Daily Report for Executives provides in-depth coverage of unfolding legislative, regulatory, and judicial news from the nation’s capital, the states, and around the world. This daily news service...
By Casey Wooten
Aug. 30 — The Agriculture Department came to the rescue of dairy farmers when it announced Aug. 23 that it would purchase $20 million in stockpiled cheese, but that is not the only commodity suffering rock-bottom prices.
Record-breaking yields are sending corn and soybean prices downward to decade lows, affecting credit conditions in farm states and dragging down the broader agricultural economy.
“This year will be a record crop for corn, but that’s building on record crops over the last three years as well,” Chad Hart, associate professor of economics at Iowa State University in Ames, told Bloomberg BNA. “So you are looking at four years of incredible production, and oversupply has driven prices down.”
Demand has been strong, Hart said, but not enough to outstrip record crop yields.
“When we look at the demand side of the market, usage has been really good,” he said. “In fact it’s projected at record levels as well, but just so much supply overwhelms the market.”
U.S. corn supplies are projected to hit a record 16.9 billion bushels for the 2016, up 1.5 billion bushels compared to the prior year, the USDA said in an Aug. 12 agricultural estimate.
That's sent corn prices tumbling to steep lows. Corn futures hovered around $3.30 per bushel on Aug. 26, down from highs of more than $8.00 per bushel in August 2012, according to data from Bloomberg.
Soybeans futures are off of their August 2012 highs of about $17 per bushel, down to about $9.70 on Aug. 26 this year. USDA projects a record soybean supply of 4.3 billion bushels for 2016.
For farmers, those are grim numbers, and after three years of low prices many are looking to trim costs, Hart said.
“We have seen farmers cut back on their expenses as best as they can to try to bring costs down to, if you will, match the lower prices that they are seeing,” Hart said. “We’ve seen them try to reduce their ag input, reduce their seed cost, reduce their uses of fertilizer and pesticides and herbicides where they can.”
The drop in spending is having an impact across the industry.
In an Aug. 19 quarterly earnings report, Deere & Co., the maker of John Deere tractors based in Moline, Ill., projected that U.S. and Canadian agriculture equipment sales would decline by 15 percent to 20 percent industry-wide in 2016, compared to the previous year. That drop reflects the impact of low commodity prices and weak farm incomes, the company said.
Successive years of low crop prices have led some farmers to do the only thing they can to boost income: plant more crops, Steve Apodaca, senior vice president in Washington at the American Bankers Association's Center for Agriculture and Rural Banking, told Bloomberg BNA.
“The problem with that particular tactic is that if your margin is not improving in terms of reducing costs, then you are not going to have higher farm income,” he said.
The financial strain can have an impact on credit conditions within the farm economy.
Farm loans in the Midwest with “major” or “severe” repayment problems increased in the second quarter of 2016 to levels not seen for over a decade—about 4 percent and 1 percent of all farm loans, respectively—the Federal Reserve Bank of Chicago said in an August study of agricultural credit conditions in the bank's district.
Federal credit assistance is tightening as well.
The USDA Farm Service Agency's direct and guaranteed loan programs began to run dry on their $2.7 billion combined funds for 2016 in July. Those programs provide direct financing or guarantee a large portion of private agricultural loans for capital expenditures like livestock, farm equipment, feed, seed or insurance.
The House and Senate Appropriations committees approved fiscal 2017 agriculture spending bills (H.R. 5054, S. 2956) that would raise those combined funds to $2.9 billion, but industry says it needs more money.
A consortium of banking and agricultural groups sent a letter to lawmakers June 2 asking Congress to provide $16.5 million in additional funding.
Apodaca said bankers are reaching out to farmers before this year's harvesting season to help them review their budgets. Some may need to rework their loans by putting up additional collateral, looking for additional liquidity or selling assets to raise capital, Apodaca said.
“We will definitely know as soon as this harvest comes in where everybody is at,” Apodaca said.
To contact the reporter on this story: Casey Wooten in Washington at email@example.com
To contact the editor responsible for this story: Heather Rothman at firstname.lastname@example.org
Text of the USDA agricultural estimate is available at http://src.bna.com/h5q.
Text of the Deere & Co. quarterly earnings report is available at http://src.bna.com/h5r.
Text of the Chicago Federal Reserve Study is available at http://src.bna.com/h5t.
Text of the letter to lawmakers is available at http://src.bna.com/h5u.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)