Meghan Grebner reported yesterday at Brownfield that, “Purdue agricultural economist Michael Langemeier says corn producers have seen a drop in the price of several inputs. One of those areas is cash rents. ‘In many states – including the I-states, Iowa, Illinois, and Indiana cash rents came down 10 to 15 percent for average productivity land,’ he says.”

Yesterday’s update pointed out that, “Langemeier says fertilizer inputs have dropped, too. ‘Nitrogen, phosphorus, and potash early this September compared to last September were down 20 to 35 percent,’ he says. ‘Depending on which item you were looking at.’

“But, he tells Brownfield – while it’s helped reduce cost of production – it still isn’t enough. ‘We reduced corn costs $50 to $75 – if not a little bit more per acre,’ he says. ‘But we still have another $50 to $75 to go before we get to break even.'”

DTN Ag Policy Editor Chris Clayton reported yesterday that, “While there is often discussion about how the downturn in the farm economy compares to the 1980s, some policies created in the 1980s to help distressed farmers haven’t kept up with the times.

“Joe Peiffer, a bankruptcy attorney from Cedar Rapids, Iowa, highlighted growing complications for farmers under Chapter 12 bankruptcy, a filing status updated in 1986 specifically to help family farmers and small-business fishermen.

“One of the problems with is that farmers in states with higher land values likely don’t qualify for Chapter 12 bankruptcy any longer.  The problem is the debt limit allowed for Chapter 12 caps total debts on the farm at $4,031,150. Too many clients coming into his office looking to restructure debt have too much of it to fit into a Chapter 12 bankruptcy. ‘I’m running that 60% to 80% of the clients who come in are too big for Chapter 12,’ Peiffer said. ‘But they are not too big to fail.'”

The DTN article stated that, “Chapter 12 allows farmers to restructure debt without the formation of a creditors’ committee. Peiffer said such committees ‘can be notoriously difficult to deal with’ in a Chapter 11 bankruptcy. Debt collection stops and the farmers are afforded a change to put together a payment plan that generally requires three-to-five years to repay for secured creditors.

“While Peiffer said more producers are looking for debt relief, their finding Chapter 12 is becoming a bigger problem, not just because of the debt limit, but also because of Supreme Court ruling. The numbers in recent years somewhat bear that out.”

Mr. Clayton explained that, “Chapter 12 generally allowed farmers to claim ‘any tax … incurred by the state’ as a dischargeable, unsecured liability. But the IRS pushed a challenge on a case in which the farmers filed for bankruptcy, then sold their farm. The IRS won a 2012 U.S. Supreme Court case by splitting hairs defining taxes generated by the individual farmer and the estate created by the bankruptcy filing.

“The Supreme Court declared, in a 5-4 case, that capital gains on a farm liquidation cannot be discharged. (This change affected most business bankruptcies, by the way, not just farmers).

“Essentially, the Supreme Court ruling forces that any taxes waived under Chapter 12 must have been incurred on a farm in the year before a farm files for bankruptcy. Otherwise, the taxes remain outstanding.”

Yesterday’s DTN article added that, “Peiffer stressed that Congress needs to reverse the impacts of the Hall case so producers aren’t stretching into rapid liquidation while also stretching their operations into the next calendar year before they file bankruptcy. Further, the $4,031,150 debt limit for Chapter 12 needs to be changed or farmers in several states simply are going to have too much [debt] to qualify for filing under Chapter 12.”

A recent update by Jessica Domel, of the Texas Farm Bureau, included some interesting points that House Agriculture Committee Chairman Mike Conaway (R., Tex.) made regarding the next Farm Bill.

Specifically, yesterday’s update noted that, “[Chairman Conaway] already has his eyes set on 2018 and the potential a new farm bill may bring.

“With farm sector profitability forecast to be down for the fourth straight year, Conaway says it’s important, now more than ever, for farmers to have a working farm safety net.

“‘The three-year average drop right now is about 55 percent, which is the worst three-year average since before the depression,’ Conaway said. ‘It’s hard times, and quite frankly, no one that I’m talking to expects commodity prices to recover within the next couple of years. The USDA is not projecting a recovery of prices, so this could be an extended hard time for folks in production agriculture.'”

Ms. Domel explained that, “Seeing the struggles farmers, ranchers and dairymen face will make it difficult for naysayers to say farm safety net programs aren’t needed, [Conaway] said.

