Falling corn prices threaten Minnesota ag economy
By Tom Meersman, Star Tribune (Minneapolis) | |
McClatchy-Tribune Information Services |
After three years of profits, analysts are calling 2014 a break-even year, at best. Some think prices could drop more and stay low into 2015.
"It's the absolute flip of where we were at 12 months ago," said
The sputtering prices have significant implications for the economy of the Upper Midwest, which has outpaced much of the nation in recent years partly on the strength of a strong agricultural sector. Not only are corn prices down, but soybeans and some other crops have also dropped sharply.
Beyond thinning farmers' wallets, the impact could ripple outward to weaken a host of service businesses: seed companies, farm implement dealers, fertilizer marketers, herbicide applicators, and landlords who rent fields to farmers. The record harvest will also overflow grain bins after harvest begins this fall, according to federal officials, further straining railroads that are far behind in shipping last year's crop.
"A big part of
Lower prices, of course, are good news for buyers. When corn drops, livestock operators and ethanol producers benefit from cheaper feed and fuel.
Swanson said consumers at the grocery store may benefit eventually from cheaper corn, which is an ingredient in cereals, cookies and other products. But he said it may take months to see price cuts as food companies first try to recoup losses from when corn prices were high.
He said it's not clear what is driving the magnitude of the swing in commodity prices.
"We say it's about supply and demand, but you really wonder sometimes," Swanson said. It "boggles the mind" that the market thinks that corn was worth
Belt tightening
For
"Typically if a farmer has a buck he spends two, buying machinery, upgrading the house, buying a pickup or some toys or investing into another business or in the market," Wiersma said.
That happened when corn prices were high between 2011 and 2013, Wiersma said, and both farmers and local businesses benefited. This season will be different, he said, with decent yields in
"I don't see this to be a devastating time because we've come out of some good years," Wiersma said. "But if [low prices] persist and the costs don't retract, we could see some exiting of farmers out of the industry," he said.
Wiersma said that he and other farmers often hedge their losses by selling on the futures market. He sold some of his expected 2014 corn crop months ago when prices were higher, he said, so that will ease the pain if he loses money or only breaks even on other acres.
"It's not all doom and gloom because the prices run in cycles and we've had a pretty good run recently," he said.
"Most people should have had some fairly strong profit to build up a little reserve capital and reduce some debt to weather a period of time when prices are negative."
But Peterson said that three years of healthy profits were accompanied by rising costs for fertilizer, seed, land rent and other expenses, and now everyone needs to recalibrate.
Costs of production are "way out of balance with expected revenue," said
"There's no profitability at these current corn prices," he said, and many producers will not be able to break even.
Some analysts have predicted that corn prices may drop to
The insurance trigger
The center estimated that in 2013, the average
If those costs stay about the same for 2014, said Swanson of
The low prices may also be affecting land values. "Land prices have moderated following a multiyear period of strong growth," according to the most recent quarterly survey of agricultural lenders by the Federal Reserve Bank of
Corn and soybean farmers have seen ups and downs in the market over the years, and many have invested in side businesses to spread the risk, such as raising livestock or specialty crops or selling seed.
In addition to corn and soybeans, Peterson raises pigs and cattle, and owns shares in an ethanol plant. "That side of our operation will benefit from the lower corn prices," he said.
That could include applying less fertilizer, buying less expensive seed, renegotiating land rent prices, and fixing farm equipment instead of replacing it, he said.
Equipment demand slow
Manufacturers have already noticed the change. Two weeks ago,
"When corn prices are low, sales really slow down almost exponentially at the dealership level," he said. New combines range from
Equipment sales at Midwest's 13 stores across central
"Our business is built now for
What will sustain his company if corn prices remain in the doldrums, Swenson said, is its parts and service departments. "That part of the business shouldn't really fall off that much because farmers still have to plant, they still have to combine, and they have to use their machines just as much as they did when commodity prices were high," he said.
The two largest consumers of corn are animals and ethanol plants, according to the
"The single largest cost for raising a hog is the price of corn," said
Hog farmers should be able to make money this year, Preisler said.
"Price doesn't really make any difference in the big scheme of things," he said. "What's important is the margin: What are your costs and what can you sell your product for. That's what keeps both crop and livestock farmers in business."
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