With what appears to be another exceptional corn harvest headed our way, you might think farmers would be shopping for new trucks and planning pricey vacations.
But for many of them — particularly those who rent their farmland — 2014 looks like it’s bringing too much of a good thing.
It’s a simple case of supply far exceeding demand, with corn prices rapidly falling to the point where growers may actually lose money, despite having fields bursting with corn.
“A lot of crop producers are nervous,” said Pat Westhoff, director of the University of Missouri Food and Agricultural Policy Research Institute. “They didn’t expect prices to fall as much as they have.”
Indeed, industry observers knew a correction was coming after several years in which rising demand and poor weather shoved prices into record territory, topping $8 a bushel in 2012.
Last year, prices slipped below $5 a bushel. And now the U.S. Department of Agriculture is suggesting the price could drop as low as $3.65, with some observers worried it could go even lower.
The problem is that many farmers can’t sell corn at that price and make a profit. It varies from farm to farm, but typically a grower who rents land needs to make about $4 a bushel to pay for seeds, fertilizer, herbicides, fuel, equipment depreciation and rent.
The picture is better for those farmers who own their land. That brings production costs closer to $2 per bushel. But experts say most large operators rent half or more of the land they farm.
So those farmers are in the uncomfortable position of watching as mild weather and strong harvest forecasts push prices ever lower.
It’s a far cry from the 2010 to 2012 stretch, when rising demand and drought pushed prices upward. The drought of 2012, in particular, hammered fields, reducing the national average yield to around 120 bushels per acre — well below last year’s harvest of more than 160 bushels per acre.
“People who had a decent crop that year actually made some money,” Westhoff said payday loan.
Some farmers have insulated themselves, somewhat, from this year’s price plunge by using advance contracts — agreements to sell corn at a set price. It’s a gamble than can pay off in this situation for farmers who agreed to such deals when prices were still above $5 a bushel.
“If they haven’t already sold it, there’s not much they can do,” said Darrel Good, an agriculture economist at the University of Illinois at Urbana Champaign.
One of the few options is to store the corn instead of selling it at losing prices.
It’s an option that can work, but one that has its drawbacks, said Jim Stuever, president of the Missouri Corn Growers Association.
Stuever, who farms 1,000 acres near Dexter, Mo., plans to store some of his corn this year, even though there’s no guarantee prices won’t slip even further.
And more importantly, he said, “That doesn’t create cash flow.”
That can make it tough when it comes time to pay land owners, seed merchants and other suppliers before the next planting season starts.
“They are businesses just like we are,” Stuever said.
Farmers do have a safety net, of sorts, in the form of crop insurance and subsidies provided by the farm bill passed by Congress earlier this year.
Crop insurance kicks in when yields or revenues drop 25 percent below a farm’s average. The farm bill subsidies are triggered by corn prices falling below $3.70 a bushel over an extended period — though it’s unclear whether those prices will fall low enough to trigger that.
Regardless, farmers are left worrying over how they will cope with the coming years, if things don’t change.
“If we have prices below $4 for several years running, we’d have a very different world than they thought they were in,” Westhoff said.