A big drop in crop prices is among the factors contributing to a downturn in the farm economy these days.
The U.S. Department of Agriculture expects that farm incomes will suffer an annual decline of 40 percent this year, the biggest one-year drop in more than three decades.
“I think practically every farmer is going to see quite a drop in net income this year,” said Bruce Schmoll, a corn and soybean farmer in southern Minnesota.
Prices for corn and soybeans have been dropping for about three years and are now down roughly 50 percent from their 2012 peaks.
For a while, those price declines were manageable because farmers still turned profits. But now corn is selling below the break-even point for a lot of farmers.
The problems stem from oversupply. The world is awash in crops like corn, wheat and soybeans, and American farmers are having a tougher time marketing their crops abroad. The strong dollar makes American products more expensive and less attractive. Livestock and dairy producers are experiencing similar problems.
This all trickles down to the companies that cater to farmers.
“Our business is so tied to the viability of our farmer customers. We go as they go,” said Jacob Veldman, general manager at Ag Power Enterprises, Inc., a John Deere equipment dealer in Minnesota.
Veldman said business boomed in recent years as farmers enjoyed high prices for their crops. Some spent liberally on high-tech harvesting equipment and tractors, which can cost a quarter million dollars or more.
“Some farmers were trading in their equipment in every year,” he said.
But now, Veldman said business is down 20 percent to 25 percent, similar to the declines recently reported by Deere & Co. And Veldman said the number of machines he has available for sale on his lots exceeds demand.
“That’s the scary part to me,” he said. “With the equipment values dropping as the crop prices dropped, we’re just not able to move them fast enough.”
The lower crop prices are also on the minds of bankers who lend to farmers.
“Most banks are viewing the ag sector with some degree of caution,” said Ron Feldman, executive vice president and senior policy adviser at the Federal Reserve Bank of Minneapolis.
Feldman said some farmers are struggling to pay their current debts, a situation that could become more problematic next year if crop prices don’t rebound.
“Then at least some portion of this subset of borrowers are going to have either a big restructuring of their loan or are not going to be able to pay back some portion of it,” he said.
Feldman said farmers will likely seek ways to lower their costs, including their land rents. But that will mean less money in the pockets of people like 84-year-old Dick Murray, farmer Bruce Schmoll’s landlord.
“We’ll have to lower the rents,” Murray said. “And that’s going to cut into our golden years, I guess you’d call it.”
But Murray and others, including Schmoll, said that these ups and downs are to be expected in agriculture.
“You take the gravy years with the less fortunate years,” said Schmoll. “I think if you’re a good business person, you allow for that.”
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