To understand the potential financial impact to American farmers it is important to know that corn and soybeans are the largest monetary crops in the U.S. per NASS, the U.S. Department of Agriculture’s National Agricultural Statistics Service. In 2017 the value of corn was $48.5 billion, with soybeans a close second at $41 billion. The next largest crop was hay, a distant third at $16.2 billion. For comparison, the value of apples grown in the U.S. was $4 billion and oranges was $2 billion.
From John Newton, Chief Economist for the American Farm Bureau, “The USDA’s prospective plantings survey results revealed farmers are planning to plant 92.8 million acres of corn and 84.6 million acres of soybeans. For corn, USDA’s acreage estimate was above prior-year levels, above USDA’s February projections and above the average trade estimate. For soybeans, USDA’s estimate was below prior-year levels, below USDA’s February forecast and below the average trade estimate.”
He added, “Generally corn and soybeans are in rotation. Soybeans have a lower cost of production but also have lower yields. But the recent rainfall and flooding could delay or reduce corn plantings for some in 2019 — leading to more soybean acres than initially projected.”
Farmers could loss money on each acre they plant
Per the University of Illinois’ Agricultural & Consumer Economics Department forecast in September last year, corn could lose $68 per acre in 2019 (down from a loss of $2 per acre in 2018), and soybeans could fall even more, from a profit of $32 per acre to a loss of $92. While farmers seem to be rotating some acreage from soybeans to corn, 2019 could be a very tough year no matter what crop they plant.
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From the Huffington Post, “Hard times for farmers got tougher with President Donald Trump’s trade war. Now Midwestern farmers are filing the highest number of bankruptcies in a decade, according to a Wall Street Journal analysis of federal data.” It added, “Twice as many farmers in Illinois, Indiana and Wisconsin declared bankruptcy last year compared to 2008, according to statistics from the 7th Circuit Court of Appeals. Bankruptcies in states from North Dakota to Arkansas leaped 96 percent, according to figures from the 8th Circuit Court of Appeals.”
Selling forward may help but still could be short of last year’s prices
Farmers forward sell a portion of their crops to lock in prices during the growing season per Newton at the Farm Bureau. This may have mitigated some of the downturn in corn and soybean prices last year, but this year prices are starting at low points.
Corn was about $3.90 per bushel before Trump’s trade wars started in March last year (the first blue circle in the graph below). Its price initially increased to a high of $4.10, but fell below the $3.90 level less than two months later. It rebounded slightly after Trump delayed imposing additional tariffs (the second blue circle) but has slowly deteriorated over the past four months. It fell substantially on Friday, down almost 5% to $3.57 per bushel, a price it hasn’t seen since October last year.
Per CME’s future contracts, corn’s price doesn’t get back above $3.90 per bushel until March next year as of Friday’s price. If it were to reverse its one-day slide, corn’s price would get back to $3.91 per bushel in September this year.
Soybeans were about $10.50 per bushel before Trump’s trade wars started. They fell substantially over the next two plus months to as low as $8.25 per bushel since China was a huge customer and decreased its purchases substantially. They somewhat recovered and were helped in December when Trump postponed additional tariffs. Their price has largely moved sideways since then but fell to a recent low of $8.85 per bushel on Friday.
Forward selling soybeans looks even worse than corn. The CME doesn’t have soybean futures getting back to $9.25 until January next year. Unless there is a good upturn in price, soybean farmers will be in a world of hurt. For every $1 lower in the average price per bushel U.S. soybean farmers will see their revenue decrease by over $4 billion or about 10% of total revenue. Since costs don’t decrease, or at least very much, as revenue declines this lost revenue essentially drops to the bottom line.