By DOUG GRAVES
LONDON, Ohio — When economists talk, people listen. So when farm economists weighed in on the current economic climate at this year’s Farm Science Review, there were no empty seats to be found.
“We’ve been looking at farm income and trends across the country and Ohio in particular, and we’re seeing a correlation of the economic climate of the 1980s,” said Ani Katchova, associate professor and Farm Income Enhance Chair of the Department of Agricultural, Environmental and Development Economics at Ohio State University.
“Today’s farm economy and that of the decade 30 years ago are similar, but we’re rebounding and see positive news in the near future. Right now we’re seeing slightly higher farm income, land values are turning the corner and equity is expected to increase in land values.”
Robert Dinterman, postdoctoral economic researcher in the same department, also weighed in on the economic findings. The panel was moderated by David Marrison, extension director of Ashtabula County.
“In 2012 we experienced the highest farm values, then in 2013 farm income started falling slightly,” Katchova said. “What we’re looking at are two criteria. First, the net cash farm income, and that’s revenue minus costs in terms of cash. Second is the new farm income land that includes farm value based on depreciation and inventory changes.”
She said the 2017 USDA forecast shows a 12.6 percent increase in net cash farm income and a 3.1 percent increase in net farm income.
“The difference is due to changes in the crop inventory for last year. Crops were produced last year and sold this year,” she said. “We have seen the erosion of farm equity the past few years, and we do see an increase in equity by 3.9 percent and increase in excess by 4 percent. Not great news, but better than what we saw in the 1980s.
“Farmers should know we see an overall improvement in the balance sheet, and the biggest asset in that balance sheet is farm real estate, which makes up 83 percent of this balance sheet.”
Katchova said the national average of debt-to-asset ratio is at 11 percent, meaning 11 percent of people’s assets are financed with debt. “These are historic lows,” she explained. “In the ’80s that ratio was at 23 percent.”
She told the gathering that farmers are in a “pretty strong land value market.
“We’re in a slightly different situation than what we saw in the 80s,” Katchova said. “We saw a run-up of 19 percent in the ’70s before we were hit by a crash. In the last decade we’ve seen no more than a 4 to 5 percent increase.”
Nationally, cropland value is at $4,789 per acre. In Ohio, she says, that value is at $5,780 per acre.
“Ohio has better soil quality and more productive land,” Katchova noted. “Ohio’s land market value seems much more resilient. When we saw negative changes across the U.S., we didn’t see those in Ohio until recently. We’re expecting a flat or slight decline in land values, perhaps by only 0.3 percent.”
The panel was bombarded with questions, many of them pertaining to bankruptcy.
“We’ve seen a slight increase in bankruptcies due to downturn in agricultural land values,” Dinterman said. “In the 1980s, on average across the nation, 20 out of every 10,000 farms filed for bankruptcy. That number for Ohio was just 10. In 2017, just two out of every 10,000 farms filed for bankruptcy.
“We’re not as bad off as we were in the 1980s. There are similar trends, like declining land values and increases in debt holdings.”
Farm consolidations and mergers were on the minds of those in the audience.
“The average farm size keeps increasing,” Katchova said, “while the farm numbers are coming down in Ohio and across the U.S. There are 2.07 million farms in the nation, 74,500 of those in Ohio. The average farm size nationally is 442 acres. In Ohio that number is just 188 acres. A lot of the farmland is controlled by the largest farms.
“Our research has shown that in Ohio the ‘hobby farm’ is increasing in numbers. These are farms held by people who work off the farm and still have a tiny farm. In this state, there are either large farms or very small farmers. There are not many middle-sized farms nowadays.”
Those in the audience begged Katchova and Dinterman for their “crystal ball” farm forecast for Ohio. “My take on the situation is more rosy than most,” Katchova said. “We’re seeing some improvement with low profitability. For the first time in four years, farm profitability in Ohio has increased by 3.1 percent. Farmland values have flattened out and I do see an uptick coming in bankruptcies.”
“We will experience more bankruptcies in the upcoming quarters,” Dinterman said. “Ohio has half the bankruptcies than the national average, though. The national average for delinquent loans is at 2 percent. In Ohio it’s higher and trending upward.
“That’s an indication there’s some financial stress in the state. But the good news is that in the 1980s that delinquency was tenfold higher.”
Interest rates are much improved over those of the 1980s, Katchova said. The average rate 30 years ago was 17.5 percent. Today it stands between 4-5 percent.