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Challenges ahead for the ag sector

An agricultural economics professor says lower commodity prices and a continued drop in farm income has ag lenders’ confidence wavering.

At a House Ag subcommittee hearing on tightening credit conditions in agriculture, Allen Featherstone with Kansas State University, testified that 2016 will be a pivotal year in production agriculture.  “Given that net farm income in some regions is the lowest it has 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,” he says.

While there has been some comparison between the tightening farm economy and the boom-to-bust cycle of the 1980’s, FarmerMac president and CEO Tim Buzby says low interest rates have helped soften the blow to the ag economy.  “I think a dramatic increase in interest rates would cause the situation to be much more similar to that of the 1980’s,” he says.

He says lenders and farmers are working together to make sure the downturn the sector saw in the 1980’s doesn’t happen again.  “It’s definitely very instrumental to see lenders who were around and lending in the 80’s,” he says.  “There are many farmers and young lenders that were not around then and we do see them learning from the history and from their colleagues who were around then.”

Buzby says keeping a close eye on the lending environment isn’t just important for farmers and lenders this year, but over the next two years.  He says continued low commodity prices could increase the challenges to the farm economy.