Grain Farming Gets More Expensive
Farming has gotten more expensive, according to data from the United States Department of Agriculture (USDA). And as commodity prices take a dip this harvest, many Midwest farmers will be looking to cut costs.
David Widmar, an agriculture economist at Purdue University, said his studies show some grain farms are likely to lose money next year.
“Things are looking pretty tough right now for corn and soybean production. And then when we look into 2015, some of the university budgets are showing negative returns,” Widmar said.
Grain farms are worth more money today than they were a decade ago.
Widmar’s blog, Agricultural Economic Insights, used USDA data to report that, “the market value of crop production in 2012 increased 48 percent over 2007 levels,” thanks mainly to increased demand from China, the ethanol mandate, and crop shortages due to the drought in 2012.
But while many farmers have more cash on hand, their profit margins have been shrinking in recent years because the cost of production has gone up faster than farmers’ earnings.
Widmar said the cost of inputs – land, seed, fertilizer, and chemicals - rose from 81 cents on the dollar in 2007 to 83 cents on the dollar in 2014.
This years’ downturn in corn and soybean prices means farmers are going to have to navigate even slimmer profit margins. Widmar said they’re going to have to have to do more with less to squeeze through the next few years.
“Maybe they can hold back on some of their phosphorous and potassium fertilizers," he said. "Maybe they can cut back their seeding rates on corn and soybeans. Maybe they can hold off on that extra fungicide application.”
He expects farm margins to improve in the long run.
How will all of this impact consumers? Widmar said that since not much corn from a corn farm ends up in your bowl of Corn Flakes, cereal prices won’t fall much. However, corn is a major ingredient in livestock feed, meaning we might see cheaper meat prices in 2015.
A more immediate impact will be on rural communities, who rely on farmers to pump cash into their local economies. With revenues and incomes shrinking, local businesses can expect farmers to spend less money around town.
“We’re going to see the family living expense, the amount of money left over to support the family, is going to get tighter," Widmar said. "So we’re going to see them cut back on that. And that goes anywhere from buying new car, to making improvements to their house, to going on vacation.”
Widmar, who grew up on a grain and livestock farm in southwest Kansas, said in his experience, farmers spend more time worrying when profits shrink.
“It’s tough. It’s stressful," he said. "I think it makes us better managers in the long run. And we spend a lot of time around the table talking about what we need to do and figuring out a way forward.”
He added that it’s not fun, but, “we definitely enjoy times like we’ve had the last several years – the good times - and so we take one with the other.”