Farm income tumbles as crop, livestock prices stumble
It could be the agriculture equivalent of rolling snake eyes: Crop and livestock production in the Midwest and the U.S. are both suffering financial losses simultaneously, a rarity.
And those shortfalls are causing farm income to stumble yet again.
Typically, low prices for corn and soybeans means reduced expenses and improved profits for hog, cattle, chicken and other livestock producers.
That's not happening, and massive supplies are to blame, said Chad Hart, an Iowa State University agricultural economist.
"It doesn't matter where you look in U.S. agriculture right now, we've got tremendous supply of crops, of livestock. And that overwhelming supply has helped drive prices down," Hart said.
U.S. farm income this year is projected to drop 17.2 percent over last year to $66.9 billion, a U.S. Department of Agriculture report this week shows.
It would be the third consecutive year U.S. farm income has tumbled, dropping to levels not seen since 2009. The projected income would be about 46 percent lower than its peak in 2013.
Prices for crops such as corn and soybeans could be stabilizing, Hart said, with cash receipts forecast to be basically flat compared with 2015 at $186.5 billion.
Livestock receipts, however, are expected to fall 12.3 percent to $166.4 billion, with cattle receipts falling nearly 15 percent.
Stats like those are creating financial stress across Iowa, an agricultural powerhouse. The state leads the nation in pork, egg and corn production; is second in soybean production; and is fourth in beef production.
"This cycle is probably the worst that many producers have seen," said Matt Deppe, CEO of the Iowa Cattlemen's Association. "Losses are declining, but they still range from $100 to $200 a head."
Jim Plagge, CEO of Bank Iowa Corp., said cattle producers are getting hit the hardest.
"It's not been a good year for cattle. It's not been a good couple of years," Plagge said, adding that hog producers also have seen losses, but not as large as those in the cattle industry.
"There's been pain in both livestock sectors," he said, adding that the egg industry also is suffering from low prices.
"The high prices we experienced in all those sectors sparked more production, and now we're paying the price," Plagge said, adding that exports, the strength of the U.S. dollar and other factors also have played a role.
Strong corn and soybean harvests in Iowa will help farmers financially this year, Plagge said. Both crops are expected to set new records this year, based on projections.
"Our customers are feeling a little bit of a sigh of relief, although it's still tight," he said. "Expenses still have not come down with commodity prices."
"That's one of the few upsides we're seeing," said Brian Jones, who raises corn, soybeans, and cows and calves near Greenfield in southern Iowa.
"It's was extremely variable. Some fields were below average, and some were record-setting," he said. "Those volumes will help offset extremely low prices.
"The majority of us will probably still find ourselves below the break-even point," Jones said.
Corn is nearly 60 percent lower than highs set in 2012, a drought year, but soybeans have shown recent strength, down only 40 percent.
Nationally, debt for operating expenses, farm machinery and other non-real estate costs are forecast to climb to $148.7 billion, but debt-to-equity, an indicator of financial health, continues to be near record lows.
"We're still expecting financial stress," with farmers' short-term cash positions deteriorating, Plagge said. But "those concerns aren't as severe as they would have been without the yields."
Plagge and Hart said profits netted when prices were strong, both in crop and livestock production, should help farmers weather what could be another year or two of financial struggles.
"The majority of agricultural producers are hurting. They've been cut, but they’re managing" by cutting costs, Hart said.
The USDA report showed production costs forecast to drop 2.6 percent this year.
"The question is: How long will this downturn last?" he said.