Agricultural net income will be $95.8 billion, down from a revised $130.5 billion last year, the U.S. Department of Agriculture said today in its first 2014 forecast. Income for major crops including corn, soybeans and wheat will be $189.4 billion, down 12 percent, while all expenses for feed, chemicals and other items will be $348.2 billion, down 11 percent.
Flat demand for corn to make ethanol and fewer exports to China may halt gains in farmland values after a 37 percent jump since 2009, leaving farmers with less to invest. The farm law President Barack Obama signed last week also will cut government spending on agriculture, further eroding profit.
“We’re looking at an era of about three, four, five, years of reduced profitability in agriculture,” Matthew Roberts, an economist at Ohio State University in Columbus, said before the report was released. Without significant disruptions to crop production, “by 2015, 2016, farms that expanded very rapidly over the last few years could be vulnerable, and we would see the first significant farm failures.”
The slump in the value of U.S. crops will erode prosperity in Corn Belt states, harming rural business and, if sustained, may lead to a wave of farm failures for the first time in a generation, Roberts said.
In November, the department had estimated 2013 profit at a record $131 billion, and the most since 1973 when adjusted for inflation. About 2.6 million people worked on farms in 2012, according to the USDA, with another 13.9 million in food-related industries. The combined total equals 9.2 percent of the total U.S. workforce.
For 2014, livestock producers’ revenue will be $183.4 billion, up 0.7 percent from last year. Among farm expenses, animal feed, the biggest single cost, will be $52.1 billion, down 1 percent from 2013 because of the lower cost of corn. Seeds will cost $21.6 billion, up 1.5 percent.
Futures for corn, the most valuable U.S. crop, sold on the Chicago Board of Trade slumped 40 percent in 2013, the most since at least 1960, according to data compiled by Bloomberg. Soybeans, the No. 2 crop, fell 8.3 percent and wheat plunged 22 percent.
Archer-Daniels-Midland Co. said lower corn prices prompt farmers to hold their crop, reducing profit because the company has less to ship, Chief Operating Officer Juan Ricardo Luciano said in a conference call last week.
Lower prices may cut tractor and combine production as much as 10 percent this quarter at Agco Corp., maker of Massey Ferguson products, Chief Executive Officer Martin Richenhagen said last week.
U.S. loans for farm machinery are at a two-year low, the Kansas City Federal Reserve said last month. Lower crop prices will make farmland less attractive to investors and discourage farmers from seeking financing, which may hurt purchases throughout rural areas, Nathan Kauffman, an economist with the Kansas City Fed, said in an interview last week.
For seed-seller Dave Kestel in Manhattan, Illinois, a drop in profit is evident. Customers who paid more to buy profitable corn now demand less expensive soybean seeds.
“Everyone is tightening their belts,” said Kestel, who sells DuPont Co. seeds while raising 1,200 acres of corn and soybeans about 60 miles southwest of Chicago. “We’ve had a windfall the past few years. Moving forward, it’s scary.”
Farmers produced a record 13.925 billion bushels of corn last year, the USDA said yesterday. Corn used for ethanol was 5 million bushels for the current year, little changed from three years ago. Farm goods sold to China may drop to $21.5 billion this year from $23.5 billion in 2013, the USDA said in December.
Government subsidies to agriculture will be $6.1 billion, down 45 percent from last year. The farm bill signed by Obama last week, hailed by farmer groups as a way to better target aid toward producers during times when they need it, probably won’t add much to profit this year, saidPatrick Westhoff, an agricultural economist at the University of Missouri in Columbia.
The law ends a $5 billion annual crop subsidy and relies on subsidized federal crop insurance to guard against floods, drought, pests and other risks.
To contact the reporter on this story: Alan Bjerga in Washington at email@example.com