“‘We’re going to be working hard to get the farm bill done on time before it expires,’ Conaway said. ‘There’s no reason to go through the drama of short-term extensions or expirations. We’ll be making the rounds formally in 2017 asking farmers what’s working and what’s not working.'”

The Texas Farm Bureau update added that, “In 2018, he hopes to revisit cotton farmer support programs, whether that’s through cottonseed or lint.

‘Something has to happen there,’ Conaway said.”

For more background on issues associated with cotton and the Farm Bill, see this BartellPowell update from February, as well as this BartellPowell update from July.

University of Illinois agricultural economist Gary Schnitkey indicated yesterday at the farmdoc daily blog (“Working Capital Buffers Gone at End of 2016“) that, “As was forecast, working capital on farms decreased during 2015 (see farmdoc daily, October 6, 2015). Given 2016 income prospects, further decreases in working capital should be expected. At the end of 2016, most of the working capital reserves built during high-income years from 2007 to 2013 will be gone. Working capital levels will again be at levels comparable to 1996 through 2006. In 2015 and 2016, working capital reserves were used to fund cash flow shortfalls coming from operations. If prices remain low through 2017, means other than reducing working capital likely will be needed to address cash shortfalls.”

Yesterday’s update noted that, “From 1996 to 2006, low profit margins existed on most Illinois farms, and the current ratio averaged 1.76 (see Figure 1). Between 2006 through 2012, the average current ratio increased, reaching a high of 2.87 at the end of 2012 (see Figure 1). From the 2012 high, the current ratio decreased: 2.49 at the end of 2013, 2.28 in 2014 and 2.05 in 2015.”

“Changes in these current ratios are highly correlated to net farm incomes (see Figure 2). During the period between 1996 through 2002, net income averaged $39,000 per farm on grain farms enrolled in FBFM. During this same period, the current ratio averaged 1.72. Net incomes were higher in 2008 to 2012, with increasing net incomes from 2010 through 2012. The highest net income of $298,000 occurred in 2012, the same year that the current ratio hit its maximum of 2.87. Since 2012, incomes have decreased and current ratios have decreased as well. The correlation coefficient between average net farm income and the current ratio is .88.”

Dr. Schnitkey explained that, “Incomes will be low in 2016; however, most farmers will have the financial reserves to deal with cash shortfalls. Many farmers will again reduce working capital.

“However, working capital reductions could present issues in the future. After the end of 2016, many farms will not have large working capital reserves compared to historical levels. If 2017 is a low-income year, cash shortfalls will again occur. Working capital reserves may no longer be large enough to cover cash shortfalls. Farmers may have to use other methods of meeting cash shortfalls including 1) refinancing short-term debt into longer maturity debt and 2) liquidating assets. Lenders may seek FSA guarantees for operations that are becoming financially questionable.

“A gauge of whether low incomes will continue are commodity prices. As long as corn prices remain below $4.00, working capital and financial situation on grain farms in the Midwest can be expected to deteriorate.”

Donnelle Eller reported in today’s Des Moines Register that, “A panel of farm leaders explored how much further rents and land values will fall, how growers will fare in growing mega mergers mania, the ag economy and other issues at the Iowa Bankers Association’s annual convention in Des Moines on Monday.”

The Register article indicated that, “Even though farmland values have fallen — nearly 9 percent over the past year, according to a new survey this month — tight supplies, low interest rates and investors looking for alternatives to the stock market have help slow price declines across the state, experts said.

“‘We’re really puzzled why people pay what they’re paying’ for farmland in some areas, [Bruce Rastetter, CEO of Summit Agricultural Group, a diverse farming and investment business in north Iowa] said, even with investors wanting to jump out of the stock market.”

More specifically with respect to cash rent issues, today’s article stated that, “Typically, on Sept. 1, landowners terminate Iowa farmland leases to negotiate higher rents, [Steve Bruere, president of Peoples Co., a Clive farm management and real estate group] said.

“‘This is the first time in our farm management business that we’ve seen farmers terminate the lease’ to negotiate lower rents, he said. ‘A lot of it was driven by conversations with lenders, who said, ‘Hey, are you going to lose money or make money? Are you entering the year with an expected loss?’

“‘This is the fourth year we’ve been in that environment. With liquidity drying up, those conversations have gotten a lot more real.

“‘The days of $400 and $500 (an acre) rents are over,’ he said.”

