasn’t been a good year and continues a trend of tough times and a downturn in farm incomes that began in 2013. Increasing global supplies pushed down prices that year, all while the Federal Reserve began raising interest rates and cutting their support in the long bond area (long-term treasuries).”
The impact was a rising strength in the U.S. dollar, which made U.S. agricultural exports less-competitively priced overseas. That corn prices above seven dollars a bushel dropped down to about half of that level. Goss said the U.S. dollar is still strong, even today, which continues to put pressure on commodity prices.
“There have been a few supply issues this year, which has pushed prices back up a bit,” he added, “but nowhere close to what they were before the downturn began in 2013.”
Uncertain is the word Goss uses to describe the ag sector today. The trade war with China means the potential long-term loss of market share with an important customer. He said pork producers and soybean farmers have been hit the hardest, leaving a lot of uncertainty in the overall ag sector. That’s not the only area challenging U.S. farmers when it comes to trade. The U.S.-Mexico-Canada Trade Agreement is still sitting before Congress and yet to be passed, stuck in the House of Representatives.
“We find in our survey of ag banks that the uncertainty makes them a little more hesitant to loan money to producers,” said Goss, who received his Ph.D. in economics from the University of Tennessee in 1983. “There are some instances of farmers not being able to get loans, but for the most part, we’re still seeing lending going on. The biggest impact has probably been more in the restructuring of farm loans.
“There has been an increase in farm loan delinquencies and defaults. However, that remains at a reasonable level and isn’t as high as one might expect. A lot of that is due to restructuring loans and extending the repayment window. Most farmers entered this downturn in a pretty good cash position because of the previous years of good prices and farm incomes.”
Farmer debt levels are rising, as well. However, Goss said the repayment rate on that debt is still “pretty good.” However, that doesn’t mean the debt levels aren’t concerning to some.
“We asked our bankers what their biggest concern was moving forward,” Goss said, “and four out of 10 respondents say farm loan defaults, delinquencies, and some foreclosures are their biggest worries. That doesn’t mean it’s going to happen but if things keep going as they are, we’re very likely going to see more of those defaults and delinquencies.”
Goss said the Trump Administration’s $16 billion in support payments to U.S. farmers did help support the agricultural sector. However, it’s still not enough to account for the loss the farm sector has endured across the nation. Goss said it’s going to take some specific steps to get the agriculture sector moving forward in a positive direction.
“Getting the USMCA passed would remove a great deal of uncertainty,” said Goss, who also oversees the Goss Institute for Economic Research, a Denver-based think tank. “I’d also like to see trade not used as a weapon by the U.S. government, whether it’s against Europe, Mexico, Canada, or China. We need to see the trade barriers come down and the trade skirmishes end.”
He said what U.S. farmers and ranchers want is a chance to compete, something they’ve always done well.
“There are no agricultural producers outside the U.S. that can compete with U.S. producers,” Goss said. “We will do well if we get a chance to compete. But, you can’t compete with these trade barriers in place.
Chad Smith can be reached at firstname.lastname@example.org.