Expectations For Farm Income Dropping Rapidly
For those states comprising the Kansas City Fed District (Nebraska, Mountain States, Kansas, Missouri and Oklahoma), the expectations for farm income have dropped dramatically due to the drought. In a just released report on the second quarter agricultural credit conditions, several financial nuggets can be found.
Due to timely rains, the wheat crop in Oklahoma and Kansas was much better than expected. With increased prices, wheat farm income is substantially higher than last year. However, the drought has dropped the expected index of farm income from levels around 120-130 to a current reading of about 90.
The report presented a chart of actual income versus expected income by quarter from 2004 to now. It is interesting how the expectations on the high side are never as good as actual farm income and the spike downwards in expectations is more than the actual decline in farm income, at least from a chart standpoint. This just shows that bankers are human too (we knew that) and like farmers expect the bad times to be worse than they usually are and are surprised when the good times are better than expected.
This district has substantial livestock operations so the high cost of feed is more negatively impacting farm income than perhaps other reporting districts.
Farmland prices have increased dramatically from a year ago. Nebraska leads the pack with a 36.5% increase in non-irrigated land, with some of the other states are not too far behind. However, expectations going forward is for flat farmland values for the next year or so due to the drought. Also, there is probably some “fatigue” setting in from the rapid appreciation in values.
Paul Neiffer, CPA
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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