Tough Times in the Heartland As Farmers Consider Bailing Out12/28/2017
Hudnutt said some corn farmers in the Midwest have been experiencing “below break-evens. This is really year three now. We really expect more of the same in 2018. It’s not simply a matter of grain prices as it is input costs [such as seed, chemical and fertilizer supplies] are not coming down as quickly as grain prices have fallen.”
Overall, crop cash receipts — the income from crop sales during the 2017 — are forecast to be $189.9 billion, down 2 percent from last year. That would represent the fifth-consecutive year of lower corn receipts, and the total dollar value of the crop is expected to be the lowest number recorded since 2009, according to USDA economist Carrie Litkowski.
Corn represents about 13 percent of total ag commodity receipts in the U.S., ranked second only behind cattle. It is also the main U.S. grain feed, and almost 40 percent of the crop gets used for ethanol.
“A lot of operations are having trouble adjusting to the fact that we had such a tremendous commodity runup from about 2007 to 2013 where there was tremendous margins in the production of corn and soybeans,” said Mark Kenney, a farmer in central Iowa. He said some farmers’ cost structures shifted along with that runup, and now they’re still catching up with lower crop prices.
Analysts say there was a limited time during the year when farmers could have sold corn at profitable levels. Also, some farmers who were fortunate to have large yields on their crops fared better this year by lowering the amount of loss they had.
“It was another poor year from an overall profitability in grain agriculture,” said Don Roose, president of Iowa broker U.S. Commodities. “It was the second year in a row that we had less than ideal growing conditions. But we had yields that outperformed what the producers bought, primarily because of the genetics … and the new technology practices that are going on.”
For corn, average monthly prices have trended below $3.50 per bushel this year and remained below $4 since late mid-2014. That is well below the $7 per bushel price it averaged during some months of 2012-2013.
“Farming is all about cycles, and back in 2013 we really had some super corn, soybean and wheat prices that really afforded us the opportunity to pay down debt, replace some equipment,” Richard Guebert Jr., president of the Illinois Farm Bureau and a grower of corn, wheat and soybeans.
“Now we’re in a downturn in the farm economy where farmers are not buying particularly new equipment unless they absolutely have to.”
Adding to the challenge is weather in key parts of the Corn Belt has been unfavorable this year, including portions of Nebraska, Iowa and Illinois.
In Nebraska, the Baties lost money on their corn and soybean crops this year, partly reflecting wind storm damage in October that wiped out about 30 percent of one corn field. This will be the third bad year crop-wise for their agribusiness, and the couple isn’t optimistic next year is looking any better.
“There’s a point when it’s time to quit,” said Don Batie.
Even so, it’s tougher to sell farmland today in some parts of the heartland. Prices of ag land in areas of the Midwest have fallen 20 to 25 percent from the peak.
“We’ve had more no-sales recently than we’ve had sales complete and close,” said Shan Hanes, president and CEO of Heartland Tri-State Bank in Elkhart, Kansas. He said some people who saw the farmland runup several years ago are trying to sell but finding the market just isn’t giving them much today — and he’s not hopeful things will change in 2018 and 2019.
The Federal Reserve Bank of Kansas City’s Ag Credit update last month reported that irrigated farmland values are down 5 to 7 percent from a year ago in some Midwest states, including Kansas and Nebraska. Lower farmland prices ultimately make it tougher for farmers to obtain credit.
“Although the magnitudes of recent declines have yet to approach the magnitudes of the 1980s, the duration of the recent downturn in cropland values has approached that of the 1980s,” the Ag Credit Survey said.
During the 1980s farm downturn, farmers were debt-heavy and faced high interest rates. Today, the debt levels are substantially lower for farmers and interest rates are more favorable.
Regardless, some in agribusiness still worry about another year of low crop prices and the added uncertainty surrounding the North American Free Trade Agreement between the U.S., Canada and Mexico. President Donald Trump, who carried many ag-important heartland states in the 2016 election, has threatened to tear up the 24-year-old NAFTA deal.
“We have concern if NAFTA is disrupted,” said Rabobank’s Hudnutt. “Exports are extremely important to the U.S. farmer.”
Mexico and Canada represent nearly one-third of total U.S. agricultural exports. Corn, soybeans, fresh fruits and vegetables as well as livestock and dairy are major U.S. exports to those countries.
Hudnutt believes “internal pressures as well as external pressures from farm groups and others are getting to the president and talking about the importance of NAFTA to agriculture.”