A drive through the countryside south or west of the Twin Cities sure is pleasant this time of year, with fine looking corn and soybean fields extending to the horizon.
Farmers are planning for the second bad year in a row
August 1, 2015 at 9:31PM
That doesn't mean it's going to be a good year for farming in Minnesota, at least not for corn and soybean farmers, the backbone of the state's agriculture.
The farmers are almost certainly going to lose money this year — possibly a lot of money.
Now is when farmers are selling the remaining 2014 corn and soybeans to make room in the storage bins for the 2015 harvest. Those last sales of 2014's harvest essentially will lock down the losses that made 2014 a bad year, making 2015 the second bad year in a row.
Farmers like to complain about the price of commodities, and it's true prices for corn and soybeans have fallen roughly back to 2007 levels. The thing is, corn and soybean farmers would still be nicely profitable this year if they only had something even close to 2007 production costs.
And like nearly any business with a serious cost problem, carving back those costs isn't going to be easy.
One analyst in the state with a handle on farm finances is David Bau, an extension educator and economist for the University of Minnesota. He works in Worthington in the southwest part of the state, and the segment he knows the best is corn and soybean production in southern Minnesota.
His 2015 corn forecast assumes a good average yield of 180 bushels per acre. He estimates the selling price will be $3.50 per bushel. The current futures price for corn is higher than that, but the cost of transportation and other factors means the price realized by the farmer is less.
The biggest line item in costs is land, at $250 per acre in cash rent. And with fertilizer, seed and the rest of the costs, corn farmers will lose an average of $244 per acre.
As thousand-acre farm operations are no longer rare, there could be corn farmers in the state looking at quarter-million-dollar losses.
Bau expects soybean fields to be not nearly as unprofitable as corn, but he also pointed out that since he ran his forecast the price of soybeans has declined some more.
It's important to note that these forecasts of stomach-churning losses do not include a wage or any other payment to the farmer for labor, nothing for the hours spent running the operation or seated in the cab of a tractor.
"That's for this year's crop," Bau said. "Next year's crop, I have the rent going down some, and still have $3.50 per bushel price for corn and $9 for soybeans. … And we are losing $127.50 on corn. So the farmer has no income, and he's losing $127.50 an acre on corn, and on beans he's losing $56."
That would make 2016 the third unprofitable year in row. Bau doesn't want to hazard a guess for 2017 and beyond.
It's even more interesting to dig into just why this segment of farming has turned unprofitable, because having had commodity prices slip back to the levels of 2007 doesn't seem like it should have been enough to crush margins. When the numbers came out in early 2008, the 2007 crop year was trumpeted as the most profitable in Minnesota production agriculture since the Nixon administration.
But, as it turns out, "over that time the average cost to grow an acre of corn in our database has increased from $435 to $815. So it's almost doubled," said Dale Nordquist, associate director of the Center for Farm Financial Management at the University of Minnesota. "Land is certainly the biggest part of that, but it's seed, it's fertilizer, it's everything. Everything seems to have gone up faster than the rate of inflation."
In understanding the cost problem, it's well worth putting a spotlight on what's happened to the cost of farmland. The rich farmland of Rock County, about 200 miles southwest of Minneapolis, sold on average for a little more than $3,900 an acre in 2007, having already surged in price by 80 percent in just three years. But it kept shooting up, by 2013 topping $11,000 per acre.
Rental rates didn't match the surge in land prices, yet rental rates still more than doubled from 2007 to 2013 in the 14 counties tracked by Bau. Rents have come down a little in 2015, Nordquist said, but considering that landlords and farmers should both have suspected it would be an unprofitable year, it's surprising to him how little.
Aside from paying less in rent, corn and soybean farmers don't have a lot of easy choices when trying to make significant cost cuts. In livestock production, when falling sale prices cause margins to get skinny, the farmers and ranchers liquidate herds, eventually taking supply out of the market and over time boosting prices.
That isn't possible to do in crop production. Leaving a productive field unplanted just means the fixed costs will eat the farmer alive. Cutting fertilizer use does reduce costs but comes at the expense of lower yields.
Bau said farmers are headed for a painful period as they seek to bring down costs, but it's far too early to invite comparisons to the brutal downturn of the 1980s. And, he added, this difficult period follows several great years.
He also said it doesn't yet feel like there's a serious downturn underway in farm country, with the books not even closed yet on the 2014 crop year. But, he said, "they know it's coming."
lee.schafer@startribune.com • 612-673-4302
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