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US farm economy stabilizing: Farmer Mac

In its quarterly agricultural outlook, Farmer Mac sounded a note of optimism on farmers’ net income and detailed recent conditions throughout in the US agricultural economy.

While challenges persist in the form of excess commodity supply, rising labor costs and unpredictable weather patterns, recent data suggests a degree of relief for US farmers this year amid a stabilization of the agricultural economy, Farmer Mac said in a report released last Wednesday.

In the Spring 2017 edition of its quarterly agricultural outlook The Feed, Farmer Mac highlighted recent reports from the US Department of Agriculture (USDA) and the University of Missouri Food and Agricultural Policy Research Institute (FAPRI) suggesting an improvement in net cash income as farmers sell off inventories built up during recent years’ record harvests of commodity crops.

Jackson Takach, director of economic and financial research at Farmer Mac and one of the report’s lead authors, told Agri Investor that the sale of those inventories is expected to help farmers pay down debt and bring total net cash income levels back in line with the historical average of about $80 billion.

That income levels represent an adjustment after the boom years early this decade that saw the figure rise to more than $120 billion, but will help farmer and their families in the near term.

“It’s hard to go from eating steaks every night to eating cereal every night, and there is certainly a lot of pain on the farm, but we look to be stabilizing really close that historical long-run average,” he said.

Elsewhere in the report, Farmer Mac detailed recent developments in major crop, dairy and livestock markets and discussed the implications of recent wet weather in California and other growing regions.

In a special section devoted to farm labor expense and recent debates surrounding US immigration policy, Farmer Mac wrote that a slowdown in the flow of immigrant labor onto US farms has increased labor costs, citing USDA figures suggesting 2017 labor costs as being 10 percent higher than 2015.

Labor costs vary significantly across crops and regions, according to the report, which showed that such costs reach a high of 40 percent of total expense for producers of fruits, vegetable and nuts in the south.

“Emerging technologies like robotic milking parlors, drones and self-driving tractors all have the potential to greatly reduce the need for labor in the long run. However, in the short run, labor remains a key input in production agriculture and tight farm labor markets are likely to continue,” the report’s authors wrote.

Farmer Mac senior vice president Curt Covington wrote that while comparisons of the current agricultural economy to the farm crisis of the 1980s are overwrought, the era does offer important lessons for agricultural lenders regarding leverage, taxes and the challenges of rising interest rates.

“Vigilant adherence to sensible and conservative lending practices is always a prudent rule of thumb. Or, to put it another way, if it doesn’t feel right, don’t do it,” Covington wrote.