Tough Winter Ahead

With harvest finished in the Delta, the winter months may be trying for the agricultural community.  Corn and rice prices are down compared to a year ago and shaping up to be the lowest in a decade.  Cotton and soybeans prices are slightly better than the prior year.  Crop yields across the board are currently estimated to be lower this year compared to last year.

USDA estimates U.S. net farm income and farm debt.  Over the past 3 years as income has decreased, debt has increased relative to equity and assets.  The increase in leverage will probably cause a shake up this winter.  Highly leveraged operators may be forced out or need to sale assets such as land to stay solvent.

Those who follow and report on U.S. land markets such as LandOwner often use the debt:income ratio as a gauge for farmland price direction.  According to USDA, U.S. farmland peaked in 2015 and slightly declined in 2016.  Based on projected debt:income ratio, farmland prices may be in for more correction.  With some operations in financial turmoil, additional land injected into the market may provide buying opportunities for investors and allow highly leveraged operators to unload debt and continue operating for another year.