The squeeze on U.S. farmers is getting worse as low crop prices and rising costs erode incomes that not long ago were the highest ever.
Illinois grower Jason Lay said he will buy 30 percent less fertilizer for his 2,500 acres of corn and soybeans, and 7 percent fewer seeds for spring planting. After his most profitable year ever in 2012, Lay said he upgraded his combine, tractor, sprayer and planter. With crop futures now near five-year lows, he has no plans to buy any new equipment.
“You spend when times are prosperous so you don’t need to when they’re not,” Lay, 41, said by telephone from outside Bloomington, Ill. “That’s how you make it through.” He estimates his profit is down by a quarter from its peak.
Farm income in the U.S., the world’s top agricultural producer and exporter, is poised to drop for a third straight year in 2015. While raising livestock remains profitable, as tight meat supplies keep prices high, growers of corn, soybeans and wheat saw crop and land values fall faster than many of their costs. That’s pinching sales for equipment maker Deere & Co. and seed and chemical producers including DuPont Co.
“The budget picture for corn and soybeans is as negative as we’ve seen in a long time,” said Brent Gloy, an agricultural economist at Purdue University in West Lafayette, Indiana. “You will see some farmers not able to cover their production costs.”
Last year, cash income dropped 17.5 percent to $108.2 billion, as expenses jumped to a record $370 billion and crop receipts tumbled 11.5 percent, USDA data show. Even a 14 percent increase in livestock receipts, which topped crop revenue for the first time in eight years, wasn’t enough to prevent a 2014 decline in overall farm profit.
The agriculture industry has boomed over the past decade as record land and crop prices boosted sales of seed and farm equipment. Net net-cash income touched a record $137.1 billion in 2012. Land values have kept rising, up 8.1 percent last year to an all-time high of $2,950 an acre, while beef and pork prices were the highest ever.
Record-high crop prices in 2012 helped fuel a surge in global output, creating a surplus that sent futures tumbling.
Bumper crops weren’t enough to prevent crop receipts last year from dropping to $193.5 billion, the lowest since 2010, USDA data show. At the same time, seed costs rose 2.7 percent and rents paid by farmers on land they didn’t own rose 2.9 percent. That’s eroding Farm Belt income that the USDA says insulated rural areas from the worst of the recession that lasted from the end of 2007 to mid-2009.
Moline, Ill.-based Deere, the largest manufacturer of agricultural machinery, said last month it will lay off 910 factory workers as profit falls for a second straight year. Monsanto, the world’s top seed seller, said last month there will be fewer U.S. corn acres planted this year, which will be a drag on the St. Louis-based company’s profit.
Farm income this year may benefit from cheaper fuel, which accounts for about 5 percent of expenses. Amid a glut of crude oil, the price of diesel used in tractors and harvesters is down 22 percent since Oct. 31, touching a five-year low of $2.793 a gallon on Feb. 2, motoring group AAA said.
Property values are also showing signs of easing. Lower- quality farmland has dropped about 15 percent from its peak, while prices for better land has leveled off, Farmers National Co., which manages 2.1 million acres of farms in 24 states, said Feb. 5.
Such declines may not provide much help this year to farmers who rent their land in multi-year agreements, said Pat Westhoff, an agricultural economist at the University of Missouri in Columbia.
“Many farmers are paying a lot more in rent now than they were three-four years ago, and once you take that into account, some will actually lose money,” Westhoff said in an email.
While crop farmers are getting squeezed, most livestock producers are making money and probably will surpass crop receipts for a second straight year, said Chad Hart, a farm economist at Iowa State University in Ames.
In 2014, revenue from chickens, cows, hogs and other animals jumped to a record $208.7 billion, surpassing crops for the first time since 2006, USDA data show.