Reuters writer P.J. Huffstutter reported on Friday that, “Glyphosate, the key ingredient in Monsanto Co’s Roundup herbicide, is not likely carcinogenic to humans, the U.S. Environmental Protection Agency said on Friday as it outlined its current position on the controversial chemical.”

The article noted that, “The EPA’s ‘proposed‘ position on glyphosate was outlined in a 227-page paper it published on the regulations.gov website, which the EPA manages.

“After reviewing the available data, the paper states, ‘The strongest support is for ‘not likely to be carcinogenic to humans’ at doses relevant to human health risk assessment.'”

Ms. Huffstutter added that, “The EPA said on Friday that it expects to publish its final assessment of glyphosate in the spring of 2017. Previously, the agency had said the review could be done by the end of this year.”

Bloomberg writers Pablo Rosendo Gonzalez, Andy Hoffman and Javier Blas reported on Thursday that, “The head of Louis Dreyfus Co., one of the world’s top-four food-commodities traders, said that agricultural prices will remain low into 2017 as farmers around the world harvest bumper crops.

“‘Prices for wheat, corn, soybean will continue going down,’ Dreyfus Chief Executive Officer Gonzalo Ramirez Martiarena said in an interview in Buenos Aires this week. ‘Corn yields are so good, productivity is so high in the U.S. that they keep planting despite low prices.'”

The Bloomberg article stated that, “The views of Dreyfus, as the company is known, and its rivals, including Archer-Daniels-Midland Co., Bunge Ltd., Cargill Inc., are closely followed by commodity investors because their trading relationships give them insight into global supply, demand and inventories trends. The four are known as the ABCD of food commodities for their initials.”

Last week’s article added that, “Ramirez is trying to steady Dreyfus amid lower crop prices and reduced price volatility. He announced plans earlier this year to seek joint-venture partners for businesses including orange juice, dairy, metals and fertilizer. In March, the closely held firm said full-year profit dropped 67 percent to the lowest in a decade.”

Todd Kuethe and Jonathan Coppess, from the Department of Agricultural and Consumer Economics at the University of Illinois, indicated in a farmdoc daily blog update yesterday (“Mapping the Farm Bill: Farm and Farm Operators“)  that, “In previous articles, we explored the political footprints for the major commodities that form the coalition that drives the development of U.S. farm policy (see, farmdoc daily August 11, 2016 and August 25, 2016). In this article, we add further perspective on farm policy and politics by examining the number of farms and farm operators within the overall footprint for the traditional farm coalition of corn, cotton, and wheat.

“The Census of Agriculture is a national account of all U.S. farms, ranches, and operators conducted by USDA. The Census is taken every five years and provides valuable information on land use and ownership, operator characteristics, production practices, income, and expenditures. For many pieces of information on the farm sector and the rural economy, the Census serves as the only source of detailed locational information, such as county and Congressional district level estimates. The most recent Census of Agriculture was conducted in 2012.

“According to the 2012 Census of Agriculture, the United States is home to 2,109,303 farms.  The Census defines a farm as any place from which $1,000 or more of agricultural products were produced and sold, or normally would have been sold, in the reference year. The distribution of farms across Congressional districts (114th Congress) is shown in Figure 1. As expected, farms are heavily concentrated in the Great Plains, Midwest, and Mississippi Delta regions.”

Figure 1

Kuethe and Coppess added that, “The number of farms, however, is only one part of the picture for the farm coalition. Each farm recorded in the Census likely impacts the livelihood of several individuals. All of politics eventually boils down to votes and voters; therefore, a fuller picture of the political strength of the farm coalition requires an indication of the potential voters in the footprint. Accordingly, we examine the distribution of farm operators by Congressional district as a measure of potential votes in Figure 2.”

Figure 2

Yesterday’s farmdoc daily update concluded by stating that, “Mapping the number of farms and farm operators adds perspective to the political footprint of the traditional farm coalition. Nearly two-thirds of farms and operators in the U.S. are located within the major producing counties and Congressional districts that make up that footprint. This helps highlight the importance of farm policy to the Members of Congress representing those districts, as well as the relative importance of those districts to farm policy. The number of farms provides an indication of the economic importance of farming to the Congressional district, while the number of operators provides an indication of the political importance of farming to it. This understanding could be enhanced further by comparing this information to other data for those districts, such as other economic drivers, total number of voters and the percentage of total voters.”