May 26, 1999

Farmers should reduce their borrowing this year by $1.3 billion, says USDA. Low prices and significant weather and disease problems in some regions have farmers and lenders concerned about farmers' ability to repay existing loans and qualify for new production loans.

Net cash farm income has been strong in recent years, say USDA economists, and this year should be above the 1990-98 average. But last year saw increasing variability in farm-sector economic performance by region and commodity, leading to more cautious borrowing this year.

This year, net cash income should decline by 6% and net farm income by 7%. In 1998, incomes were lower for many farmers, especially corn, wheat, soybeans and hog producers, as continued high production levels for many farm commodities were more than offset by substantial price declines. "This year promises to be financially challenging for these farmers," USDA says.

Broiler, cattle, vegetable, fruit, nursery and greenhouse subsectors were profitable last year and have a "strong outlook" for this year, but subsectors with losses will outweigh those with gains. Favorable trends in the general economy point to continued stable interest rates. Farm equity will increase by $16.9 billion mostly from higher farm land prices.

"But neither higher equity nor stable or even lower interest rates may be sufficient to offset the effect of lower incomes," the report says. "Even if farmers lower their credit use in 1999, USDA's Economic Research Service is forecasting that lower income will cause farmers' use of debt repayment capacity -- the maximum debt that could be repaid from current income -- to rise to 57% in 1999, up from 55% in 1998 and 53% in 1997."

The report is published in the May issue of USDA's Agricultural Outlook.