AUSTIN, Texas (DTN) -- After a reversal of fortune for livestock and three years of tight or negative margins for grain, signs of farm financial stress are beginning to sprout across farm country. So far, even the experts admit they don't yet have a clear picture of the extent or severity of the problem.
USDA's November forecasts pegged 2015 farm incomes down 32% for grains, oilseeds and fiber sectors, 13% for cattle and 70% for dairy. Worsening cattle feeding losses in particular could be a worry rolling into 2016, farm accountants report, but firm results won't be known until loan renewal time. The Kansas City Federal Reserve surveys farm lenders about year-end credit conditions in February.
In the meantime, Idaho farmer and financial consultant Dick Wittman has already seen the shock of grain producers with accrual losses for 2015 crops yet owing IRS tax bills.
The reason is a hangover from the peak corn years, Wittman said. Frontloaded Section 179 write-offs on combines and grain bins the past seven years mean distorted incomes now. Operators must sell enough inventory to make debt payments but have no depreciation offsets on their taxable income, Wittman noted.
Applications for the Farm Service Agency's guaranteed operating loan program soared 37% between fiscal 2014 and 2015, the agency told DTN. For the first quarter of 2016, which ended in December, operating loans jumped another 4% over the same period a year earlier and farm ownership loans 17%. FSA officials say other factors could be at play in the demand for government credit, such as a rush to lock in attractive rates before the Federal Reserve's December price increase.
In a survey released Jan. 13, Farmer Mac, an agricultural mortgage lender, reported that more than half of lenders surveyed expect loan delinquencies to increase in the next six months. Nearly 60% also believe farm real estate markets will slip in 2016.
Farm balance sheets are under pressure heading into 2016, Farmer Mac added. "After two consecutive annual declines in farm income, some producers have been forced to liquidate financial assets and increase debt levels to compensate," Farm Mac said. The net result is the first national decline in farm equity since 2009.