2014 farm incomes to fall
IOWA FALLS – Because farmers’ marketing activity shows that 40 percent of their row crops are sold in the lower one-third of futures price ranges, the main speaker in Iowa Falls told his audience of 220 on Jan. 3 that they need to get reliable advisors and develop a plan for smarter sales of commodities in the next few years.
The speaker was Mark Oppold, the president of the National Association of Farm Broadcasters, speaking at the North Central Crop and Land Stewardship Clinic.
Oppold’s message, trends in agriculture, was supported by Chad Hart, an Iowa State University ag economist, who said the next few years will be tough for marketing corn and soybeans for a profit.
Hart said other countries are now competing for the world corn market, plus he expects the 18 states that just had their best corn harvests on record will return to growing corn in 2014, the supply will be huge and demand for domestic corn will be slow to grow and eat through the large supplies.
As a result he predicts the average corn price farmers will receive for the 2013 crop is $4.14; $4.12 for the 2014 crop and $4.43 for the 2015 crop, while current estimates to produce the 2014 crop are at $4.50 per bushel.
A similar scenario awaits soybean growers, Hart said, predicting an average price of $12.25 for 2013 soybeans; $10.67 for 2014 and $10.52 for 2015’s crop, while estimates say it will cost about $11 per bushel to grow the 2014 crop.
To bring prices back up without major weather-related disasters, he said the U.S. will have to take acres out of crop production, but doubts those states with record yields in 2013 will be pulling back in 2014.
“I think they’ll roll the dice again,” he said.
If those two messages were not enough, Kelvin Leibold, an ISU farm management specialist, told his audiences that 2014 will see cash flow problems for many crop producers, especially younger farmers.
He said he feared that many young farmers will not have the skills to maneuver their finances through low market prices.
“You know a half-million dollars doesn’t go as far as it used to,” Leibold said.
Noting that many farmers used the last three years of historic corn and soybean prices to purchase new equipment, tiled fields, built grain bins in order to lower incomes taxes, he said, “Hopefully these made us more efficient. “But what if we bought a $400,000 house?”
To drive his point home further, he told farmers he found that during 13 farm leasing meetings through the North Central Iowa region, “no one is willing to lower rents.”
Leibold said the farm crisis in the 1980s was a debt problem, not a price problem. However, 2014 and beyond “will be a price problem, not a debt problem, but it will lead to a debt problem.”
And those unskilled in low-profit margin finances will go under, he predicted: “We’re going to see a few farm bankruptcies.”
Leibold told farmers to expect a $200- to $300-per-acre drop off net income in 2014.
He advised farmers to pay close attention to their deferred tax liabilities when figuring their total operating assets so they’ll know their exact operating expenses.
“If (for 2013 growing season) they had $450,000 for farm expenses and family living expenses,” Leibold said as an example, “and (in 2014) they have $150,000, and $50,000 comes off for family living and deferred taxes exceed the remaining $100,000 … well.
“I’m afraid our young farmers don’t understand cash flow and family living expenses, because they think the last five years are normal.”
He recommended producers can get a general idea of how their operations are matching up for the challenges ahead by working through online programs such as ISU’s Ag Decision Maker.
Working through a hypothetical farm finance scenario, Leibold showed that the market value of 2012’s crops and 2013’s was a drop of 13 percent, enough to rip though the available cash of most grain-growing operations.
Livestock will help
When asked about livestock’s part of a farm’s overall income potential, Leibold said he thinks farmers with pigs to sell during the first half of 2014 will see strong profit margins, but those margins will be cut substantially through the second half of the year.
This is due, he said, because the pig crop is currently expanding. Pigs ready for market after this summer will flow into the supply lines and depress prices.
ISU’s Hart said he thinks pork profits will fall in 2014’s third and fourth quarters, but the impact of porcine epidemic diarrhea virus, which has claimed an estimated 30 million pigs from the current supply, will have some impact.
Concerning cattle, profitability is locked in all year since the industry “is at least a year away from rebuilding from the 2012 drought and the high feed prices from the last few years,” Hart said.
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