Lower grain prices will depress income for US crop farmers to
levels less than 15% of those received at the 2012 peak – and growers may have to
get used to far lower profitability.
University of Illinois researchers warned of a potential end
to the farming boom, caused by higher crop prices, which took average net
income for a typical Illinois grain farm above $300,000 in 2012.
Already incomes have fallen steeply from this top, coming in
at $145,000 per farm last year, a decline reflecting largely lower grain prices
– estimated at an average of $4.65 per bushel for the 2013 corn harvest
compared with $6.93 per bushel in 2012.
"Crop insurance payments were much lower" too last year, after
the huge claims in drought-hit 2012, when claims accounted for about one-third
of farm revenues, said Gary Schnitkey, professor at the university's department
of agricultural economics.
And net incomes will fall further this year, to $45,000 per
farm a figure which, besides being down two-thirds year on year would be "considerably
below any average income level since 2006", Professor Schnitkey said.
It would also fall short of the average that growers
received in the decade to 2005, before higher crop prices began to send profits
However, it is also the kind of result that farmers may have
to get used to.
Profits of $45,000-134,000 per farm represent "the likely
range of average grain farm incomes over the next several years, with lower
incomes possible if low commodity prices occur".
'More supply, lower prices'
The forecast assumes a corn price of $4.20 a bushel - the
centre of the $3.85-4.55-a-bushel range forecast by the US Department of
Agriculture for US farmgate values – and an increase of 10 bushels per acre in
the corn yield this year, plus a 3-bushels-per-acre improvement in the soybean
"The scenario… is for 2014 to be an above-average [production]
year, with higher yields leading to more supply and lower grain prices," Professor
Illinois farmers achieved an average yield of 178.0 bushels
per acre for corn last year, and 49.0 bushels per acre for soybeans.
The model also assumes lower input costs, a reflection of
the drop in fertilizer prices.
'Well below the cost
The forecast paints a far bleaker picture than that offered
by some other commentators, such as agricultural machinery giant Deere & Co,
which foresees total US net farm cash income falling by 13.3% to $114.7bn this
That figure, which includes the livestock farmers whose
margins are being improved by lower grain prices, would represent a decline of
less than 15% from 2012.
However, the university's figures chime with talk in other
countries of lower prices, which have reportedly fallen below production costs
in some parts of Europe.
"Farmer selling right across the European Union and Black
Sea has virtually ground to a halt," traders at a major European commodities
"Most growers, across [continental Europe] and beyond, are
staring at harvest prices well below the cost of production and are refusing to
sell wheat - even though a large slug of it in southern Europe and the Black Sea
will have to move before the corn harvest starts."
In the UK, analysts at Andersons estimated earlier this
month that many farms took a reduction of "over 25% in profit" last year thanks
to setbacks from poor 2012 autumn sowing conditions and a late spring.
And it cautioned that "the 2014 harvest year has all the
hallmarks of being a low margin year of adequate supply, and cost challenges".
Some farms can expect a 10.6% fall in their farm income
surplus, according to lender HSBC, although higher yields would see others
enjoy a 35% increase.