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High Prices Enticed Farmers To Produce More, As supply Rose, Prices Dove

A report from the Minnesota Post. “In 2018, Minnesota farmers earned, on average, their lowest net farm incomes in decades, according to a report by Minnesota State and the University of Minnesota Extension. Net farm earnings have declined in three of the last four years. Median net farm incomes dropped 8 percent between 2017 and 2018, from $29,022 to $26,055, the lowest they’ve been since the researchers started surveying farmers 23 years ago.”

“According to Dale Nordquist, associate director of the Center for Farm Financial Management at the University of Minnesota, it’s the longest string of low incomes Minnesota farmers have seen since the farm crisis in the 1980s. As Minnesota farmers see another year of depressed profits, some in agriculture wonder if this is another farm crisis in the making: one like the crisis in the ’80s characterized by farmer suicides, bankruptcies, and farmers getting out of the business.”

“The agriculture industry rode out the Great Recession on high crop prices. Demand was up everywhere. International markets like China and India were importing more and more from U.S. farmers, and ethanol producers drove demand for corn. In 2012, Minnesota farms saw record incomes as a drought took out crops in other Midwest states but spared Minnesota.”

“High prices for crops like corn and soybeans enticed farmers to produce more of them. As supply rose, prices dove, Nordquist said. Though prices have stayed low, farmers continued to produce high yields. That allowed them to make up the income lost to low prices by selling more crops overall, even if the oversupply then reduced prices further, said Joe Mahon, regional outreach director with the Federal Reserve Bank of Minneapolis. ‘You end up with output prices that are near break-even and strong yields that offset some but not all of the effects.'”

“The price of soybeans declined before the tariffs hit, but they’ve dropped further since the trade dispute with China. As of Monday, soybeans were trading at $9 per bushel — roughly two-thirds of what farmers were getting per bushel in 2012.”

“An acre can produce about 50 bushels of soybeans, Nichols said. At $8 or $9 per bushel, a farmer can take in about $400 to $450 per acre. ‘To grow soybeans right now, you’re going to lose money. It’s just a cold, hard fact of life. You’re costs to grow that crop are going to be more than $400 an acre,’ Nichols said.”

“All told, 34 percent of Minnesota farms lost money on operations in 2018, according to the survey. Slightly more — 40 percent— lost net worth after accounting for family living expenses and taxes. Dairy farmers have been hit particularly hard, dropping to $15,000 net farm income in 2018 from $43,000 the year prior, according to the survey.”

“Declining demand, low prices, and oversupply were the start of their troubles, only compounded by trade disputes. Many dairy farmers have gotten out of the business, selling their herds.”

“Agriculture Commissioner Thom Petersen gets reports every other week showing ‘sobering statistics’ of how many farmers are getting notices to enter mediation with banks over defaults. He gets calls from farmers asking for help.”

“‘A farmer calls me on Monday and says, ‘The bank told me I need to sell half my cows by Friday to make my payment,’ Petersen told MinnPost. ‘You try to build it up during the good years and ride out during bad years. We’ve had too many bad years right now to have to ride out. That is a concern.'”

“‘I’m very concerned as we get a little closer to spring, more farmers than in the past will be denied operating loans. What kind of crisis will we have on our hands?’ Scott Carlson, executive director of Farm Legal Action Group, told MinnPost.”

“The Minneapolis Fed reported increases in farm bankruptcies in 2018, a sign that farms can’t just keeping treading water. As farmers lose cash, they become more desperate for credit and they become riskier to lend to, said the Fed’s Mahon. ‘Farmers made a lot of cash during the good years and they’ve had year after year of falling incomes and they’ve been eating into that cash. The nice situation would be that this reverses before that happens,’ Mahon said. ‘But there’s not a lot on the horizon to suggest it will.'”

This Post Has 45 Comments
  1. For newer readers, I’ve been following the farm land bubble for many years as it’s directly related to the QE actions of central banks after last decade.

