Today’s column essentially comes from my husband, Robb. He wanted to talk about why the farm economy is having so much trouble right now. You may have heard that the U.S. farm economy is depressed, and you may have heard about local ag-related companies such as Deere & Co. laying off employees or closing down parts of their production. The reason for this is rather complicated, but here goes:
Over the last two to three years, the world has produced record-setting corn, soybean and wheat crops. This has led to an oversupply of grain on the world market. We call this the carry-out or ending stocks of grain. This means that all over the world, farmers have stored grain in their grain bins that has not been sold or used. As you may remember from a long-ago economics class that when supply exceeds demand, prices go down. This is what is happening in the world ag market today.
For example, when corn prices in the U.S. were over $7 per bushel a few years ago, many farmers began to grow more corn so that they could make more money. This happened all over the world, including in Brazil, Argentina and the Ukraine, as well as the United States and Canada. When all those extra farmers put extra land into corn production, the supply of corn grain increased dramatically. The prices then began to drop.
Nowadays, corn futures prices for fall 2016 are just $3.50 to $3.70 cash per bushel. This is quite a difference in return on investment for the farmers. Soybean and wheat prices have seen the same big reduction as their supply also increased.
Farmers are, in this case, their own worst enemies. They have become so good at producing a crop that they have oversupplied the markets. That, combined with ideal growing conditions all over the world for the last few years, has led to our current problem. It’s quite unusual for the entire world to produce such a good crop several years in a row. Usually, there’s a drought or flooding somewhere, which reduces crop production.
When farmers are making less money because grain prices are lower, they spend less money. Those farmers who were happy to buy new combines and tractors, or extra fertilizers, or put up big new machine sheds when the corn price was high are now tightening their belts and trying to save money. You see, our input costs have not gone down as fast as our grain prices have. Fertilizer, chemicals, land rent and farm equipment costs have just now begun to drop. Luckily, diesel prices came down a little bit faster, and are now at a much more reasonable level. You may also notice that land values are starting to come down as well — this also is related to farm income.
As you can see, it’s not just about the farm income dropping. It affects far more people than just farmers. In Iowa, 30 percent of the economy is directly related to agriculture. It’s not just the Deere employees, or the seed corn dealers, or even the ag fertilizer dealers. When the farm economy is depressed, employees of all these companies have less money to spend or may lose their jobs. This means that they don’t buy as much food, entertainment, or other products from retailers. You can see pretty quickly how it mushrooms into an overall effect on the economy in Iowa, in Illinois and around the world.
Here’s a neat fun and free educational event you may want to check out with your kids. At the Putnam Museum in Davenport on Friday, Feb. 19, there will be farm-related make-and-take activities beginning at 5 p.m., a special agricultural science demonstration at 6 p.m., and a showing of the “Farmland” movie, which is an accurate depiction of farming in the U.S. After the movie, there will be a discussion panel moderated by Jim Mertens from WQAD, where you can ask real farmers — including Robb — questions about farming. If you and your kids want to learn more about farming and the science behind it, please come on out and join us.