Bumper harvest will likely mean losses for Iowa farmers

With a corn harvest that's shaping up to be his best ever, Steve Anderson hopes the added grain he puts in his bins means he can break even this year, maybe even put some money in the bank.

A lot depends on whether Anderson can wait out the market until prices rise. So, for now, he's storing nearly three-fourths of his corn and soybeans on his eastern Iowa farm and at a local elevator — making the same high-stakes gamble as so many farmers across the country.

“I was certain before harvest that I was going to lose money on this crop,” said Anderson, who farms about 3,400 acres near Conrad. “Depending on the market, I now expect to break even or show a small profit if the stars align correctly. … And I’m not totally optimistic of that.”

The truth is that the outlook for making a profit this harvest remains grim, and it likely won't be any better in 2016, said Chad Hart, an Iowa State University economist.

Farm income in Iowa fell 38 percent to $5.24 billion last year from 2013. And if Iowa matches the projected national decline for 2015, income would fall another 36 percent to $3.3 billion.

That's a dramatic drop after Iowa’s ag income hit a record $9.6 billion in 2011.

"The financial stresses we’re seeing on-farm are still going to be there next year,” Hart said. “The cost side isn’t moving much. And crop prices are stable to improving a little bit, although not significantly.

“We’re still talking about negative margins.”

The trickle-down effect

Already, the farm slowdown is trickling through the Iowa economy.

Deere & Co., the farm equipment manufacturer, has trimmed 1,500 workers since last year, hitting plants in Ankeny, Waterloo-Cedar Falls, the Quad Cities and elsewhere. And Kinze Manufacturing, the Williamsburg maker of planters, grain carts and other farm equipment, cut 215 workers in June.

While the ag sector's troubles aren't expected to tank the state's economy, it likely will drag down growth. A report designed to forecast shifts in the Iowa economy shows eight months of declines, weighed down primarily by agricultural weakness.

"Farming is spilling over into durable goods manufacturing," said Amy Rehder Harris, chief economist at the Iowa Department of Revenue.

Farmers hold on to crops, bank on higher prices

Those manufacturing losses can in turn trickle into retail, insurance and other industries, both in cities and rural areas. But Harris believes strength in construction, financial services and other industries will continue to push growth.

The flood of grain with this year's near-record harvest will likely further depress prices this fall. Corn and soybean prices have been cut in about half after hitting record highs in 2012.

Anderson and other farmers are hoping to catch higher prices in the spring, when grain processors, food manufacturers, livestock and biofuels producers have whittled down the massive supply. But there's no guarantee those prices will improve.

Hart expects corn prices will be “a little better in 2016,” but soybean prices likely will remain unchanged.

Operating on a knife's edge

The precarious balance between profits and loss this year adds pressure to decisions made this fall.

Iowa State University experts anticipate a wetter-than-normal harvest, meaning farmers will have to spend money drying corn and soybeans, further eating into the hope of turning a profit.

Mark Licht, cropping systems agronomist at Iowa State University, said farmers might choose to let crops, especially corn, stand in the fields longer to further dry it.

That could lessen their yield, especially if stalks fall from disease that comes from the wet conditions and cool weather so prevalent this summer.

Anderson said his crops grew unusually tall this year: His corn grew about 10 to 12 feet high, and his soybeans are shoulder-high on his 6-foot frame.

“It’s unbelievable,” he said. “They were too healthy for their own good.”

Storms pushed over his soybeans, making the harvest tougher.

"They grew so tall, every time it rained, they’d fall,” Anderson said. “After a couple times of that, they never stood up."

Iowa’s fast-moving harvest also could potentially be slowed as elevators occasionally stop accepting additional corn and soybeans to dry what they've got. Drying is critical to avoid the mold and rot that followed the wet 2009 harvest, said Charles Hurburgh, an ISU agricultural engineer.

Farmers and elevators lost money.

“I think we have learned a few lessons,” Hurburgh said.

Booming yields abound

The soybean harvest is projected to be the state’s largest ever, with farmers expected to combine 525.8 million bushels. The corn harvest will be the state's second largest at 2.41 billion bushels.

If those numbers hold, Iowa would be the nation’s largest corn grower and second-largest soybean producer.

Through September, Iowa farmers had harvested just 7 percent of Iowa’s nearly 10 million soybean acres, and 5 percent of 13.3 million corn acres. An updated report released Monday will likely show significant progress, given a week of mostly dry weather.

Bill Northey, Iowa’s agriculture secretary, said not all farmers are seeing booming yields. Parts of southern Iowa saw rain this summer that drowned out crops and flooded fields.

Those farmers could be among the hardest hit financially, with both reduced yields and low market prices, Northey said.

“We need the bushels, no matter what the price is,” he said. But “it will take more bushels to ‘dollar out,’” or post a profit, this year.

Anderson has already made some hard decisions about next year.

He gave up some land where rents were too high to make a profit. He did the same thing last year.

Getting landowners to drop rents to better reflect the revenue coming from the field has been a hard sell, he said. Half his landlords refused to consider financial projections for profits and losses.

“They just didn’t want to see it,” he said. “One landowner said, ‘We already took a cut last year. There’s no way we can take another one.’”

But cutting acres that lose money minimizes losses, Anderson said. "I’m a bottom-line guy. I know my numbers. I know where I need to be."