Agricultural profits start tightening

A Purdue University agriculture expert has one piece of advice from a historical perspective for farmers: Don’t leverage the farm today for greater gain tomorrow.

Jason Henderson, director of Purdue Extension, was the speaker Wednesday morning for the Greater Seymour Chamber of Commerce’s annual Ag Day Breakfast.

The economist and ag researcher told the audience of farmers, FFA members, businesspeople and community members that agriculture runs through cycles just like real estate.

Looking back, he said, borrowing too much against the farm can often lead to poor consequences, especially in an environment of high interest rates, which is expected in the next few years, he said.

Henderson, who grew up on a dairy farm in northeastern Iowa, said the Federal Reserve expects interest rates to jump to about 4 percent in 2017.

When rates rise, the value of the dollar goes up, exports go down, incomes decline and farmland values drop, said Henderson, who earned his master’s and doctorate degrees in agricultural economics at Purdue.

Recently, farmers have had “good times” on the farm and have experienced plentiful harvests in the past few years, resulting in the ability to purchase more land and equipment including tractors, combines and machine sheds, Henderson said.

Farm incomes in 2005 were at $40,000 and doubled to $80,000 in 2013, he said.

But a combination of lower incomes and rising interest rates expected in the future will force some farmers to adjust their lifestyles, including family expenses, which will create a challenge, Henderson said.

“Agriculture is in a period of time when prices are down because supplies are up and demand is starting to plateau,” he said. “So we’re going through a period of time when there’s tighter profits.”

In the past, Henderson said, the accumulation of debt preceded financial crises. Farm booms in the 1970s followed with lower incomes and higher interest rates, which contributed to farm financial crises and bankruptcies or “bust” in the 1980s.

“In many ways, I feel what we experience today and the rhythms that we’re seeing are similar to the past,” he said. “A lot of it is similar to the 1970s, but we don’t have to repeat the past.”

Henderson said to strive toward prosperity, farmers need to focus on cash flows.

“Cash is king,” he said. “As long as they make their business decisions and investment decisions based upon cash and not asset values, then I think they will be looking forward to decades of prosperity.”

Henderson also encouraged farmers to keep exports strong, limit leverages and not forget about the ’70s and ’80s to avoid creating that risk for a boom-bust cycle where bankruptcies rose as a result of high interest rates and low incomes.

“I think the next few years will be tough, but as long as we remember what happened in the past, I think this will just be a speed bump,” he said.

Two high school seniors received college scholarships from the chamber for essays they had written about the future of agriculture Jackson County.

Amanda Stuckwisch, a Brownstown Central High School senior, received $1,000, and Lauren Findley, a Seymour High School senior, received $500. Both will be freshmen at Purdue University in the fall. The pair also read their essays.

The breakfast, organized by the chamber’s agribusiness committee, was conducted at the American Legion Post 89.

At a glance

Farm facts:

Today, every farmer feeds about 160 people — up from 25 in the 1960s.

98 percent of farms in the United States are family-owned.

In 2012, the average age of U.S. farm operating was 58.3 years old.

Farmers and ranchers comprise only 2 percent of the American population.

Overall, the farmer receives 16 cents for every food dollar spent. The other 84 cents goes to processing, packaging, marketing, transportation, distribution and retail costs of the food supply.

Source: Greater Seymour Chamber of Commerce