Record Corn, Soybean Yields Drive Price Declines

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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.”

corn futures
Oversupply, Steady Decline

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.

Credit Conditions

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 cwooten@bna.com

To contact the editor responsible for this story: Heather Rothman at hrothman@bna.com

For More Information

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.

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