Terry Davis of Davis Farm in Roseville, Ill., just harvested 1,000 acres of corn and soybeans after an ideal growing season that produced a bumper crop.
Davis would be celebrating his good fortune if it weren’t for the fact that every other U.S. farmer has also just harvested a bin-busting crop.
Record harvests for corn and soybeans and a drop-off in demand from China, have sent prices for the top two U.S. crops down sharply to the lowest levels since 2010.
“My income is going to be 60 percent of last year’s,” Davis said. “The only saving grace of this year is we had significant profit margins a year ago and we’ll live off those profits this winter.”
For Davis and others, it’s a harsh reversal of fortune after a decade of high prices, which peaked in 2012 after a severe drought.
Nearby corn futures prices at the Chicago Board of Trade are trading at $3.20 per bushel, a 61 percent decline from the 2012 peak of $8.31. Soybean prices have fallen 48 percent to $9.13 per bushel from the peak of $17.71 in 2012. Wheat has suffered a similar decline of 50 percent to $4.78 per bushel.
“Buying a new tractor or a pickup truck for my farm is out of the question this season,” he said. Davis rents the 1,000 acres he farms and said he plans to ask for a reduction in the monthly cost. “We’re going to need it in order to stay in business.”
Davis doubts that landowners will be willing to lower rents, as farmland values remain near record highs.
Farmers are well-positioned to absorb the big decline in crop prices this year, according to Darrel Good, professor emeritus at University of Illinois at Champaign’s Department of Agricultural and Consumer Economics.
“Most producers are financially strong because of high prices in the last three years,” Good said.
Unless poor weather damages crops just planted in Brazil and Argentina, Good predicts at least a few more months of weak prices due to high supply.
In its Oct. 10 report, the U.S. Department of Agriculture raised its U.S. corn production forecast by 80 million bushels to a record 14.48 billion bushels. That’s on top of a record corn crop in 2013 that has left carryover supplies for the 2014-15 growing season at a massive 15.74 billion bushels.
Similarly, USDA raised its soybean production estimate by 14 million bushels to a record 3.93 billion bushels.
Good said another year like 2014, with ideal growing conditions and huge crops, might be cause for worry. If prices fall below production costs, he said, there would be “financial concerns at the farm level.”
According to Davis, those financial concerns already exist. It costs him $3.60 to produce a bushel of corn, he said, yet corn has not traded above that price since August 29.
“Every [ear of] corn this year is raised at a loss,” he said. The cost to raise soybeans is approximately $9 per bushel, only slightly below the current price this season.
Wendell Shauman, a corn and soybean farmer in Kirkwood, Ill., said the contrast between 2013 and 2014 couldn’t be greater.
“This year, I saw lifetime yields. Last year, I saw lifetime prices,” said Shauman, who exports some of his crop to Japan, where demand has slowed. “My income will go down significantly.”
The USDA net farm income forecast for 2014 is $113.2 billion, a 14 percent drop from $131.3 billion forecast in 2013. The agency reports this year’s forecast would be the lowest since 2010.
Meanwhile, farmland prices in Illinois and throughout the Midwest remain near record highs reached in 2012, but Shauman said he would expect them to begin softening in tandem with farmers’ profits.
According to the University of Illinois Department of Agricultural and Consumer Economics, Illinois farmland values in 2014 were an average $7,700 per acre, or 7.1 percent higher than $7,190 a year ago. Cash rent costs were $234 per acre, up 4.9 percent from $223 per acre last year.
Boutique and organic farms less affected
Breslin Farms in Ottawa, Ill., produces certified organic grains and dry beans. Co-owner Molly Breslin explained that her farm is mostly unaffected by the extremely low grain prices, despite lower returns compared with last spring.
“There’s a separate supply-and-demand chain for the organic market,” she said. “I’m not looking at a $2.80 corn right now because there is less fluctuation in price for us. So, in some ways we’re impacted by markets and some ways not.”
Smits Farms in Chicago Heights, Ill., a family-owned business, sells sweet corn along with some vegetables. Andre Nauta, a farmer at Smits, said he understands that food production falls prey to supply and demand.
“My guess is it’s just one of those cycles,” he said, “when there’s a large supply of fresh crops, then, clearly, prices are going to go down and we have to adjust accordingly.”
Reid Barth of All Star Trading, a grain merchant in Oak Brook, Ill. that sells grain byproducts said his business has both benefited and suffered from low grain prices this season.
“It’s good for us in that our costs go down for what we’re buying,” he said. “But less good because there’s a decrease in the market – customers find alternatives in grains themselves because they’re so cheap.”
While it’s difficult for farmers, Barth is confident the market will eventually see increased demand for their crops in response to the low market prices.
“I think people just need to ride it out and it’ll fix itself,” he said.