Frugal farmers see bit brighter forecast for income

WASHINGTON — Farm income losses this year should be less than expected, as farmers throughout the Corn Belt slash expenses in response to a prolonged slump in commodity prices.

Farm profitability in 2016 will fall 12 percent from a year ago to $71.5 billion, according to Agriculture Department estimates released Tuesday. That's significantly better than was forecast in February, when profitability was expected to tumble to $54.8 billion.

Farmers such as Bob Bowman are doing whatever they can to bring down their costs. The corn and soybean farmer near DeWitt said he's not making any "unnecessary" capital purchases such as equipment upgrades and is spending only when something breaks or has to be replaced.

"It's going to be close; we might not cover all of our depreciation," Bowman said of his razor-thin profit margin. "It's definitely going to be a really lean year."

As a result of those more frugal choices, production expenses are expected to be $27.7 billion less than the USDA forecast in February, with farm expenses now forecast at $348.7 billion.

Farmers have had little choice. This will still be the third straight year that U.S. farm income has fallen, with no signs that the slump will abate.

Profitability will be down 42 percent from a high of $123.8 billion just three years ago, when tight supplies and strong global demand for commodities led to record income.

“Farmers have changed their behavior to basically reflect prices and production and they're economizing, paying less for fuels, oils, feed, seed,” said James Williamson, an economist with USDA’s Economic Research Service.

Amid that belt tightening, the USDA predicts massive harvests nationwide, totaling 15.153 billion bushels of corn and 4.060 billion bushels of soybeans — both all-time highs.

Iowa, the nation’s top producer of both crops in 2015, is forecast to produce a record corn crop, and its second-largest soybean harvest this fall.

According to USDA, incomes generated from corn and soybeans have declined sharply since 2012.

Low crop prices will batter farm income, USDA says

This year corn cash receipts are forecast at $44.87 billion, a drop of 38 percent from four years ago, with soybeans estimated at $35.48 billion in 2016, a decline of 20 percent during the same time period.

Overall, annual crop receipts are forecast to decline 3.7 percent to $182.3 billion. Livestock receipts are forecast to fall 9.8 percent to $171 billion, in large part because of lower prices for all major animal products, especially eggs.

Average household farm income this year is projected to be $21,647, down from $24,717 last year. Just two years ago, the average household farm income topped $31,000.

The debt-to-equity ratio for U.S. farms also rose for the fourth consecutive year, the government said.

Standing near an empty grain cart display at this week's Farm Progress Show in Boone, Ia., Roy Chamra said Tuesday he's cut costs by not buying "these things sitting here."

"We've just tried to make older equipment work better. We're doing more maintenance," added Chamra's son, Andy.

The men raise corn, soybeans and cattle near Oskaloosa. Andy Chamra said expenses to grow a crop, such as seed, fertilizer and herbicides, have been slow to fall.

"We're trying to get by with cheaper inputs," he said.

Roy Chamra said he recently sold corn for less than $3. "The checking account stays fuller longer when it's $7 or $8," he said.

Chad Hart, an Iowa State University agricultural economist, said the downturn in agriculture probably won’t relent until adverse weather cuts supplies.

“I’ve had a few farmers ask me if these low prices won’t spur demand,” said Hart. “It really can’t. Demand is already really strong. This is a market waiting for supplies to fall.”

Monsanto; DuPont, the parent of Johnston-based seed company Pioneer; and other agribusiness companies have reported declining revenue and have cut jobs.

Deere, the world's largest maker of farm equipment, announced earlier this month it will lay off about 145 production workers in Waterloo and Davenport in September — the latest string of job cuts for the company.

“You can see the impact on the farm and what people buy,” Bill Northey, Iowa’s agriculture secretary, said on the sidelines of the Farm Progress Show. "You can see the impact, direct and indirect. The question is how long the downturn will be?”

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After 20 month of losses, Dennis Mashek, a dairy farmer near Calmar in eastern Iowa, said the USDA’s $20 million cheese purchase to help food banks has improved milk prices.

“You can survive one year of losses by tightening your belt, but getting by a second year is pretty hard,” said Mashek, who farms with his two sons. “That’s when you have to have bankers who will stand with you.”

“We had $12 milk for about seven months, and you need about $18 to break even,” Mashek said.

He said his family is focused on cutting costs.

"You don't go out, trading for new equipment," he said. "You fix what you've got."

Sen. Chuck Grassley, a member of the Senate Agriculture Committee, told reporters Tuesday that the economic challenges facing agriculture have been a popular topic among producers during his 99-county tour in Iowa scheduled to wrap up later this week.

"I'm hearing from more and more Iowans at my town meetings concerned about prices, and where this market is heading," said Grassley, who also farms corn and soybeans with his son in Butler County. "I have no doubt that I'm going to hear even more."

Contact Christopher Doering at cdoering@gannett.com or reach him at Twitter: @cdoering