The Ag Economy: Tough Times for Farmers in 2019

16
Dec

The Ag Economy: Tough Times for Farmers in 2019

Agriculture

Net farm income is forecast to grow almost 4.8% to $88 billion in 2019. But this broad measure of profits includes financial support from the federal government. Projections show direct government payments (excluding crop insurance) to U.S. farmers may hit $19.5 billion in 2019. These are the most such payments since 2005. 1 There are significant regional differences in the economic picture for U.S. farms besides a troubling rise in debt. 2 According to Moody’s Analytics, farm incomes in the Midwest have dropped by more than 30% between the first and second quarters of 2019. Many producers are going out of business. 3

U.S. farm bankruptcies are up 24% for the year (through September 2019). Chapter 12 filings have risen in every region of the United States. More than 40% of farm bankruptcies were in the 13-state Midwest region. There, the total (255) rose to the highest level in more than a decade. 4

The U.S. agricultural industry endured several years of low crop prices. Then, bad weather and an escalating trade war with China inflicted further damage in 2019. 5 

The following text takes a closer look at the obstacles faced by American farmers. It also examines the ripple effects on rural communities and regional economies.

A soggy spring

The potential for damaging weather is a source of uncertainty and stress for farmers. In the spring of 2019, historic rains and floods in parts of the Midwest farm belt delayed the planting of soybeans and corn. These are by far the nation’s top two cash crops. 6

Crop insurance may help some farmers offset their losses. The federal government is a primary funding source for this type of insurance. Crop policies help protect against lost crop yields due to natural causes. If a planting never takes place, “Prevented planting payments” help cover the costs of preparing for that failed planting. For some farmers, these indemnity payments may exceed the financial returns from a poor-yielding crop. As of August 2019, natural causes prevented the planting of 20 million acres. This number is more than double the previous record. 7

AgricultureTrade war casualties

China was one of the top buyers of U.S. farm products from 2009 to 2017. But that was before imports plunged from $19.5 billion in 2017 to $9.1 billion in 2018. U.S. farmers have been contending with retaliatory tariffs since mid-2018. The trade conflict came to a head in August 2019 when China suspended all imports of U.S. agricultural products. 8

Trade talks and purchases of some agricultural products have since resumed. An agreement could provide much-needed clarity. But the longer the trade tariffs remain in effect, the harder it could be to recover the Chinese market share. For now, that market share has shifted to other suppliers. 9

Extra farm aid

In November, Midwest farmers fought an early blizzard to harvest crops they planted late in the spring. Agencies declared agricultural disasters in many counties where extreme fall weather ruined crops. This declaration made affected farmers eligible for emergency loans and other disaster aid. 10 Farmers who were unable to plant their fields, whether insured or not, can also apply for federal disaster funds. The government allocated the U.S. Department of Agriculture $3 billion for national disaster relief. These funds helped cover farm losses caused by hurricanes in 2018 and severe weather in 2019. 11

Trump administration trade aid programs helped farmers affected by tariffs and the loss of export markets. This aid totaled $12 billion in 2018 and another $16 billion in 2019. Farmers could receive direct payments for eligible crops, ranging from $15 to $150 per acre. Aid depended on the impact of trade retaliation in the specific county.12

Moody’s estimates that farmers received a total of about $50 billion in federal financial support. These estimates cover the fourth quarter of 2018 through the third quarter of 2019. 13

Broader economic effects

Production from some 2 million American farms accounts for only about 1% of U.S. gross domestic product (GDP). But the agriculture sector’s total contribution to GDP is much more significant. Related industries that sell and serve food and beverages all rely on farm inputs. 14 These include textiles, apparel, food, and beverages, among others. Farm profitability also affects the earning prospects of large agribusinesses. These businesses supply seeds, fertilizer, and machinery.

U.S. gross domestic product grew at a modest 2.1% in the third quarter of 2019. The drag on the national economy from farm losses may be unnoticeable. 15 Even so, farm-belt states are struggling. When a region suffers large-scale farming losses, it affects local jobs and consumer spending. The losses spread financial hardship in rural communities. The Midwest Economy Index has declined for seven straight months, from April through October. 16 This index tracks nonfarm business activity in five states: Illinois, Indiana, Iowa, Michigan, and Wisconsin.

The economic impact also differs from farm to farm. Payouts from the trade aid program varied. These variations left some farmers more exposed to losses than others. Large farms are also more likely to have the resources to withstand rough patches. Small and midsize farms are more vulnerable than large farms. As a result, current market conditions may result in further consolidation. Big corporations buy farmland from smaller farmers in distress.

Farmers concerned about the financial ramifications of a prolonged trade conflict may have hope. On October 11, the Trump administration reported a tentative “phase one” trade deal. This deal carries expectations of a Chinese commitment to buy up to $50 billion of agricultural products per year. 17 Negotiations are reportedly progressing. But, the final terms and signing date are still unknown.

1, 6, 11-12, 14) U.S. Department of Agriculture, 2019
2, 4, 7) Farm Bureau, 2019
3, 13) The Wall Street Journal, November 13, 2019
5, 8) The Wall Street Journal, August 6, 2019
9) The Wall Street Journal, October 7, 2019
10) UPI, November 13, 2019
15) U.S. Bureau of Economic Analysis, 2019
16) Federal Reserve Bank of Chicago, 2019
17) The Wall Street Journal, November 14, 2019