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Expect farm profits to fall

Analyst: Ag income drop will be gradual

December 9, 2012
By LARRY KERSHNER, kersh@farm-news.com , Messenger News

According to Kelvin Liebold, the profit margins farmers have been earning the past five years will not be the margins they can expect in the next five.

If he's right, the bottom will gradually fall out on farm incomes.

Liebold, an Iowa State University Extension ag engineer, was speaking to about 50 people Wednesday morning at the 2012 Farm News Ag Show.

Article Photos

-Messenger photo by Larry Kershner
KELVIN LEIBOLD, an ISU ag engineer, points out world corn production estimates through the next growing season that shows a 4.6 percent yield drop from this year based on current weather patterns. However, he said, if the U.S.and South America and Ukraine get trendline yields, the price of corn can drop by at least $1 by late 2013.

He said a combination of more corn being grown around the world, U.S. government policies, and a stock-to-use ration in corn, will all work together to trim ag profitability over the next several years.

During the past few years, he said, farm incomes have doubled, farmers have been paying off debt and buying more land.

Record land purchases are being set by Iowa farmers, with just 20 percent of landowners living outside the state.

"Iowans are the biggest buyers of ag land,"?Leibold said, "and they are setting rental rates."

Leibold does not expect ethanol to return to the peak it reached in 2010 and 2011.

"It's just not good business to take a bulk commodity to manufacture another bulk commodity,"?he said.

Other feed sources are moving into the biofuels industry including Malaysian palm oil for biodiesel and cellulosic sources for ethanol.

This means that the demand for corn and soybeans as biofuels will continue to fall off, lowering futures market prices for both grains.

In fact sorghum-based ethanol still gets a $1 tax credit, Liebold said.

A reason for the ethanol industry to continue to buy high-priced corn was that the U.S. was exporting ethanol to Brazil.

He said Brazil's milling plants can switch from ethanol to making sugar.

Since sugar was bringing a better price than ethanol, that country was importing U.S. ethanol. But when Brazil's plants shift back, U.S. ethanol demand will fall again.

He also took a verbal swipe at renewable fuels standard critics saying that if the RFS is eliminated, the cost of gasoline would drop by a mere 10 cents.

Leibold said if the U.S., South America and Ukraine have trendline corn yields, the price of corn can fall by $1 by late 2013.

"For a 200 bushel harvest," Liebold said, "that's a $200 (per acre) loss. If you're working on a $150 (per acre) profit margin - what's that do to ya?

"I don't know where ag is going, but there's a lot of innovation out there and it'll be an exciting time."

Liebold said he does expect there will be a farm bill, but all farm supports, direct payments, cyclical payments and conservation program funding will be lost to the new bill.

"The loss of government support will lower land values,"?Leibold said, "and if grain values go down, that will crimp the ag economy."

In addition crop insurance rates are being reviewed and he expects the 2013 corn premium will fall by 6 percent and soybean premiums will drop 9 percent.

 
 

 

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