2017-09-07 / Business News

MONEY & INVESTING

Falling prices of corn and soybeans hurting farmers

The last four years have been a boom time for the U.S. economy. We’ve seen positive GDP growth, a rising stock market, a skyrocketing housing market and rising wages. But unfortunately, one group has not shared in the prosperity of the rest of the county — U.S. farmers. Since 2013 when farm income peaked at $131 billion, that number has plummeted to half that amount. So why are farmers struggling while the rest of the country is experiencing economic prosperity and what does the future hold for food producers?

Producers of commodities, like farmers or miners, often face a catch-22 in their business. When they struggle producing their goods, their costs sometimes outweigh their revenues due to lack of productivity. However, when these businesses are flourishing, they often also have problems, because their competitors are experiencing the same success and the market is flooded with that commodity. At that point, supply out-paces demand and per-unit prices drop, cutting margins.

This is currently what is happening with agricultural goods. There has been a bumper crop of corn and soybeans over the last four years. Last year the grain harvest was a record 15.2 billion bushels of corn and 4.3 billion bushels of soybeans.

This record production has occurred at the same time of waning demand for these crops.

Consumers have turned away from corn-based sweeteners like high fructose corn syrup. In addition, people are being advised to limit their intake of carbohydrates, which has limited demand for bread and its primary ingredient, wheat. It should be no surprise, then, that the price of wheat has fallen 16 percent.

Farmers have temporarily stabilized farm income in 2017 by selling inventoried grains from their bins as well as the result of higher livestock and milk prices. Specifically, there were a few bright spots this year in this sector. Animal protein demand has risen due to popular high protein and paleo diets. Food items like bacon, chicken wings and dairy products have seen rising prices. For example, chicken and hog prices are expected to be up 15 percent this year with cattle prices up almost 6 percent.

But despite these pockets of strength, farmers are expected to struggle. The USDA expects median farm household income to be $76,800 in 2017, down almost $5,000 from 2014. And the government agency predicts more than half of all farms will actually lose money in 2017 with income being made by non-farm related jobs.

Luckily for most farmers, interest rates are low so debt service payments are currently low. If rates do rise, analysts worry that many farms will be crushed by high mortgage and debt payments. Unfortunately, it may take some farms to go out of business to rebalance the supply and demand of most grains, as technological advances in farming enable farmers to continually boost productivity of existing land.

The other “wild card” with regard to agriculture is global trade. With President Trump threatening to tear up NAFTA, many worry that corn exports to countries like Mexico can be affected. In addition, other significant importers of U.S. agricultural products include Korea and Japan, which may be pulled into an armed conflict with North Korea. A drop in imports from these nations could make a bad situation for U.S. farmers that much worse. ¦

Return to top