Just the Facts About the Financial Health of the Agriculture Sector

a good financial positionJust the Facts About the Financial Health of the Agriculture SectorWhile prices for many commodities are lower than in recent years, this is simply a moderation from some of the most profitable years on record.

Agriculture  | Research & Analysis
Dec 11, 2017  | 3 min read | Print Article

Supporters of expensive federal programs that subsidize the incomes of agricultural businesses claim that agricultural businesses are in dire financial straits.

Yet after years of record profitability, as a sector, agriculture is in a good financial position. Taxpayers must ensure they do not bailout irresponsible businesses that failed to prepare for this predictable downturn. To put the claims and the issue in context, TCS presents just the facts…

Factsheet

Supporters of increasing spending in the 2018 Farm Bill claim that every agricultural business is in dire financial straits. While prices for many commodities and the national net income for agricultural businesses are lower than in recent years, this is simply a moderation from some of the most profitable years on record. As a sector, agriculture has the tools and abilities to adapt to current production and economic conditions without billions in additional taxpayer subsidies.

  • Fact #1: Proponents of increased federal spending on agricultural business income subsidies use 2013 as the reference point for ideal farm income. Net farm income in 2013, adjusted for inflation, was the highest experienced since 1973, fully 63 percent higher than the 30 year average.
  • Fact #2: Farm household income is stable. The USDA reports that median farm household income was $76,250 in 2016 and is forecast to be $77,551 in 2017. As a risk management technique, most farm households earn a majority of income off farm, and this income is expected to increase 2.3 percent in 2017.
  • Fact #3: According to the National Agricultural Statistics Service, farm production expenditures are estimated at $346.9 billion in 2016, down from $362.8 billion in 2015. The farm sector is adjusting to lower commodity prices. Agricultural businesses will find further savings by renegotiating rents, using fertilizer, pesticides, and other inputs more efficiently, and finding other operational savings.
  • Fact #4: Farm production expenses are relatively unchanged. USDA forecasts inflation-adjusted total expenses to decrease 0.3 percent in 2017 after falling 3.6 percent in 2016 and 9 percent in 2015. The farm sector is adjusting to lower commodity prices.
  • Fact #5: Agricultural businesses continue to experience low debt-to-asset ratios, one indicator of financial health. The projected 2016 debt-to-asset ratio of 12.7 for farm businesses is well below 40 – the upper bound of what the USDA deems a favorable financial position.
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Our Take: Years of record profitability in the agriculture sector from 2011-2014 enabled responsible agricultural businesses to acquire the capital, assets, and resources needed to weather an inevitable cyclical downturn in agricultural commodity prices and incomes.

Agricultural businesses should be expected to draw down their capital reserves, capitalize on record low interest rates and increase their loan volume, and reduce costs before turning to taxpayers for additional financial assistance.