Main Street businesses hit by farm downturn, says Kansas City Fed

Aleksandra Michalska | Reuters

Soybean farmer Raymond Schexnayder Jr. overlooks his farm outside Baton Rouge, in Erwinville, Louisiana, July 9,2018. 

Weak farm income, coupled with reduced spending, has stressed the economy in rural America and led to “adverse” ripple effects on Main Street businesses, according to a new report from the Federal Reserve Bank of Kansas City.

“A sharp drop in the price of corn and soybeans contributed to a bleaker view of the [Tenth] District’s farm economy in the second quarter,” said the KC Fed’s Ag Credit Survey released Thursday. “For many agricultural borrowers, cash flow already had been a significant concern, but likely was exacerbated by the recent drop in prices amid ongoing uncertainty surrounding the future for agricultural trade.

Chicago soybean futures remain down about 11 percent since China announced on April 4 it would slap a 25 percent tariff on the 106 U.S. products, including American soy. The tariff went into effect July 6 and soybean futures at one point were down more than 20 percent, but they rallied starting in mid-July but in recent sessions have struggled amid the escalating U.S.-China trade battle.

“We can’t even think about buying a new piece of new equipment because it could tip the scale to where we wouldn’t be insolvent,” said Jeff Fisher, a soybean and corn grower in Champaign County, Ill. He said soybean prices at current levels are essentially break-even. This is happening as farm input costs remain high for everything from seed and fertilizer to herbicides and fuel.

Last month, the U.S. Department of Agriculture unveiled a $12 billion emergency plan to help farmers impacted by retaliatory tariffs.

“Don’t get me wrong, $12 billion is a lot of money, but it’s only a little band-aid,” Fisher said. “What we really want is to trade, buy and sell products and have a free market system that doesn’t need anything like that.”