Farm income falling, putting the rural economy on edge

Sept. 9, 2015, 6:45 a.m. ·

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A narrow access road cuts through seemingly endless rows of tall corn in Keith Dittrich’s field near Tilden, Neb. (Photo by Grant Gerlock, NET News/Harvest Public Media)

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Farmers in the Midwest are facing a situation they haven’t seen for a while. Grain prices are down. After some of the most lucrative years they’ve ever seen, some producers could lose money on this year’s crop. That could slow down the rural economy.


According to the U.S. Department of Agriculture, this corn crop is worth about $7.1 billion less than last year. Receipts for soybeans will also be down $3.4 billion. The agency is predicting the largest single-year drop in farm income since 1983.

The irony is, some farmers are looking in the field and seeing the best crop they’ve ever grown. That’s the case for Keith Dittrich and Loren Broberg, two farmers and neighbors near Tilden in northeast Nebraska.

On a recent summer morning, the two farmers took me out to check crops. We walked into one of Dittrich’s fields on a narrow road, a wall of tall, green stalks on either side. He stopped to pull back the husks on an ear of corn bursting with golden grain.

“Looks like excellent corn,” Broberg said. He guessed it would make 200 bushels per acre. A strong stand, thanks to almost perfect weather here in the Western Corn Belt.

Dittrich agreed it would be a big crop. But that doesn’t necessarily add up to big profits. “Marginal profits at best,” Dittrich said. “Most likely losses. The best crop we’ve ever raised.”

Keith Dittrich (left) and Loren Broberg farm in the same part of northeast Nebraska. This summer they’ve had the right amount of rain at the right time. Even though most of their fields are irrigated, they have hardly run the sprinklers. (Photo by Grant Gerlock, NET News/Harvest Public Media)

Even after growing the best crop of their careers, these Nebraska farmers will likely lose money. And that’s where the weather is good. The situation is even worse in parts of Illinois and Missouri

where the weather didn’t cooperate

.

Corn prices peaked in 2012. Then came some of the biggest corn crops in history. With that oversupply, prices got cut in half. Now at around $3.50/bushel, prices are still good by historical standards, except Loren Broberg says, things like seed, fertilizer, pesticides, and even land cost a lot more.

“Our input costs tended to really accelerate in the last two or three years when we had higher commodity prices. It seems like we have a hard time to get those input costs to come down,” Broberg said.

Combine those higher costs with lower prices and the result is the kind of drop in farm income being predicted by the USDA. As a result, many farmers are leaning on lenders to get by.

“Going through 2014, we did see loan demand picking up at that time, but it's continued to rise,” said Nate Kauffman an economist at the Omaha branch of the Kansas City Federal Reserve. Fed surveys show farmers are taking out more loans, and larger loans. New and young farmers tend to be deepest in debt.

“So it does kind of raise the level of concern among lenders as they're looking at a sector that has been performing very well, but being cautious about what that means going forward,” Kauffman said.

Nate Kauffman is a Federal Reserve economist in Omaha, Neb. (Photo by Grant Gerlock, NET News/Harvest Public Media)

At the same time farmers are spending less, especially on big ticket items like tractors and combines. That’s why machinery makers like John Deere and Case New Holland are taking the biggest hit in the farm economy today. They’ve cut hundreds of jobs at factories in states like

Iowa, Illinois

, and

Nebraska

.

But sales are not falling across the board.

“Anything that involves livestock, members that I talk to tell me that they're doing extremely well and their supply of back orders is good at this point,” said Vernon Schmidt of the Farm Equipment Manufacturers Association.

Crop farmers may be feeling the pain but livestock producers, especially cattle ranchers, are doing well.

That’s one sign that just because the market for row crops is down, doesn’t mean it’s time to panic. There’s still a lot working in farmers’ favor.

Oil prices and interest rates are both still unusually low. Land values are down, but not plummeting. And even though China’s economy has slowed down, it’s still a huge customer for U.S. corn. Nate Kauffman at the Federal Reserve says any potential crisis is still a ways off.

“Coming off of the level of income that we saw 2010 to 2013, it would take more than just one or even two years to think that we're at a point where that sector is starting to face some long term problems.” Kauffman said.

Corn prices could turn on a dime if a weather disaster hit farmers in South America. But for now farmers will take to their fields to haul in the harvest, even if they lose money on every bushel.


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Harvest Public Media is a reporting collaboration focused on issues of food, fuel and field. Harvest covers these agriculture-related topics through an expanding network of reporters and partner stations throughout the Midwest.