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High costs expected to bite into U.S. farm profit

The seven-year-old U.S. agricultural boom, driven by record-high commodity prices and painfully tight supplies, is expected to peak this year and then come to an abrupt end as high costs start to bite, the government projected Feb. 11.

The U.S. Agriculture Department said farm income would soar to a record $127.6 billion this year, up 15 per cent, thanks to high market prices and crop insurance payments that will offset losses from the worst drought in more than half a century.

Farm income would fall by one-third next year, to $96.9 billion, said USDA, because corn, wheat and soybeans will fetch dramatically lower prices with bumper crops expected this fall.

The abrupt contraction in farm income could prompt operators to slow purchases of equipment such as trucks, tractors and combines, structures such as grain bins, or cropland. Land prices soared along with grain prices since 2006.

High production costs, up 12 per cent in two years, will compound the effect of lower earnings for crop farmers. But lower prices for grains and oilseeds will be a welcome relief for livestock producers who have complained of ruinously high prices for feed for cattle, hogs and poultry.

“While income declines from the 2013 record through 2015, it remains well above the average of the previous decade,” said USDA in a battery of projections for farm output, income and exports this year.

Swollen farm exports

U.S. farm exports are projected at a record $145 billion this fiscal year, which ends on Sept. 30, up $10 billion from the previous year. USDA said the record “largely reflects high commodity prices.”

Agricultural exports would drop by $3 billion in fiscal 2014, it said, and by an additional $5 billion in fiscal 2015.

Assuming yields return to normal this year, farmers will harvest a record 14.4 billion bushels of corn, up 34 per cent from last year; the second-largest soybean crop on record at 3.335 billion bushels; and a medium-size wheat crop of 2.19 billion bushels, said USDA.

Market prices would plunge this fall as a result, said USDA. It projected corn would sell for an average $5.40 a bushel at the farm gate, down nearly $2 from the record-high season-average price forecast for this year.

Soybean prices would be nearly $3 below the record $14.30 a bushel expected this year. Wheat would be down by 70 cents from the record $7.90 a bushel forecast for this marketing year.

“Nonetheless, U.S. prices for corn, wheat, and soybeans are projected to remain historically high, above pre-2007 levels,” USDA said.

Growers were projected to plant 254 million acres — second only to the record set in 2012 — of the eight major U.S. crops, wheat, rice, corn, sorghum, barley, oats, soybeans and upland cotton this year, said USDA.

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