Friday, July 25, 2014

Low Commodity Prices Cause Worry In Corn Belt

Wall Street Journal:
Tumbling corn prices are sowing fears that many U.S. farmers will suffer their first losses in years and the agricultural economy could face its first sustained slump in a decade.
Corn prices have plunged nearly 30% in the past three months to their lowest point since 2010 as near-perfect weather in the Midwest fuels expectations of a second consecutive bumper harvest. Prices of other crops have fallen sharply as well, with soybeans trading near 2½-year lows and wheat near four-year lows.
But the slide in corn prices is expected to cut sharply into overall incomes in the U.S. Farm Belt because corn is the country's largest crop, grown on 350,000 farms and yielding about $60 billion in farmers' revenue last year.
Now 57% off its record high in 2012, corn is trading well below the $4-a-bushel threshold generally required for farmers to earn profits. That means many growers this year likely will fail to cover their costs for the first time since 2006, according to agricultural economists.
Signs of strain already are evident in the Midwest. Farmland values in some regions have begun to dip after a yearslong boom, and demand for farm equipment has slipped. DeereDE -1.05% & Co., the world's largest seller of farm equipment, reported a 9.5% decline in its second-quarter profit in May and said U.S. sales of farm and landscaping equipment would decline between 5% and 10% this year. Sales of tractors, seeds and other farm supplies are expected to suffer further as farmers keep dialing back spending.
"A lot of money has evaporated," said Matt Bennett, who farms 3,000 acres in Windsor, Ill. "It's going to be hard not just on farmers, but also the guys who build sheds" and "sell pickup trucks."
Mr. Bennett, 39 years old, said he expects to make a profit this year because he already sold about half his expected crop for about $5 a bushel. But "margins will definitely get squeezed" and 2015 could be much tougher, he said.
The article goes on to say the bankers and economists think this time is different, and there won't be a big bust because farmers aren't heavily in debt.  I guess we'll find out if they are right.

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