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Farm Economy Rebound Expected To Continue

July 3, 1989

WASHINGTON (AP) _ The nation’s farm economy is in its third year of recovery, and an Agriculture Department analyst says no serious downturn is likely in the next few years.

Greg Hanson of the department’s Economic Research Service says U.S. agriculture has shown a strong recovery from the early 1980s.

″Since the start of 1987, farm incomes and finances have rebounded more strongly than anticipated,″ he said. ″Net cash income is projected to average $56 billion (annually) during 1987-89, about $10 billion higher than the 1984-86 average, while debt fell more than 10 percent in 1987-88.″

Farm exports have rebounded by 40 percent since the mid-1980s, and there has been a reduction of 3.3 billion bushels in the U.S. stockpile of corn, wheat and soybeans.

″Higher prices brought about by lower stocks and strong export demand likely will extend the financial recovery through the end of 1989 and into 1990,″ Hansen said in the July issue of Agricultural Outlook magazine.

But how solid is the recovery? The 1980s began with ″a bloated cost structure that was a precondition for the ensuing financial crisis,″ he said. Will farmers avoid a repetition in the 1990s?

Hanson hedges a bit, noting that there are many factors beyond the control of individual farmers: global weather patterns, multilateral trade negotiations and currency exchange rates, for example.

But he also notes that many fundamentals of the farm economy are stronger and that agriculture is now a growth industry:

- Crop sales receipts have increased 23 percent and livestock sales 12 percent since 1986, with farm output expected to be slightly higher this year than in the mid-1980s.

- Capital investment is up one-third, with spending on new tractors, machinery and buildings expected to be about $3 billion more than in 1986.

- Farm real estate values are forecast up one-sixth since 1986, with land values rising slightly faster than inflation this year.

Hanson said the reduced stockpile of commodities and a growing demand for those products ″undergird current sales strength and investment growth″ in U.S. agriculture. Long-term factors suggest that ″supply will not soon dwarf demand, and that farmers will not soon experience another deep financial crisis″ like the one in the mid-1980s.

One reason for optimism, he said, is the Conservation Reserve Program, which will idle 30 million or more acres a year through the mid-1990s under long-term agreements with farmers to protect fragile crop land. The goal actually is 40 million to 45 million acres. Comparatively, an average of 23 million acres were idled between 1979 and 1985.

A cheaper U.S. dollar bodes well for farm exports, Hanson said. One dollar bought about 40 percent less German and Japanese currency in 1987-89 than in 1984-85.

″This makes U.S. exports more competitive with European producers, and U.S. farm commodities cheaper for Japanese consumers,″ he said. ″Given the continuing U.S. trade and budget deficits, it is not likely that the dollar will rebound for an extended period to mid-1980 levels.″

Another hopeful sign is the improved state of farm finances, Hanson said. Between 1985 and 1988, the number of commercial farmers with annual sales of at least $40,000 who faced loan default declined by about 50 percent to 60,000.

Farm debt also fell by $45 billion over a six-year period, putting producers in a much stronger financial position than in the mid-1980s.

″This provides a cushion that will enable most farmers to withstand one or more years of reduced profits should agricultural growth slow or stall in the next few years,″ he said.

Another factor is difficult to judge, but it’s there: Farmers are survivors.

″Today’s farmers have survived a cost-price squeeze and the financial problems brought about by land-value deflation after debt tripled in the 1970s,″ Hanson said. ″They have survived all the business problems of a major crisis, and in the process have learned valuable lessons.″

For example, he said, record net cash incomes in 1986, 1987 and 1988 ″tended to be used conservatively to pay down debt and make needed investments and improvements.″

While land values and investments have rebounded from 1986 low marks, farm debt continued to fall in 1988 and is forecast to be stable in 1989. Up to 75 percent of this debt reduction is from farmers paying off loans, not loan losses.

″Farmers likely will continue to avoid an over-investment trap,″ Hanson said. ″There is heightened awareness of the long-term importance of daily cost control and sound management.″

He added: ″This is an intangible factor that is as important as higher commodity prices, lower stocks, more competitive exchange rates, and less financial stress.″

Lest he appear too rosy about the future, Hanson said a number of things could happen to cloud the situation.

Recurrence of a cost-price squeeze could be one of the threats, along with continued heavy reliance on government payments, lower profits in the livestock sector, unsuccessful trade negotiations or major scientific breakthroughs that could cause lower prices.

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