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KC FED ECONOMIST AT CONGRESSIONAL HEARING: FARM ECONOMY REMAINS SUBDUED, CONCERNS MOUNT
Oklahoma Farm News Network reports:

As the process to shape the next farm bill begins, House Committee on Agriculture Chairman Michael Conaway insisted that economic realities must be front and center, in his opening remarks this morning at a hearing where the testimony of several prominent agricultural economists was given.

Nathan Kauffman is assistant vice president and Omaha Branch executive at the Federal Reserve Bank of Kansas City. He testified today that based on the efforts he leads to track the agricultural and rural economy, he has concluded that should current conditions and contributing factors continue into the long term, the agricultural industry could be faced with a serious financial crisis.

"The outlook for the US farm economy remains subdued and financial stress has increased modestly for many producers over the past year," Kauffman said. "Following several years of historically high farm income prior to 2014, which was primarily driven by strong demand for agricultural products and high commodity prices, farm income has dropped significantly and is expected to remain low in the near future. Put simply, the downturn in the agricultural economy appears to be continuing into a fourth consecutive year."

According to data collected by Kauffman, the agricultural industry has been subject to a steady decline in working capital over the past three years, mirroring a similar downtrend in the rate at which farm loans have been repaid each quarter since mid-2013.

Kauffman claims demand for farm loans has increased, particularly in short-term operating loans, indicating a reduction in cash flow and the depletion of working capital. And while he reports, too, that recent data from commercial banks suggests the pace of debt accumulation may be slowing, the debt-to-asset ratio in the farm sector has nonetheless increased modestly over each of the past four years.

On the average, farmland value has dropped 10 to 20 percent as well, compounding the financial stress for farmers. However, on a positive note, while the current farmland values are at historic lows, they do seem to be on the rise.

"Agricultural credit conditions have weakened somewhat over the past year and financial stress in the U.S. farm sector appears to have increased modestly as commodity prices and farm income have remained low. However, a farm crisis on the scale of the 1980s still does not appear imminent, as farm loan delinquency rates remain low, and credit availability has generally remained strong," Kauffman summarized.

"But, if farm income remains persistently low, if farmland values continue to decline, and if debt continues to rise, it is possible that key indicators of financial stress, such as debt-to-asset ratios, could rise to levels similar to the 1980s over a longer time horizon."

Click here to read Kauffman's complete written statement.


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