Ag forecast bleak unless commodity prices rebound

Stubbornly low commodity prices are sending a nervous ripple throughout the farm economy in Iowa and across the Corn Belt, as many growers struggle to lock in a profit given the prospect of bumper corn and soybean crops this fall.

The slowdown has some farmers hurting financially after years of record income, and unless prices improve, the outlook for agriculture in 2016 could be even grimmer, economists and farm lenders say.

"I don't see the return of the 1980s farm crisis ... but there are tighter times coming," said Bill Northey, Iowa's secretary of agriculture. "And tighter times impact everyone differently. Some farmers will be upside down."

Experts worry just how severe and prolonged a farm downturn will be — and how well Iowa and U.S. farmers can weather it.

Already, Iowa is seeing the impact, with hundreds of jobs cut at farm equipment manufacturers and suppliers.

Here's the reason for the crunch: Operating expenses for fertilizer, rent, seed and other farm inputs have remained high — even as prices have dropped about 60 percent for corn and 45 percent for soybeans since their 2012 highs.

For example, total farm expenses in Iowa are 42 percent higher than in 2008, when the run-up began pushing corn prices above a record $8 a bushel. Today corn is $3.70 a bushel.

So far, farm lenders and leaders say producer balance sheets are healthy, which they hope will give growers the reserves they need to survive the pullback. Farm lenders say they see few farm delinquencies.

"There is no panic at this point. There is definitely reason to be concerned," said Michael Hein, vice president of the Liberty Trust and Savings Bank in Durant, a town of about 2,000 residents in eastern Iowa.

The most recent U.S. census of agriculture counted about 88,600 farms in Iowa, so relatively few Iowans derive their incomes directly from farming. But Iowans recognize agriculture as a major driver of the state's economy, according to a USA Today/Wells Fargo Real Economy online survey of 507 Iowans. Three-quarters of respondents view agriculture as the sector most critical to Iowa's economy.

The survey questioned 3,500 U.S. adults ages 18 and older, comparing Iowans' views with those in four other states.

Big harvests likely for corn, soybeans

The months ahead could be critical. A rebound in corn and soybean prices this fall could give producers a chance to sell any remaining crops at higher prices, increasing their chances of profitability this year and putting them in a stronger position financially entering 2016.

The Agriculture Department has forecast the third-largest corn crop and second-largest soybean crop in history, following a record haul for both in 2014.

"It's a little bit too soon to tell exactly how severe it's going to be, but I think the anticipation is we're going to see some cash-flow issues going into 2016 if prices stay where they're at," Hein said.

Nationally, net farm income is forecast to tumble 32 percent to $73.6 billion in 2015. Earnings would be the lowest since 2009 and a drop of nearly 43 percent from the record high of $129 billion just two years ago.

The farm income drop could be sharper in Iowa, given its leadership in corn and soybean production, said Chad Hart, an Iowa State University agricultural economist. He expects earnings could fall as much as $3.9 billion through this year from $10 billion posted in 2013, the most recent data available.

Hart estimates that losses this year for some farmers could be as high as $100 an acre for soybeans and $150 an acre for corn.

Northey said a bump in corn and soybean prices in July might have been enough to push many Iowa farmers into the black. Corn prices spiked about 90 cents higher before retreating.

"Just think across Iowa, that's $150-$200 more on an acre on the corn crop," Northey said. "That's a huge, huge amount," about $2.2 billion more in cash receipts going to Iowa farmers and the state economy.

Farmers feel impact of heavy rains, bird flu

Bob Bowman, a corn and soybean farmer near DeWitt, farms about with 2,400 acres with his son. He locked in some profits for the 2015 crop last year and again during the July rally, but worries he may not have sold enough.

"Unless you are looking at a really fantastic yield, it's still going to be really marginal if a guy makes any money," he said.

Some of Bowman's early-planted crops look good, he said, but he has struggled with too much rain. Bowman and other producers are optimistic strong yields will help offset low prices.

Northey said farmers, particularly in southern Iowa, could be hurt both by low corn and soybean prices and reduced yields from fields that were partially drowned out or not planted at all. And feed demand has been curtailed in Iowa, Minnesota and other states after dozens of farmers were hurt by avian influenza .

The disease killed about 34 million chickens and turkeys in Iowa and about 50 million nationally.

Lower feed costs help livestock farmers

Even as depressed corn and soybean prices weigh on the farm economy, higher prices for hogs and cattle provide some promise.

