Low Prices Hamper U.S. Agricultural Economy

Emiko Terazono reported today at The Financial Times Online that, “Tough times are continuing for US farmers.

“Rising global inventories thanks to plentiful harvests, the high value of the dollar as well as falling oil prices have meant lower prices for agricultural commodities, weighing on farm incomes.”

The FT article noted that, “‘Persistently low prices for agricultural commodities remained a primary driver of diminished farm income,’ says the Kansas City Federal Reserve, which covers Kansas, Oklahoma and Nebraska, in a report on agriculture and the economy earlier this month.

A survey of bankers by the Kansas City Fed showed that income conditions of farms in the region were the worst since it started compiling the data in 2002. Sustained weakness in corn, soyabean and wheat prices has had ‘a particularly negative effect on farm income’ as they accounted for about 70 per cent of harvested crop acreage in the region, the report adds.”

(Additional Fed reports regarding the ag economy from Chicago and Texas can be viewed here).

Ms. Terazono explained that, “The ongoing weakness in agricultural prices suggests that farm incomes may well remain depressed. With corn trading at $3.65 a bushel, soyabeans at $8.85 and wheat at $4.69, US farmers are staring at prices that are lower than the cost of production…[T]he cost of production for corn is around $5 a bushel in the US corn belt, and at prices of about $3.50 a bushel, growers will cover their ‘variable’ costs such as seeds, fertiliser and land and fixed costs such as rent.

“However, the price means that their overheads are not covered, says [David Widmar, agricultural economist with the Center for Commercial Agriculture at Purdue University in Indiana]. For soyabeans, the production costs are around $12.60, and again, farmers will struggle to cover their overheads, he adds.”

Meanwhile, Reuters writer Meredith Davis reported yesterday that, “The Department of Agriculture has estimated U.S. net farm income will be $54.8 billion in 2016, down nearly 55 percent from 2013.

“That means tough times for Deere & Co and rivals AGCO Corp, CNH Industrial NV and Claas KGaA mbH.”

Yesterday’s article noted that, “Deere and rivals have kept technology investments a priority even as revenue and net income have fallen. But some farmers said the high-tech gear is out of reach. Jon Soeller, 40, bought a new John Deere planter in 2014 for his family farm in Ripon, Wisconsin. He estimates it would cost him $90,000 to $100,000 to upgrade with a John Deere ExactEmerge retrofit kit that would allow him to plant faster and more precisely. ‘It is not worth it to me. I don’t think John Deere knows the price of corn is $3,’ Soeller said. His father will insteadbuy a new grain bin to store crops in hopes that prices rise.”

On the brighter side, Reuters writer Karl Plume reported yesterday that, “Investments in agriculture technology startups surged to a record $4.6 billion in 2015 despite a steep drop in U.S. farm income and slumping profit at farm-affiliated companies such as machinery producers and seed makers, according to a study released on Wednesday.

The investments were nearly double the $2.36 billion seeded by venture capitalists and others in 2014, according to the annual report from online food and agriculture investment platform AgFunder.”

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