Agriculture economy will stay lean

The American agricultural economy is undergoing a re-set, and it’s going to take a little while before farm incomes are healthy again.
“Right now, farm incomes are really depressed,” Purdue University agricultural economist Chris Hurt told about 45 farmers and agri-business professionals at an Ag Week gathering Wednesday afternoon at Jay County Fairgrounds. “What we’re going through is basically a period of re-setting.”
After a boom period roughly from 2010 through 2013, farmers have seen grain prices slide lower and lower.
“The USDA (U.S. Department of Agriculture) is saying we haven’t even gotten to the bottom yet, and that makes my knees knock,” said Hurt.
Corn prices have plunged from about $6.89 a bushel in 2012 to $3.60 a bushel in 2015, and the USDA is projecting $3.45 a bushel this year. Soybean prices have moved in the same direction, dropping from a 2012 level of $14.40 per bushel to a 2015 mark of $8.80 a bushel. The USDA is predicting prices averaging $8.50 a bushel this year. Wheat prices have dropped from their 2012 average of $7.77 a bushel to $5 a bushel in 2015. The USDA predicts wheat will drop to an average of $4.20 a bushel this year.
Supply, said Hurt, has simply outstripped demand.
“The demand surge slowed down,” he said, pointing to a general slowdown in the Chinese economy.

While lower grain prices tend to be good news for livestock producers, Hurt said, it usually takes one and a half to two years for the lower prices to have an impact. In the meantime, there will be downward pressure on prices for beef, pork, poultry and eggs.
“We’re now having to re-set the animal industry,” Hurt said. Avian flu has also played a role, he added.
The overall direction of the corn and soybean forward futures markets is up, with $4 a bushel corn and $9 a bushel beans projected. But that’s a far cry from 2012 market prices, and soybean prices could be flat for the next four to five years.
“We’re in this for a little bit of time, and it’s going to take some time to work through it,” said Hurt. “This is an era. This is a period. It’s not going to happen in one year,” he added later.
With prices not rising, farmers need to focus on what they can control: The cost of production.
“Don’t expect improvement from the prices getting better,” said Hurt.
Instead, he urged producers to look for every way possible to reduce their costs.
“Costs of production are way too high,” said Hurt, leading to very narrow profit margins.
Cash rents, now high by Hurt’s assessment, need to come down; but that won’t happen overnight.
“Can we adjust?” he asked. “The answer largely comes back to what we did with our money in the good times.”
Farmers who improved their financial position, reduced debt and maintained a reserve are in a better place when it comes to weathering the current storm.
He urged farmers to reduce capital purchases, cut family living expenses, liquidate excess assets, seek lower cost inputs, look for additional income, including off-farm income, pursue lower cash rents, work with their lenders and develop a one-year plan and a plan for 3-5 years.