WOOSTER, Ohio — For the second consecutive year, farmers will be feeling the pinch when it comes to their pocket books.
Just two years ago, in 2013, farmers experienced some of the best commodity prices they had ever seen, but, as Isaac Newton so famously put it, “what goes up, must come down.”
“Ag economy is known for its peaks and valleys,” said Jayson Harper, an ag economist at Penn State University. “There are natural cycles and we are hitting a low one.”
The abundance of grain left over from last year’s crop and this year’s anticipated harvest of the third largest corn crop and second largest soybean crop on record are keeping prices below the cost of production, while the cost of seed, fertilizer and land has dropped only slightly.
By the numbers
According to the 2015 Farm Sector Income Forecast released in August by the USDA, net cash income is down 21 percent from 2014 while cash production expenses are only down 1.1 percent.
Net farm incomes are forecasted to be down 36 percent from last year, the lowest since 2006 and a nearly 53 percent drop from the record high farmers experienced in 2013.
Crop receipts are expected to decline by 6.2 percent — led by a $7.1 billion projected decline in corn receipts — and livestock receipts are forecasted to decrease by 9.1 percent, led by lower milk and hog prices.
The pinch will translate into many farmers having to dip into savings or increase borrowing. Farm debt is expected to increase by 5.8 percent.
Government payments including crop insurance, price support programs and disaster relief to farmers are projected to rise 16 percent.
For the first time since 2009, production expenses are expected to decline — although less than a half of a percent. Production expenses had increased by 8 percent annually from 2010 to 2014.
What does this mean?
The outlook on farm income looks a bit dismal for the next few seasons, but it is not a sudden downturn, explained Harper. The most recent (August) reports released by the NASS have just recaptured the farmer’s attention.
Barry Ward, an ag economist with Ohio State University and leader of Production Business Management with OSU, said that these numbers will reflect much tighter margins for grain farmers.
“Grain farmers are struggling and looking for ways to cut costs,” said Ward.
One way they can do this is by holding off on equipment purchases for the coming year.
“Farmers could have some wiggle room, depending on the age of their current equipment.”
The lower cost of feed and energy inputs, however, could mean slightly better margins for the livestock sector.
Managing risk.
“Farmers should be asking themselves, ‘what can I do to reduce my risk,’” Penn State’s Harper said.
“There is no crystal ball to tell you when commodities will turn around,” but farmers can take advantage of risk management tools, insurance policies and other revenue assistance programs to lock in pricing at the start of the season, he added.
“There is no silver bullet. Low cost producers will continue to survive and grow but all producers should take a serious look at their inputs,” said Ward.
“It’s going to be an issue for the next year or two. Farmers should be looking for ways to be more efficient,” he said.
