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Farm Finance Outlook

2023 MFA Credit Team Meeting

Paragould, Arkansas

October 11, 2023

Ryan Loy, Ph.D.

Assistant Professor and Extension Agricultural Economist

Department of Agricultural Economics and Agribusiness

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My Background

  • Hometown: Plano, Texas
    • Suburb of DFW
  • Live in Benton, AR
  • Oklahoma State University
    • B.S. Agribusiness
    • M.S. Agricultural Economics
    • Ph.D. Agricultural Economics

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Roadmap

  1. Weather Update
  2. Farm Income & Expenses
  3. Farm Interest Rates
  4. Loan Availability
  5. Farm Financial Distress
  6. Land Values

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Weather Update

WPC 7-Day Rainfall Forecast (NOAA)

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Farm Income and Expenses

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Net Farm Income

Source: USDA-ERS

NFI expected to decline $183.03 billion to 141.29 billion. Decline in cash receipts and gov’t payments

Still above 10-year average.

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Cash Receipts

Source: USDA-ERS

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Changes in Cash Receipts

Source: USDA-ERS

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Government Payments

Source: USDA-ERS

Will continue to decrease below 10-year average. Pandemic relief was main driver of increases.

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Changes in Government Payments

Source: USDA-ERS

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Farm Expenses

Source: USDA-ERS

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Changes in Farm Expenses

Source: USDA-ERS

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Farm Expense Sources

Source: USDA-ERS

Manufactured:

Pesticide, fertilizer, lime, and soil conditioner, fuel/oil, and electricity

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World Events Impacting Input Prices

  • Russia – Ukraine Conflict
    • Russia largest exporter of fertilizer (~$13.1 Billion).
    • Global capacity has adjusted for the conflict (Kee et al., 2023).
  • Potash Strikes: Solved.
    • Port workers accepted a deal in August 2023 (CBC News, 2023).
  • Price Decline and Nitrogen Fertilizer Usage:
    • Narrow premium on Urea (Paulson et al., 2023).

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Farm Profitability

Source: USDA-ERS

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Farm Interest Rates

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Agricultural Lending in 2023

Type

Q2 2023 Rate (%)

Fed Funds

5.08

Prime Rate

8.25

Operating (Fixed)

8.52

Intermediate (Fixed)

8.14

Real Estate (Fixed)

7.65

Source: FRED Database & KC Fed

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USDA-FSA Interest Rates

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Operating

Ownership

% Change - Operating

% Change - Ownership

22-Oct

3.875%

4.125%

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22-Nov

4.375%

4.500%

12.90%

9.09%

22-Dec

5.125%

5.000%

17.14%

11.11%

23-Jan

5.125%

5.250%

0.00%

5.00%

23-Feb

4.750%

4.750%

-7.32%

-9.52%

23-Mar

4.750%

4.875%

0.00%

2.63%

23-Apr

4.750%

4.750%

0.00%

-2.56%

23-May

5.000%

5.000%

5.26%

5.26%

23-Jun

4.500%

4.750%

-10.00%

-5.00%

23-Jul

4.500%

4.875%

0.00%

2.63%

23-Aug

4.875%

5.000%

8.33%

2.56%

23-Sep

5.125%

5.000%

5.13%

0.00%

23-Oct

5.250%

5.250%

2.44%

5.00%

Source: USDA-FSA

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Interest Per Acre

Cost Category

Corn ($/Acre)

Cotton ($/Acre)

Rice ($/Acre)

Peanuts ($/Acre)

Seed

$104.00

$118.00

$44.00

$97.00

Fertilizer

$303.00

$192.00

$178.00

$64.00

Pesticides

$88.00

$197.00

$151.00

$77.00

Fuel (Irrigation & Equipment)

$25.00

$37.00

$23.00

$68.00

Q2 2023 Interest (8.52%)

$44.30

$46.35

$33.74

$26.07

Q2 2022 Interest (3.66%)

$19.03

$19.91

$14.49

$11.20

Source: University of Arkansas Budgets, 2023

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Farm Debt

Source: USDA-ERS

Debt levels are starting to eat into Working Capital (cash reserves on hand)

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Loan Availability

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Bank Locations (U.S.)

Source: FDIC

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Credit Availability (Farm Credit System)

Take Home Message:

As of 6/30/23:

  • Gross Loan Growth Rate: 5.79%
  • Total Asset Growth Rate: 6.22%

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  • Asset Growth > Loan Growth
  • Signs of a cooling loan market.

​

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Source: Farm Credit System

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Credit Availability (Commercial Banks)�Loan-to-Deposit Ratio(LTD)

Source: FDIC

Do banks have enough liquidity to cover loan obligations?

​

Why did it decrease? And why is it increasing now?

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Farm Financial Distress

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Arkansas Farm Financial Issues Survey�Number of Times Ranked First, n = 28

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Inflation

Source: BLS

Inflation Measure: CPI

Fed’s Goal: ~2%

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Want “soft landing” with awareness of 1980s

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Good trajectory, revisit in Nov.

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Farm Solvency & Liquidity – Current Ratio

Source: USDA-ERS

Current Ratio:

Current assets/current liabilities

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Ability to pay short-term obligations

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Farm Solvency & Liquidity – Debt/Asset & Debt/Equity

Source: USDA-ERS

Is the farm sector over-leveraged?

< 30%

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Land Values

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Source: USDA-NASS

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Source: USDA-NASS

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Thank You! �� Questions?

  • Ryan Loy
    • University of Arkansas Division of Agriculture
    • 2301 S University Ave, Little Rock, AR, 72204
    • Office: 307L
    • rloy@uada.edu
    • (214) 642-9066

My Website:

Presentations, publications, etc.