Tough Farm Outlook for 2017
So how bad is it out there?
Well, bad. Speakers at last week’s North American Agricultural Journalists meeting in Washington, D.C., noted that high global stocks are the culprit behind the low prices that are deflating profit margins.
The good news? “It is not like the 1980s, but we are still seeing nonperforming loans increasing and debt-to-asset ratio weaken over time and working capital vanish,” says Zach Clark, government relations representative for the National Farm Union.
Here’s What’s Up
A big reason commodity prices are in the dumpster is that global stocks are high, even higher than the burdensome levels of the 2002/2003 marketing year, says Robert Johansson, USDA’s chief economist. He adds real net income has declined almost 30% since 2013, according to USDA-ERS figures. Meanwhile, South America is raising a bumper soybean and corn crop that will give the U.S. serious competition in world export markets.
On the other hand, debt-to-asset ratio is low at 14%, compared with 22% during the farm crisis in 1985, says Johansson. Interest rates also remain low.
Accompanying this, though, is the long-term trend of falling real commodity prices and ramped-up production. If you’ve ever felt you’re on a treadmill, you are. Johansson points out that between 1960 and 2015, the real price of many commodities has fallen. They include:
- A 55% decline for corn.
- A 48% decline for soybeans.
- A 67% decline for rice.
- A 65% decline for wheat.
The bad news? This trend is likely to continue, says Johansson.
That’s because farmers are highly productive. Here’s how production has risen for commodity crops over the same time frame. Specifics include:
- 380% for corn
- 990% for soybeans
- 213% for rice
- 215% for wheat.
Likewise, this trend will continue, he says.
Winter Wheat’s Woes
It’s tough to make money growing any crops these days. It’s even tougher to grow wheat, though, even before this week’s western Kansas winter wheat wipeout.
There’s good reason for that, as a look at crop budgets in northeastern Kansas from Kansas State University shows. Projections for wheat in a rotation including assumptions such as a $4.02-per-bushel price and a 56-per-bushel yield show a -$121.64 return on specified expenses. Corn is barely breakeven, with a $15.48-per-acre return on specified expenses. Soybeans are top with a $65.21-per-acre return on specified expenses.
Not surprisingly, this corresponds with anticipated USDA projections of an 8.2% wheat acreage decline in 2017 from 2016. Corn acreage is expected to decrease 4.3%. However, soybean acres are expected to rise 7.3%, notes Johansson. However, recent price moves could change that as spring progresses, he says.