Agriculture remains one of the strong parts of the economy in the eyes of the Federal Reserve. For the past two months, Fed economists have generally given agriculture high marks across its districts. “Strong crop yields were reported, while in general, agricultural commodity prices fell and drought conditions stabilized or improved. Richmond, Chicago, and Kansas City reported strong crop yields for fall harvests. Contacts in the Kansas City District noted decreases in farm incomes and increases in the demand for farm operating loans, as prices softened in response to rising yields. The Chicago, Kansas City, Dallas, and San Francisco Districts indicated strong demand and increased profitability in livestock due to lower feed costs. Atlanta contacts reported making investments in various types of agricultural equipment as a means to further improve production and contain costs. Prices paid to farmers for wheat, corn, and soybeans fell in Atlanta, Chicago, and Minneapolis. However, in Chicago, higher exports cushioned the decline. The Kansas City District indicated rising farmland values, although the rate of increase slowed.” That is the summary of the Fed’s latest Beige Book, but what does the rest of it say?
While good crop yields will help boost your income for 2013, lower prices will keep them in storage. As a result, USDA’s Economics Research Service (ERS) says farm cash income will be down some 3% from last year when there were more harvest time sales of grain than this year. Nationally, 2013 net farm income will be $131 billion, up 15% from 2012. Net cash income for 2013 will be $129.7 billion, down 3.4% from last year. Since ERS expects delayed marketing, crop cash receipts will be down 3% in 2013. Additionally, livestock receipts that are nearly 6% higher than last year will not be sufficient to offset higher production expenses and the lower crop income. There are many more details in USDA’s financial picture for 2013.
Yes, you like to grow corn and talk about corn, but have you paid any attention lately to the soybean market. At the end of the harvest season, beans are now at levels not seen since mid-September, and soybean futures climbed 80¢ since earlier in the November. Beans have some octane. And since $13 (beans in the teens) is your benchmark price, your marketing plan may need a jumpstart on implementation. Let’s do that.
In his recent analysis of crop insurance guarantees, University of Illinois Farm Management Specialist Gary Schnitkey makes the observation that the significantly lower guarantees expected for the 2014 crop demonstrates the inappropriate nature for crop insurance to be the lone safety net for agriculture. Crop insurance can provide support from planting to harvest, but once the fall guarantee is set on a revenue protection policy, there is no more that crop insurance can do to provide financial support. Consequently, the type of safety net and the level of funding that Congress will appropriate become increasingly important as commodity prices continue to spiral downward.
Have you looked at November 2014 soybean prices and December 2014 corn prices? Do they provide any profitability? Will they cover your breakeven costs of production? They are different from day to day because of trading activity, but look at their long term performance. Where have they been and has there been any volatility that might return? Probably, they are not going to move much unless there is a substantial crop threat that looms next year. In that case, how will they perform during the month of February when the spring crop insurance guarantees are established? What you see is what you get, and your crop insurance protection level will not protect a lot of money.