Grain and livestock producers act as a teeter-totter, ISU's Hart said.

"When crops are down, livestock tends to be up, and vice versa," he said.

"Record-high profits for crops were record-high costs for livestock," he said. "Now we're seeing the flip side of that."

Lee Schulz, an Iowa State University livestock economist, said historic profit levels in 2014 have led livestock producers to build pig, cattle and poultry supplies.

"If you look at the beef cattle and hog industry, we are in that expansionary phase, which is bidding down those prices, especially compared to 2014," Schulz said.

Pork prices have already softened, Schulz said, while beef prices remain strong, at least in the short term.

A stronger U.S. economy has increased meat demand despite higher prices. But Schulz said it's unclear whether that will continue.

"Ultimately, when we look at the profitability of the livestock industry, it's really going to come down to demand," Schulz said, adding that consumers could push back on prices, especially for beef.

Farmers cautious about their spending

Bowman, the DeWitt corn and soybean farmer, sees farmers pulling back on big purchases such as tractors and combines. He's among those who shopped around for cheaper seed and fertilizer prices last winter.

"When our revenues were going up the past few years, seed, fertilizer, equipment, everything kind of followed that up pretty fast. And we're not seeing the seed or other input costs going down quite as fast," he said.

Michael Swanson, Wells Fargo's chief agriculture economist, said many analysts believe farming's financial stress will hit next year. But he believes the problems are already here.

"A lot of farmers haven't priced the crops in the bins — or priced them at the end of last year, and they really don't know what they're going to liquidate them at," Swanson said. "That's going to be a big change for them when they go to negotiate financing."

Equipment makers cut their workforces

The impact is tough on rural Iowa, already suffering from manufacturing losses during the recession, economists and analysts say.

The pullback also is driving layoffs in Iowa cities, at companies such as Deere & Co. in Waterloo, Ankeny and the Quad Cities, Bridgestone/Firestone in Des Moines, and Kinze Manufacturing, a family-owned farm equipment manufacturer in Williamsburg, in eastern Iowa.

Pioneer cut about 180 employees with corporate restructuring that began last year. Deere has cut about 1,400 in Iowa; Bridgestone tire, 90; and Kinze, 215.

Deere, Monsanto and DuPont Pioneer say reduced farm profits are dragging down earnings.

Matt Arnold, a St. Louis analyst at Edward D. Jones & Co, said seed and farm equipment manufacturers are "aggressively managing costs."

"We entered this planting season with crop prices that were under pressure, and that created a challenging environment," Arnold said.

The companies will "remain shrewd when it comes to costs" until things in ag improve, he said.

Unless this year's harvest is weaker than expected, Arnold said he doesn't see "a big catalyst" that could boost farm spending.

Bowman, the eastern Iowa farmer, said he barely survived the 1980s crisis that pushed about a fourth of his neighbors out of farming.

"You can't discount the ability of our farm people out there to adjust and adapt to these volatile conditions," said Bowman, who hopes to pass the family operation to his grandchildren. "There will be some people who are going to be hit a little bit harder than others, but all in all, I look for our guys to do what it takes to persevere."

Christopher Doering, based in Washington, D.C., covers agriculture for USA TODAY and The Des Moines Register. Contact him at cdoering@gannett.com or via Twitter, @cdoering. Donnelle Eller covers agriculture, energy and the environment for the Register. Contact her at deller@dmreg.com or via Twitter, @DonnelleE.

About the survey

Sponsored by USA Today and Wells Fargo, the study was designed to gauge how people view their local economies in comparison with their views on the national economy. Ipsos Public Affairs interviewed 3,533 U.S. adults age 18 and over online, including over-samples to reach at least 500 adults residing in each of five states: North Carolina, South Carolina, Iowa, Minnesota and Oregon. The survey of 507 Iowa adults was conducted June 5-10 and was weighted by age and gender based on Census data for the state.

The survey has a credibility interval of plus or minus 1.9 percentage points for all respondents, and 5.0 percentage points for each of the five states. The data were weighted to the U.S. current population data by gender, age, region and household income based on Census data. Statistical margins of error are not applicable to online polls.

Economic forum

USA Today and Wells Fargo will host the first of several economic forums in Des Moines from 2 to 4 p.m. Friday. U.S. Sen. Joni Ernst will join business and community leaders to discuss the state of the Iowa economy. The event, which is by invitation only, will be streamed live at desmoinesregister.com and usatoday.com.