Ag Economy: “There Definitely Could be Some Pain”

Gregory Meyer reported today at The Financial Times Online that, “US corn bins are well stocked, grain markets are in a funk and economists warn of struggles ahead for farmers.

“But Kent Kleinschmidt of central Illinois intends to sow corn on half his 1,200-acre farm this spring, same as always. ‘It’s not like anybody’s in panic mode,’ he says.

“His sangfroid is common among farmers in the Midwest, and bodes bearishly for the world’s most widely grown grain. US farmers in 2016 have indicated plans to plant the third most corn on record despite low prices.”

The FT article noted that, “The approaching caravan of tractors repeats a dynamic seen across commodities markets. Despite a collapse in prices, miners, oil companies and farmers have been slow to restrain output, prolonging their pain.

“When corn doubled between 2006-12, topping $8 a bushel at their peak, farmers banked cash. Prices are now about $3.50.

“‘At the end of this year, the financial reserves built up in that profitable period will be pretty much gone. Then we’ll being facing some really tough decisions,’ says Gary Schnitkey, a professor of farm management at the University of Illinois.”

With respect to production costs, Mr. Meyer pointed out that, “In Minnesota, total expenses for growing corn dropped 8 per cent between 2013-15 to about $750 per acre, according to the Center for Farm Financial Management at the University of Minnesota. On highly productive acreage in central Illinois, total non-land costs for corn will be $550 per acre this year, down from $615 in 2013, according to Prof Schnitkey.”

Today’s article also stated that, “Stephen Gabriel, chief economist at the Farm Credit Administration, which oversees the credit system, says farm lending institutions remained ‘very well capitalised.’

“For farmers, ‘input prices will drop; they’ll start working more efficiently.’ Mr Gabriel says. ‘But in the meantime there definitely could be some pain. We’re expecting to see some credit issues arise over the next few years in the grain sector in the Midwest.'”

Mr. Meyer also pointed out that, “Farmers are planting corn amid a darkening financial picture. In central Illinois, home to some of the best soil on earth, Prof Schnitkey forecast a net loss after land costs of $36 per acre from corn this year with corn prices higher than they are today.”

Meanwhile, Jacob Bunge, in an article today at The Wall Street Journal Online, quoted Cargill chairman and CEO David MacLennan as saying, “Barring weather events, we don’t anticipate a near-term improvement in market conditions for agriculture.”

The Journal article pointed out that, “A global surplus of major crops has kept prices low, pushing U.S. farmers’ incomes to the lowest level in more than a decade and forcing them to scrutinize spending on seeds, sprays and tractors, which is posing a challenge for Farm Belt mainstays like DuPont Co., Monsanto Co. and Deere & Co.”

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