A slide in grain prices will cut US farm income sharply from last year’s record levels, official projections show, signalling an end to boom times in the grain belt.
Net farm income in the US will total $113.2bn in 2014, down about 14 per cent from an estimated $131.3bn in 2013, the US Department of Agriculture said on Tuesday. This year’s total would be the lowest since 2010, in large part due to less revenue from sales of crops such as corn and soyabeans.
Rising production costs and smaller government subsidies in the wake of recently passed farm legislation will also cut profits, the department said.
The retreat is already starting to bite, with soaring land values levelling off in some areas and equipment sales softening.
John Deere, the tractor maker, has blamed more than 1,000 redundancies, announced this month, on what it called “current market demand for its products”.
Agriculture and related industries contribute less than 5 per cent of US output. Falling grain and oilseed prices are likely to temper inflationary pressures at supermarket butcher counters and lift profit margins for many food companies.
But farming constitutes a much larger share of rural economies. Some farmers borrowed heavily to expand during the boom years, when corn prices more than doubled from an average $3 per bushel to almost $7 per between 2006 and 2012. CBOT September corn was $3.54 per bushel on Tuesday, down 1.7 per cent on the day.
“A lot of rural areas will very much feel this,” said Matthew Roberts, an agricultural economist at Ohio State University. “It is less profit turned around and spent in these communities, whether on farm machinery or cars or clothes.”
Grain prices soared through 2012 as extreme weather hurt crop yields from Russia to the US and the biofuels and livestock industries consumed more.
But high prices spurred a wave of planting, not only in the US but in Brazil and the fertile Black Sea region. In the US, the world’s biggest agricultural exporter, farmers this spring planted a record 84.8m acres with soyabeans.
US grain farmers face another challenge as the White House proposes to cut an ethanol fuel mandate that added nearly 3bn bushels to corn demand since 2006.
US farmland prices grew more than 8 per cent between 2013 and 2014, but gains are slowing.
“We were going up at rates that weren’t sustainable,” said Mike Duffy, an agricultural economist at Iowa State University, who said a 10 per cent decline would not be surprising.
Most economists do not fear a correction that would snowball into the kind of foreclosure crisis that swept farms in the 1980s. Farms’ ratio of debt-to-assets would remain at a historically low 10.8 per cent this year, USDA said.
“It’s had a great run, but all great runs end,” said Mitch Kasper of Midwest Ag Investors, who buys land for rental to farmers. “I’m comfortable sleeping at night knowing there’s billions of people who need to eat tomorrow morning.”
(Source – http://www.blackseagrain.net/novosti/grain-prices-slide-to-cut-us-farm-incomes)