1. Ag Finance Topics for Discussion
Rodney Jones, Ph.D. Oklahoma Farm Credit Chair
In Agricultural Finance, OSU Dept. of Agricultural Economics

2. We Are In Tougher Economic Times
In general more true for crop based operations than for cattle or mixed operations
Degree and type of “financial stress” varies from producer to producer
Some evidence it is more pronounced in Southern Plains

3. The Graph Does Not Look Good

4. Facts and Projections
Overall U.S. net farm income forecast to drop 13% from 2017 levels (already less than half of 2013 levels)
Southern Plains – some projections down 21% from 2017
What’s unique about Southern Plains?
Frequent examples of working capital shortfalls

5. Facts and Projections Interest costs rising Loans harder to secure
Overall debt increasing at a slow pace, but faster for some producers
Operating debt increasing more than Term debt
Asset Values
Equipment
Land

6. Is it the 1980’s
Then, very rapid decline in commodity prices along with rapid increase in Interest rates resulted in a very fast farm sector economic downturn that lasted a few years followed by a steady recovery

7. Or Is There Another Comparison
Now, a multi year slow erosion of net income with no end in sight yet
We have seen this type of a downturn before – 1920’s – extended (12-13 year continued gradual erosion of net farm income followed finally by a fairly rapid recovery starting in early to mid 1930’s
Psychological impacts may be different (even worse in some regards)

8. Where Do We Go From Here How rapidly will interest rates rise
Impact of retaliatory tariffs
Widespread production challenges
What helped with recovery in the 20’s and in the 80’s
Will we see a more global crop shortfall to stimulate a supply related commodity price bump

9. Where Do We Go From Here Adjusting farm family living expenses
What about health care costs
For Oklahoma, will the cattle price cycle low point come along while crop prices are still struggling, impacting even our more diversified operations
Possible scenarios

10. Don’t Count on Rapid Commodity Price Recovery at This Point
Current projection is that this downturn will last a while longer, and we will likely see modest interest rate increases as well

11. Industry Observations
Purdue University Center For Commercial Agriculture Ag Economy Monthly Barometer
Based on a monthly survey of 400 producers nationwide
Both the index of current conditions, and the index of future expectations have dropped sharply in recent months
Respondents indicate deteriorating financial conditions, reluctance to make investments, trade concerns, and expectations for some rental rate relief

12. Local Observations Producers are more generally discouraged
Advise to surround with positive people
Watch for signs of severe stress among friends
A larger number find themselves in more serious financial situations
Hearing more stories of “calling it quits”
Mostly voluntary so far

13. Aside From Luck or Good Fortune – What Can You Do
Every producer has a different starting point story. Some have been in business a long time, have accumulated equity in various forms, have low debt payment obligations, etc. Obviously those are better able to weather the storm.

14. Carefully Monitor Five Categories of Position and Performance
Liquidity, Solvency, Profitability, Financial Efficiency, and Debt Repayment Capacity
Most (certainly not all) producers are still in a pretty good solvency position. Cash is getting tighter, many of the short-term strategies have been exhausted.

15. Crop Budget Realities
By my rough calculations: Wheat planted this fall has a better chance of returns above break-even than last year, Canola not much different that last year
Soybeans (popular this year) need some price recovery to look very attractive

16. Questions???
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