The Farmer's Exchange Online Home
Friday, December 7, 2018
Michiana's Popular Farm Paper Since 1926
Click here to start your trial subscription!

Hurt: Pain Will Cause Costs to Fall

by Jerry Goshert

Published: Friday, September 23, 2016

Purdue University agricultural economist Chris Hurt came to Goshen last Thursday with a message about the farm economy: "Something's got to give."

With bumper corn and soybean crops forecast, farmers will have more bushels to sell. But with crop prices lagging below the cost of production, those extra bushels won't be worth as much.

Hurt said the farm economy is nearing the middle of a five-year stretch in which costs are higher than revenues. Currently, farmers are earning almost $600 per acre on a corn-soybean rotation, while the cost of production is $718 per acre.

Back in 2012, when crop prices were high, farmers were earning $824 per acre while costs averaged $707.

The apparent solution to this problem, Hurt said, is for crop prices to return to their 2012 level, but that's not likely to happen with record corn, soybean and wheat yields this year. Corn yields are expected to average 186 bushels per acre in north central Indiana and 184 bushels per acre in northwestern Indiana, both of which are all-time highs. In northeastern Indiana, corn yields are expected to be 175 bushels per acre, while the statewide average is forecast at 185 bushels per acre.

Soybean yields in Indiana are expected to average a record 58 bushels per acre. All sections of central and northern Indiana will see record yields, according to the most recent USDA forecast.

Nationally, U.S. farmers are expected to produce 15.1 billion bushels of corn this year, the most ever. Soybean production will rise above 4 billion bushels (4.20 billion bushels) for the first time in history.

Rather than prices going up, Hurt said the best chance for improved margins is for costs to come down.

"One thing we do know from the marketplace," Hurt said, "that is, if there's enough financial pain, things will eventually adjust."

Hurt expects to see a gradual pullback in farmland values and cash rent prices. According to Purdue's own survey, farmland values reached a peak of $7,976 per acre in 2014. They are now at $7,041 per acre and are expected to decline further, reaching $6,020 per acre in 2019.

Next year, cash rents will decline by 4 percent to 6 percent, he said. The current cash rent price for average farmland in north central Indiana is $202 per acre, down 11 percent from 2015.

Statewide, cash rent prices declined 10.9 percent from last year, averaging $204 per acre on average ground. The 2017 cash rent average is pegged at $194 per acre. By 2019, the average price for rented cropland will be $186 per acre.

Other declines are expected in fertilizer, machinery, family living expenses, fuel and interest.

Combined with improving corn prices that are $3.80 and $3.85 per bushel in 2018 and 2019, lower costs will put crop farmers near the breakeven level by 2019, Hurt said. The 2016 marketing year average price for corn, according to USDA, is $3.20 per bushel ($3.30 in Indiana), the lowest point in the five-year period. Next year, corn prices will rise to $3.60 per bushel.

The best marketing opportunity for the 2016 corn crop will likely occur between March and June, when corn prices will trade in a range between $3.49 and $3.66. On the other hand, prices at harvest (October) will be $2.99 per bushel.

According to the USDA forecast for soybeans, farmers will see harvest lows at $8.59 per bushel in October, rising to $9.59 in February, and peaking at $10.38 in July. The marketing year average price will be $9.05 ($9.20 for Indiana).

Hurt said he believes USDA's soybean estimates are too low. He expects the harvest low to be near $9, not $8.59.

He added that the net returns for on-farm storage favor corn over soybeans.

According to Hurt, the good news is that losses will gradually decline during the five-year period. Revenue minus costs (per acre for a corn-soybean rotation) for the period of 2014 to 2019 are: 2014, -$57; 2015, -$110; 2016, -$33; 2017, -$49; 2018, -$25; and 2019, -$6.

Hurt advises farmers to work with their lender on a three- to five-year plan, seek additional income, lower costs, cut family living expenses and reduce capital purchases. Also, if renting land, seek reduced cash rents from your landlord.

Return to Top of Page