    Check out the graph on this link:

    https://www.extension.iastate.edu/agdm/wholefarm/html/c2-70.html

    September 24, 2014
    What’s old is new; why farmland is the next great real estate investment.

    http://thealfanogroup.blogspot.com/2014/09/smart-money-loves-next-big-real-estate.html

    It was everywhere, Canada, the UK:

    https://static.agcanada.com/wp-content/uploads/sites/4/2018/06/sask-net-farm-income-2018-dollars.jpg#_ga=2.174527650.1458355660.1553803677-290842118.1553803677

    https://www.farmingmonthly.co.uk/wp-content/uploads/2012/07/knightfrank-graph.jpg

    1. Wall looking at Figure 1 in that article about Farmland prices, consider the following. Per the official CPI calculator, $261 in January 1960 -> $2208 in January 2018.

      It’s bad enough that shelter was turned into a speculative global asset. Apparently, the same fate has befallen the land used to grow the food without which no one can live.

    2. While the commodities bubble drove some of it, farmers were speculating that prices would continue to go higher, so they went “all in.” And, Wall St. jumped into farmland purchases, too. This whole thing is just disgusting. And, look how long it’s gone on. Decades, now.

      If the Federal Reserve can massively distort the economy for 50 years straight, even more, isn’t it kind of like they won? I mean, apparently they can do whatever they want.

      1. The economy is white hot. So how do you get a housing crash with a booming economy and ridiculously low mortgage rates?

        Answer: You don’t

    3. ” as it’s directly related to the QE action$ of central bank$”

      Thanks for those farm/farmer articles Mr. Ben …

      Chapter 12’$ bankruptcy are just starting, even before this years flood$.

      Using crop$ as $acrificial lamb$ in the “Tariff$ War$” is knot helping farm.folks either.

      High land costs, high inputs, high equipment prices, … (calls to suicide/distre$$ centers is increasing too!)

  2. Shut down the blog. Repent ye naysayers of little faith. The Orange County Register has called it March 24 2019: bubble risk is ZERO.

    https://www.ocregister.com/2019/03/24/bubble-watch-southern-california-building-permits-take-biggest-tumble-since-recession/

    This is great news for the guy who just put yet another flipped property on the market a few doors down from me. I think I’ll buy it from him, add a few more updates, and reflip it in six months. Then maybe he’ll buy it back from me and add a few more finishing touches and rereflip it. We are going to get so rich.

    1. While there have been recorded price drops in many places, the economy is still running absolutely white hot right now, which is why it is so absurd that the Fed did a complete 180 and turned from hawkish to dovish. If that wasn’t a transparent signal that Wall St. is all that matters to them, I don’t what is.

      1. The Fed is trapped and everyone knows it now. There is no escape from the NIRP/ZIRP QE death spiral.

          1. As long as the Keynesian fraudsters at the central banks continue to add to their balance sheets, their Ponzi markets will keep levitating higher.

          2. Well, they’re never going to stop so I guess the correct play is to go all in on the stock market?

    1. We’re still in the white hot economy. Things apparently have a long way to run. This is like early 2005.

        1. But it’s not peculiar when you look at the insane traffic around here and the fact that everybody is still partying like 2005. It’s not going to end well, but to say that it’s not happening is to ignore what’s going on around you.

  3. Seems like the trump recession is’a coming our way… got debt? NEW Car lots are overflowing with excess.

    1. The interesting thing about how people feel about the economy is that it is strongly predicated on how you align politically. GOP supporters of DJT feel very good about the economy. Dems feel more pessimistic about the economy. It turns out consumer confidence is very partisan these days!

      1. For us political agnostics, there is the empirical regularity of every Republican President going back decades having a recession on his first term. Perhaps it is different this time?

    2. Saw that last week when buying a used car. The lots were chock full of new ones, but we weren’t in the market.

  4. 1. Buy expensive, rapidly appreciating house that household income does not support.
    2. Use credit cards to supplement income.
    3. Buy expensive car(s) that household income does not support.
    4. See 2.
    5. See 2.
    6. See 2.
    7. Join 7 million other Americans and default on auto loan(s), while still driving car(s).
    8. Default on credit cards.
    9. Enter 2019.

