Gregory Meyer reported on Friday at The Financial Times Online that, “Surveyors who visited farm fields this month have kicked dirt off their shoes and reached a striking conclusion: the US is on the cusp of record corn and soyabean harvests.

“The government’s first crop production report of the year for the two commodities, released on Friday, suggested no end to a glut that has depressed grain prices, socked farmers’ incomes and weighed on land values.”

From USDA’s Crop Production Report

The FT article stated that, “The US is the world’s biggest producer of corn and soyabeans. This autumn its farmers are set to harvest 15.2bn bushels of corn, up 11 per cent from last year, and
4.06bn bushels of soyabeans, 3 per cent more than last year, the US Department of Agriculture said. Both figures topped analysts’ estimates.”

Reuters writer Mark Weinraub indicated on Friday that, “The USDA forecast corn yields for Illinois, the second biggest state for production of the yellow grain, at 200 bushels per acre. If realized, that would be 25 bushels per acre higher than in 2015.

“In Iowa, the biggest corn producer, yields were forecast at 197 bushels per acre, up from 192 bushels per acre in 2015.”

And the Associated Press pointed out on Friday that, “Ten states are expected to set new bushels-per-acre corn yields…”

Correspondingly, Donnelle Eller reported on the front page of Sunday’s Des Moines Register that, “Another bumper crop is driving corn and soybean prices ever lower, potentially shorting Iowa farmers of nearly $2 billion in revenue and leading to a third consecutive year of income losses.

“Some experts worry that corn prices at Iowa elevators, already below $3 a bushel, could plummet to $2.30 to $2.50 a bushel, levels that most farmers in the state haven’t seen in a decade.”

Ms. Eller added that, “New projections from the U.S. Department of Agriculture on Friday show that farmers will harvest record corn and soybean crops. The agency said that average corn prices nationally could fall as low as $2.85 a bushel and soybeans could drop to $8.35.”

In related news, the Associated Press reported on Saturday that, “Minnesota’s crop, livestock and dairy farmers are suffering with continuing rock bottom prices for their commodities, driving some into bankruptcy.”

“The number of troubled agricultural loans is rising statewide and the number of farmers offered mediation by lenders is up 20 percent so far this year,” the AP article said.

On Thursday, Wall Street Journal writer Jesse Newman reported that, “The price of farmland dropped across much of the Farm Belt in the second quarter, Federal Reserve reports showed on Thursday, as the global commodity rout weighs on crop prices and farmers’ incomes.

“Prices for good farmland in the Federal Reserve Bank of Chicago’s district, including Illinois and Iowa, fell 1% from a year earlier. In the Kansas City Fed’s district, which includes Kansas, Nebraska and western Missouri, irrigated farmland prices slid 5% compared with year-ago levels and the value of nonirrigated land fell 3%. The St. Louis Fed’s district, which includes parts of Indiana and Illinois, saw the average price of ‘quality’ farmland slip 0.7% from last year.”

Graph from the Federal Reserve Bank of Chicago showing a recent decline in farmland values.

Ms. Newman added in her Journal article that, “Falling land prices point to a continued downdraft in the U.S. agricultural sector after a yearslong boom that drove up crop and farmland prices earlier this decade. Since 2013, U.S. growers have raised bumper corn and soybean crops, helping spur a multiyear slump in commodity prices and contributing to a steep slide in farm incomes. Despite a spring rally in agricultural markets, farmers are on track for their least prosperous year since 2002, with crop prices expected to remain low thanks to benevolent weather that fueled expectations for record harvests this year.”

Recall that recent data from the U.S. Department of Agriculture also pointed to lower farmland values across the country, including Illinois.

Christopher Doering reported last week at the Des Moines Register Online that, “Farmland values and rents paid by producers have fallen in Iowa, but some in agriculture say the decline isn’t big enough to help farmers deal with low commodity prices.

“The Agriculture Department estimated the average price for cropland in Iowa in 2016 at $8,000 an acre, down $200 from a year ago and down $750 from 2014. Farmers renting land in the state are paying $235 an acre, down $15 from 2015, the government found.

“Similar declines have taken place across the country. But the gradual drop in land costs and rents hasn’t been steep enough to compensate for the prolonged downturn in corn, soybean and livestock prices, which have many producers struggling to cover production costs.”

Kelsey Gee reported on Friday at The Wall Street Journal Online that, “Dairy farmers drowning in cheap milk begged agricultural officials on Friday to buy up tens of thousands of tons of cheese to help bail them out.

“Jim Mulhern, chief executive of the National Milk Producers Federation, asked U.S. Agriculture Secretary Tom Vilsack to buy $150 million worth of cheese to protect struggling dairy farmers and provide 90 million pounds of food to needy Americans.”

The Journal article noted that, “Milk prices for farmers have plunged 13% in the past year to around $1.25 a gallon, their lowest point since October 2009, amid a barnyard-wide glut in agricultural commodities from corn to cattle. Favorable weather at home and skyrocketing production globally have pushed down prices on staple grains as well as the milk and the meat of animals that feed on them.”

