AFBF Chief Economist John Newton Says Farm Crisis Brewing - But Not Without Its Bright SpotsTue, 14 May 2019 11:16:30 CDT
Farmers are currently facing one of the harshest economic downturns in recent memory. With depressed markets, changing global dynamics and a litany of international trade disputes ongoing, the ag industry has seen a 50 percent reduction in farm income in just two years’ time.
“Not very often do we see something like that,” said American Farm Bureau Federation Chief Economist Dr. John Newton in an interview with Radio Oklahoma Ag Network Farm Director Ron Hays during the Washington Watch event this week in DC hosted by the National Association of Farm Broadcasters. “As a matter of fact, we’ve seen farm incomes fall and remain at these depressed levels. That’s really the big challenge.”
In years past, Newton says it has been normal to see farm incomes cyclically dip one year and bounce back the next. In the present environment though, Newton says producers are starting to quickly burn through equity, bringing many to the end of their rope. This is of course compounded by persistently unresolved trade issues that continue to add to the burden of low economic activity in the ag sector.
When asked if he believed the US to have a “farm crisis” on its hands, Newton responded that indeed he could see a “perfect storm” of sorts brewing. According to him, more and more producers are transferring their short-term debt to their long-term debt. Lenders have increased their denials of operating loans and across the country, farm bankruptcies are on the rise.
“That’s not a recipe for future success,” Newton said. “I do see a perfect storm brewing where if we don’t see this trade situation resolve or there’s no financial assistance to farmers, it’s going to be really difficult to pencil out any type of profit next year without some sort of resolution to trade.”
With China’s market essentially closed to US ag products, US producers have watched exports to China drop by $10 billion landing the US ag industry a significant blow. If anything, Newton says this should make the US realize its had too many eggs in one basket and should work to diversify and spread its risk more evenly around the world with other trading partners.
Despite the bleakness of the situation currently, Newton says it is not all bad, noting one particular bright spot in the ag economy right now.
“I think the brightest spot we’ve seen in recent weeks on the commodity level has been what’s happening in the pork market. The African Swine Fever outbreak in China and across other parts of Asia, spreading into Eastern Europe even… we’re looking at hundreds of millions of pigs depopulated, big declines of 30 to 40 percent. So, that’s created an opportunity here in the United States,” Newton said explaining how the US has taken advantage of the backfill opportunities created by this situation - not to mention the residual effects spilling over into other complexes as well. “So, a rising tide lifts all boats, right. One of the biggest beneficiaries could potentially be poultry. I think if anything that’s been one of the bright spots.”
Listen to Newton’s complete discussion with Hays over the current condition of the farm economy, by clicking or tapping the LISTEN BAR below at the bottom of the page.
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