Will Bust Follow Current Ag Boom?

Hurt and Henderson on ag bust

Expect a leveling off of on-farm production costs in the coming years coupled with some reductions in crop prices. Economists at Purdue’s Financial Health of Farming workshop Wednesday shared those general thoughts about future farm profitability following record farm incomes in recent years. But will the boom actually be followed by a bust? Dr. Chris Hurt doesn’t think so.

“I certainly am not saying there is a collapse coming. This is what grandpa told a lot of our families. If you have a boom in agriculture you’re going to have a bust. I think we have evidence to say that’s not necessarily the case. It depends on what happens to our demand base and our supply base, but I think a period of moderation would be a better description.”

But he says profit margins will be tightening, “and that is with lower prices of corn, soybeans and wheat overall, but with costs maybe not coming down quite as much. We’re going to see some narrowing of margins. But our margins are much larger than they were with $2 corn back in 2005 and a number of years before, so margins are still going to be much better than the old normal.”

Hurt urges caution for example in cash rent agreements when considering locking in rent at record high levels for 5 years. Those prices can come down depending on margins.

Jason Henderson from the Federal Reserve Bank of Kansas City and the next director of Purdue Extension also spoke. He feels agriculture is well positioned for profitability the next year or 2, but there is concern about the following years, and it hinges on debt accumulation.

“If agriculture doesn’t accumulate debt, I think the farm boom fades. It’s kind of like the 1940’s and 1950’s. But if we in agriculture accumulate debt again and have a huge wealth effect I think that sets the sector up for a potential bust.”

HAT interview with Chris Hurt:March workshop Chris Hurt

Jason Henderson presentation to workshop:Jason Henderson at Purdue workshop