Ms. Gee explained that, “Dairy farmers have struggled to stay solvent as stockpiles of cheeses from cheddar to feta have swelled in June to a record 1.25 billion pounds. Cold-storage warehouses across the U.S. are socking away millions of pounds of cheese, some of which can be kept frozen for years, as dairy processors hold out for higher prices. In the past, the USDA has made similar purchases of peanuts and of chicken leg quarters after an avian influenza outbreak triggered an export ban that decimated U.S. poultry prices. Officials often distribute such surpluses to U.S. school-lunch programs or food banks.”

“U.S. farmers expanded their herds and flocks two years ago while prices were high and export markets were hot. This year, a strong dollar and growing milk production in Europe has made U.S. dairy products less attractive to foreign buyers. The surplus is filling up U.S. cold storage facilities just as a global commodity glut drags down prices for grains and meats as well,” the Journal article said.

Brad Zwilling indicated today at the farmdoc daily blog (“Slight Decrease in Illinois Farm Real Estate for 2016“) that, “Each year the National Agricultural Statistics Service of the USDA releases estimated average farm real estate values by state. The estimates are based on surveys of farmers from selected geographical areas. The surveys follow strict statistical guidelines. Estimated values maybe revised the following year based on additional information. Revisions may also be made based on data from the 5-year Census of Agriculture. The methodology and timing of the study has changed over time but the statistical information provides some insight as to the changes in farm real estate values from year to year.

“The average Illinois farm real estate values from 1970 through 2016 are listed in Table 1 and graphically in Figure 1. The average farm real estate value for Illinois in 2016 was $7,400 per acre. This includes the value of all land and buildings. The figure was 1.3 percent lower than the 2015 average of $7,500 per acre. The 2016 decrease is the second since 2009 and only the third decrease since 1987. Even with the slight decrease in 2016, Illinois farm real estate values have increased 19 percent in five years and 84 percent in 10 years.”

And with respect to cash rental rates in Illinois, University of Illinois agricultural economist Gary Schnitkey indicated yesterday at the farmdoc daily blog (“2016 Cash Rents and Land Values for Illinois“) that, “On August 5th, the National Agricultural Statistical Service (NASS) released estimates of statewide cash rents and farmland values for 2016. For Illinois, the 2016 cash rent was $221 per acre, down by $7 per acre from the 2015 value.”

Dr. Schnitkey added that, “Corn prices received by farmers averaged $5.07 per bushel in 2010, $6.24 per bushel in 2011, and $6.93 per bushel in 2012. Since 2013, corn prices have been below $4.00 per bushel most of the time. This fall in corn price corresponded to decreases in other commodity prices, and led to per acre revenue being below per acre costs, resulting in the need to reduce costs by about $100 per acre (farmdoc daily September 1, 2015). Some progress has been made in reducing costs: 1) fertilizer prices decreased in 2016 (farmdoc daily June 28, 2016) and 2) capital purchases were reduced which will cause reductions in machinery depreciation over time. Decreases in average cash rents in 2015 and 2016 also aided in reducing costs.

“Still, reductions in costs occurring up to this point do not result in costs being below revenue. Therefore, a continuing need to cut non-land costs and cash rents exists. Recent declines in commodity prices lead to low revenue projections for both 2016 and 2017, further aggravating the need to reduce costs (farmdoc daily August 2, 2016). On average, cash rent decreases in the future must be larger than the $12 per acre decrease that occurred during the last two years if costs are to be below revenue.”

Jim Patrico reported yesterday at DTN that, “If you plan on buying farm equipment soon, also plan on an in-depth discussion with your lender. That’s the gist of what Jerry Lehnertz, senior vice president of AgriBank Farm Credit in St. Paul, Minnesota, told DTN/The Progressive Farmer recently. Sure, loans for farm equipment are available at historically low interest rates, and prices on equipment — especially used machines — are at sharp discounts. But before approving a machinery loan, lenders want to hear more from farmers now than they did a few years ago.

“Reasons are obvious. With lower commodity prices and lower incomes, farmers will have to convince lenders that a new tractor, combine or planter has good potential for return on investment. That contrasts to the recent boom years when some farmers — and maybe some lenders — let exuberance override caution. Lehnertz said: ‘It’s human nature. When times were really good, there was a loss of discipline in putting pencil to paper as to what made sense for return on investment for new equipment.’

“In describing how we got to this point in the farm equipment buying cycle, Lehnertz recalled the recent past. In the mid-2000s when commodity prices spiked, ‘Farmers were aggressive in building their equipment lines, particularly tractors, combines sprayers and planters.’ Investment in machinery ‘per acre or contemplated bushels produced went up pretty dramatically, in some cases 20%-30%.'”

The DTN article pointed out that, “If a farmer financed more equipment during the boom than he now can justify, sizable payments and reduced income could be eating his business alive. ‘We are seeing some operations with pretty large dispersal sales of equipment; some are going out of business,’ Lehnertz told DTN/The Progressive Farmer.

“A more common scenario is that farmers are selling off that ‘extra’ tractor or combine that they bought during the commodity price surge. That will mean some inconvenience and perhaps more time in the field, but many producers can handle that. Of course, the price they get when they sell that extra piece of equipment in a saturated market will be significantly lower than they would like.”

Mr. Patrico added that, “Land values now are holding relatively steady, unlike in the 1980s, Lehnertz said. He expects to see some contraction in land values but not as severe as three decades ago.”