A period of belt tightening has begun for those who make a living from agriculture, and it will continue until a more normal kind of situation returns in several years.
A Purdue University farm expert delivered that message to local farmers Wednesday morning during the Farmers Breakfast in Brownstown.
Chris Hurt, editor of the Purdue Agricultural Economic Report, said a boom period in agriculture fueled by higher demand from China and other foreign counties and higher prices because of those demands ended a couple of years ago.
“Everyone’s standard of living went up during the boom,” he said.
Growth in China and other countries, including Russia and Brazil, has since slowed.
Low interest rates during the boom years also made it easier for other countries to buy our exports, Hurt said.
A strong dollar now is making it harder for some of those countries to buy America’s excess grain production, and interest rates are expected to rise in the coming years.
“They’re not buying as much, and inventories are rising,” Hurt said. “That’s the period we are in now.”
Hurt said narrow profits have begun to produce much lower farm incomes than during the boom years.
“Farm incomes are about half of what they were, and that changes spending behaviors on farms,” he said.
A couple of years ago, some equipment manufacturers, including John Deere, recognized that change and made some major adjustments in the way they did business to remain viable, Hurt said.
In the coming years, Hurt said corn prices are expected to gradually improve to somewhere slightly higher than $4 a bushel. They’re in the mid $3.50 range and may have bottomed out, Hurt said.
But the day of $5 per bushel corn won’t be back any time soon, he said.
“The joke is that you’re going to have to sell two bushels to get $5 corn,” Hurt said.
Soybean prices are going to remain flat for the next three or four years because of a lack of exports and soybean production in South America, he said.
The cost of planting grain crops, however, needs to come down in the next few years to match income, he said.
“We’re going to have to get costs back down to help with flat revenues,” he said. “We’re going to need multiple years of driving costs down.”
Lenders can help bridge the gap by spreading out loans over a period of years based upon the borrower’s financial situation, and there’s also government programs to help with the difference, he said.
He said producers who paid down debt during the boom years should be in a great position to get through this period.
Hurt said based upon the National Weather Service forecast for the next three months, farmers will be able to start spring planting early.
“You should have your planters ready to go by Leap Day,” he said. “That’s just a few days away. If you don’t have them ready, get them ready.”
The weather service is calling for a warm and dry spring, Hurt said.
Although it’s too early to forecast, a dry spring would allow roots to get established, and the yields could be good if the summer is ideal and there is moisture in July and August, he said.
Temperatures may be higher than normal this summer, and that will affect the harvest.
“That increases the odds of yields being below normal,” he said.
Overall, Hurt said he still expects farm income this year to be a little better compared to 2015.
The Community Foundation of Jackson County organized the event in partnership with Purdue University Cooperative Extension Service and Jackson-Jennings Co-op.