Without some major change, margins likely to ‘go negative’ for corn and beans

Jan Shepel

Madison - As farmers get their taxes wrapped up, they are looking back to last year’s financial situation and ahead to what they might expect in the coming year.
            Paul Mitchell, the new Director of the Renk Agribusiness Institute, who has held that position since last summer, notes that many Wisconsin crop farmers are likely to see negative margins on their farms in the coming year. Weather conditions and trading situations could change things, but right now it’s looking like “another bad one,” he said, and he wonders how long it can go on.
            Mitchell, who is an associate professor of agricultural and applied economics and an extension state specialist in cropping systems management, foresees Wisconsin’s average breakeven costs in the $4.20 to $4.60 per bushel range for many corn growers in the state. For state farmers growing soybeans he estimated the average breakeven range at $9.20 to $9.60 per bushel.
Looking at corn and soybean margins for this year, Mitchell said the statistics, averages and production “guesstimates” show that corn will be produced at negative 87 cents per bushel – that is to say 87 cents below the cost of production - and soybeans will come in at negative 33 cents a bushel.
            “Many farmers will experience negative margins in 2017,” he said.
            The final numbers on 2016 farm income were tabulated and showed national net farm income at just under $67 billion, which is down from the neighborhood of $120 billion just a few years ago and about $100 billion a few years before that. “Farmers are financially stressed,” he said, during a recent event at the University of Wisconsin focusing on the 2017 outlook for agriculture.
            Cash receipts for corn have been steadily declining since 2012, the high-water mark for corn prices. Cash receipts for wheat followed corn’s pattern of year-upon-year declines. Soybean growers saw an uptick in cash receipts for 2016, over the much-lower numbers from 2015.
            Mitchell’s figures for dairy showed the well-documented peak in cash receipts in 2014 when milk prices hit highs that made it possible for dairy farmers to start digging out of the hole created by widespread drought. Those deficits on farms were created by lower milk prices in 2012, coupled with sky-high feed costs brought on by the drought. According to the U.S. Department of Agriculture’s Economic Research Service, dairy cash receipts for 2015 were lower than comparable receipts in 2012; 2016 was even lower than 2015.
            In the cattle and calves market, 2014 was also the high point for cash receipts with over $80 billion going to growers in that sector and 2015 was only slightly lower. In 2016 cash receipts in this sector dropped down to levels seen in 2013.
            The federal ARC program, created in the last farm bill, helped many farmers in Wisconsin, Mitchell said. Those payments in 2016 for the 2015 cropping year totaled $198 million for Wisconsin crop producers.
            The ARC payments for 2015 corn (paid out in 2016) included payments to southern Wisconsin farmers from $73 to $92 per acre, he said. Many soybean growers in Wisconsin received program payments of $52 to $76 per acre.
            Crop insurance indemnities paid an additional $8.95 million on corn acres last year, with over $1.7 million on forage crops and $2.4 million for soybeans. There was a total of about $20 million paid for crop indemnities last year – compared to $57 million in 2015 and $457 million in 2012, in the aftermath of the drought.
            One of the things that helped buoy Wisconsin corn growers last year was the bin-busting yields that were produced on state fields. While cash receipts were flat, growers had a record yield of 178 bushels per acre on average, which “broke the state record by a lot,” said Mitchell. “They had so much grain to sell that allowed them to do so much better.” That record yield allowed state farmers to reap an additional $50 per acre more.
            State soybean growers also had a bumper crop with an average statewide yield of 55 bushels per acre – over 5 bushels more than the previous year. “Farms were really helped by the massive yields.”
            Those big crop yields held up, by a little, Wisconsin’s net farm income which came in at $1.95 billion – a 23 percent decline from 2015. Mitchell said the forecast range economists have come up with for this year is a net farm income of $1.71 to $2.1 billion, which would be an 18-33 percent decline from 2015.
            The projected cost to produce versus price will be higher this year for corn and soybeans, he said. In many areas of the Corn Belt, land prices are declining, but that isn’t happening in Wisconsin. “In Nebraska there has been a 7 percent decline in land values but in Wisconsin land values are going up.”
            Farmers are doing what they can to cut back on machinery costs and seed costs, but Mitchell noted that seed prices have not declined. “They don’t come down. The best many farmers can do is to reduce the number of traits.”
            Similarly pest control isn’t dropping in cost for state farmers, he noted. With the rise of more herbicide-resistant weeds the grower has little choice but to find new ways to control them.
            The Great Recession affected farmers’ ability to pay back their loans, he explained, if one or both of the spouses had jobs off the farm and that job was lost due to the floundering economy. Nationally that spiking unemployment led an increase in agricultural loan delinquencies.
            But Mitchell said that despite farmers being stressed in Wisconsin loan delinquencies here are low. “Most are managing it,” he said, “but a lot of the agricultural operating capital and liquidity are gone.” As a result, ag loan demand is up.
            Mitchell’s talk was part of the Renk Agribusiness Institute’s recent Agriculture Outlook Forum, co-sponsored by the Wisconsin Farmers Union, Wisconsin Farm Bureau and UW Extension.

Looking at corn and soybean margins for this year, Paul Mitchell said the statistics, averages and production “guesstimates” show that corn will be produced at negative 87 cents per bushel.