Expected record harvest won’t profit farmers facing their third year of falling income

Expected record harvest won’t profit farmers facing their third year of falling income
Photo Courtesy: World-Herald News Service

Fields across the Midlands are packed with copper-colored cornstalks, an expected record-size crop drying in the breeze as the fall harvest gets underway.

But there’s a worry underlying the satisfaction of the Grain Belt’s huge haul of corn and soybeans: It will add up to little or no profit for many farmers. This will be the third straight year of falling income for farmers, coming after boom years in 2011, 2012 and 2013.

Corn prices have fallen by more than half from their all-time high in 2012, to around $3.31 a bushel. Soybeans have fallen almost as much from their high in 2012 of more than $17 a bushel to around $9.50 a bushel.

Those price declines come as farmers face flat or rising costs for their “inputs”: fertilizer, chemicals and the like. As a result of that one-two punch, many already have cut back on business and household costs. They’re spending less in town on machinery, and on family expenses like food, clothes and health care.

Now, some who work with the industry say they expect to learn in the next six months whether serious financial trouble could be on the horizon for farm families and Nebraska’s and Iowa’s ag economies.

And it’s not just farmers who would be affected by another down year in farm income: The region’s economy — from the corner store to ConAgra Foods — runs to a good extent on agriculture. Trouble on the farm means less business for area businesses and a dip in state tax receipts.

Already, Nebraska officials are nervously eyeing farm income, wondering whether a dent in state taxes collected could mean cuts in state programs.

The worry over farm income is also felt on the farm.

“There’s definitely a nervousness,” Webster County farmer Diane Karr said, especially for farmers who have more debt or otherwise aren’t as prepared to weather falling income.

“How long can they stay on?” she said. “How long can they continue to find ways to manage?”

Farmers like Gary Jurgens, 64, who harvested corn last week near Odell in Gage County, said they’ll manage thanks to recent good years that will carry them through the bad.

This year, though, “I don’t think we’ll make any money,” Jurgens said about his crop of 2,500 acres of corn and 2,500 of soybeans.

Nebraska’s farm crisis hotline is getting a growing number of calls from farmers and ranchers in financial distress, looking for accounting help or mental health counseling.

An Omaha agricultural law attorney said he’s getting more calls from clients who have been denied credit, or are exploring alternatives to liquidation.

“Financial distress as an issue in farming and ranching operations has re-emerged this year,” said the attorney, Joe Hawbaker. Still, he said, it hasn’t reached proportions that he would consider alarming.

The industry will know more, Hawbaker said, when this year’s crop is in, debts have been paid, and operators study their balance sheets and determine their need for credit next year.

“This winter will be very telling,” he said.

Net farm income for the nation is expected to be down 11.5 percent this year, to the lowest level since 2009, the U.S. Department of Agriculture said, with big drops in receipts of both animal products and crops.

Farm bill payments, forecast to increase 25 percent this year, will partially offset revenue losses, Agriculture Secretary Tom Vilsack said in August. Federal subsidies shield farmers from a drop in either prices or revenue by making payments, up to a limit, if price or crop yield falls below set levels.

Vilsack said key measures of farm financial health are still strong: the amount of farmers’ debt when compared with both assets and net worth.

And farmers’ total household income, including off-farm jobs, also is near historic highs, he said, and those extra earnings will stabilize losses for rural families.

Still, the outlook for Nebraska’s agriculture industry is “pessimistic” compared with neighboring states and with Nebraska data historically, the Federal Reserve Bank of Kansas City said Friday. Farm income and credit conditions in Nebraska both have been worse over the past several quarters than in any period in at least a dozen years, the Fed said.

Conditions got worse in the third quarter, leading to weaker activity among Main Street businesses and slower job growth in rural areas.

Nebraska’s economy relies more heavily on agriculture than neighboring states’, the Fed said. Nebraska has the nation’s largest share of personal income coming from farming, at 5.4 percent.

State officials are worried about Nebraska’s fiscal health, with tax collections coming in below expectations, but said in September they didn’t see a need for a special legislative session to slash the budget. Still, Gov. Pete Ricketts has ordered state agencies to review hiring and limit travel.

Less sales tax is flowing into state accounts from businesses like Mitchell Equipment in Atkinson, a farm implement dealer where sales have fallen 40 to 50 percent from a 2012 high. Farmers and ranchers are reacting to low grain and beef prices by buying less equipment, General Manager Boyd Mitchell said.

The dealer has reduced its inventory but so far has not had to lay off any of its 40-some employees. Mitchell said he hopes that will continue to be the case, but said tough decisions may be on the horizon.

“I hate to be extremely pessimistic, but I would look for things to be really quiet after harvest unless we see some type of rally in commodity prices,” he said. “By mid- to late-’17, if things don’t turn around, is when you’ll really start to see some actions by both the producers and dealers like us.”

Farm supply co-ops and other retailers selling seeds and fertilizer are also affected as farmers spend less and take longer to pay their bills. Denver agribusiness lender CoBank said ag retailers reported that the amount owed to them by customers who bought on credit was up 11 percent in 2015 and expected to grow this year. CoBank called it a warning sign of farmers’ weakening profits and eroding credit quality.

“Farmers are really tightening their belts,” CoBank economist Tanner Ehmke said.

The financial picture varies widely from farm to farm, as each operation has its own level of debt and its own strategy for what to grow, how to grow it, when and where to sell it and at what price.

Kelly Nieuwenhuis, 57, who farms near Primghar in northwest Iowa, said he stands to lose $150 to $200 per acre on the nearly 2,000 acres of corn he farms with family. Meanwhile his father, who is 82 and farms in nearby Paullina, expects a profit, because he’s debt-free after so many years in business.

Nieuwenhuis, who has been active with Iowa corn promotion groups, said they are working to promote trade deals and expand markets for corn and all the products it’s part of: ethanol, cattle feed and more. Corn farmers would rather make money because of a strong market and not rely on subsidies, he said. But this year, some are spending more per acre to grow corn than they’re getting in return.

Why? The record harvest and huge supply of grain are depressing prices, said John Campbell, a managing director at Omaha investment bank Ocean Park Advisors.

Further, the strong U.S. dollar makes U.S. goods more expensive when bought by overseas buyers whose currencies are converted into fewer greenbacks.

Finally, there is a huge back inventory of foodstuffs. China is just now clearing out huge quantities of grain purchased when its record economic growth sent it scouring the world for all the food, fuel and fiber there was for sale, Campbell said.

Consumers have already seen the glut show up at the grocery store, Campbell said, with low prices for processed and packaged protein products like meat, milk, eggs and cheese. So far, though, prices for grain-based products like cereals and bakery products haven’t fallen much, down only about 1 percent from a year earlier, said the USDA’s Economic Research Service.

That’s because the grain part of processed foods is only a fraction of the retail price. (Packaging, distribution and processing cost far more than the raw ingredients.) “For most items you aren’t going to see a one-to-one correlation” between falling crop prices and consumer price, said Bill Lapp, president of Omaha commodities-market consultant Advanced Economic Solutions.

Meanwhile, more grain is about to flood the market. Lapp said the combined 2016 corn, soybean and wheat crop is forecast to be the largest on record, the first time that triple crown has been attained since 1979.

“It will be the greatest crunch we have ever had,” Lapp said.

The paradox, farmers say, is that they won’t be the ones who benefit.