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Farm-income losses hurting Midwestern states’ budgets; no turnaround for sector in sight

The U.S. Department of Commerce reported that real gross domestic product increased 2.3 percent nationally between 2016 and 2017, but agriculture subtracted from overall economic growth in every state in the Midwest — most notably Iowa, Nebraska and South Dakota. A turnaround doesn’t appear in sight, at least over the near term: U.S. Department of Agriculture deputy secretary Stephen Censky reports that, nationally, farm income is expected to fall 6.8 percent in 2018 (income levels have dropped nearly 50 percent since 2013).Why is the Midwest’s farm economy struggling? For starters, commodity prices have fallen due to record production and a glut of corn, wheat and soybeans on the global market. At the same time, the costs of production (fuel, loan interest, labor, etc.) have risen. In response, farmers have reduced spending on inputs while also tapping savings, using off-farm income, and/or borrowing more.Farm debt has increased by 22 percent since 2013 and has reached levels not seen since the 1980s.
Nathan Kauffman, assistant vice president of the Federal Reserve Bank of Kansas City, notes that agricultural lenders continued to have high demand for loans, even as repayment rates have deteriorated. Given all these challenges, he says, farm spending has fallen at an accelerated pace.States whose agricultural economies are tied more to dairy haven’t had as many highs and lows over the past decade, says Mark Stephenson, an economist with the University of Wisconsin. Still, the dairy industry is clearly facing struggles as well. Federal court data shows the Western District of Wisconsin, which covers more than half the geographic area of the state, had 28 Chapter 12 (family farm) bankruptcy filings in 2017, the highest number in the country. The Eastern District of Wisconsin had 17 cases and the Minnesota District had 19.

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CSG Midwest