    1. Yes, there’s “angry waters” swirling amongst the citizens … here, in their own words:

      Flooding woe$ add to trade war stre$$ in ‘Trump country’ farm belt

      Reuters | BUSINESS NEWS|MARCH 25, 2019
      Humeyra Pamuk, P.J. Huffstutte

      A near halt in exports has hit a rural economy already struggling after years of oversupply cut farm income$ by 50 percent in the past five years.

      Debt in the agrarian economy has hit levels last seen during the U.S. farm collapse of the 1980s.

      The Nebraska Rural Response Hotline, which provides support to farmers and ranchers, has received a record number of calls about financial distress, said John Hansen, president of the Nebraska Farmers Union. Calls about suicide and depression were up, too, he said.

      The latest piece of bad news came on March 11, when the Trump administration released its 2020 budget and proposed a 15 percent cut for the U.S. Department of Agriculture, calling its $ubsidies to farmer$ “overly generou$.”

      It did not matter to farmers, who helped vote Trump into office, that the budget will not pass muster with Democrats who control the House of Representatives, Hansen said. Some farmers took the propo$ed cut to $ubsidies for crop in$urance as an in$ult.

      “How many times do you have to kick us when we’re down?” he said.

      1. “Hansen said. Some farmers took the propo$ed cut to $ubsidies for crop in$urance as an in$ult.”

        Ethanol Is a Never-Ending Gravy Train for Corn Farmers and Ethanol Producers. But What About the Rest of America?

        Saturday, May 19, 2018

        ike most people I’ve spoken with, I have no innate, inflexible antipathy to ethanol in gasoline. What upsets me are the deceptive claims used to justify adding mostly corn-based ethanol to this indispensable fuel; the way seriously harmful unintended consequences are brushed aside; and the insidious crony corporatist system the ethanol program has spawned between producers and members of Congress.

        What angers me are the legislative and regulatory mandates that force us to buy gasoline that is 10 percent ethanol—even though it gets lower mileage than 100 percent gasoline, brings none of the proclaimed benefits (environmental or otherwise), drives up food prices, and damages small engines. In fact, in most areas, it’s almost impossible to find E-zero gasoline, and that problem will get worse as mandates increase.

        https://fee.org/articles/ethanol-is-a-never-ending-gravy-train-for-corn-farmers-and-ethanol-producers-but-what-about-the-rest-of-america/

        1. Last gas fill-up was this week. Kind of a weird feeling realizing you will never need to fill up at a gas station again.

          1. Thanks. I’m loving the cheap gas, thanks in part to others like yourself who have voluntarily removed themselves from the market.

          2. never need to fill up

            The life of luxury, letting someone else shovel the coal for you hundreds of miles away.

            That $50,000 would keep my gas tank full for another 100 years.

        2. Iffin’ yer really upset about; “What angers me are the legi$lative and regulatory mandate$ that force us to buy ga$oline that is 10 percent ethanol …”

          (Actually, eye don’t believe anyone is forced to buy ethanol gas in America)

          then there’s an American native citizen you might wish to throw yer support behind!:

          EXCLUSIVE: Elizabeth Warren lays out plan to target corporate agriculture, support family farms

          BRIANNE PFANNENSTIEL, KIM NORVELL | DES MOINES REGISTER
          Mar. 27, 2019

          Warren’s campaign has focused on the idea that the federal government no longer works for working families and small businesses but instead is rigged in favor of the wealthy and well-connected. The senator has separated herself from a crowded field of Democratic contenders early in the race by releasing multiple policy proposals shaped around those themes.

          The policy she is unveiling Wednesday follows in that same vein but more closely touches Iowa, where nearly 90 percent of the state — roughly 30 million acres — is covered in farmland.

          Rural Iowa, in particular, has felt the effects of farm consolidation, which creates ripple effects through local economies. According to data for the U.S. Agriculture Census, Iowa lost 32,600 farms during a 30-year period that ended in 2012.

          1. The long version 3:20

            She is a true liberal though, the way she pivots from being a nasty attack dog to a victim when she was presented with being thrown off the plane was right out of the playbook.

            Passengers Cheer As Liberal Hag Is Thrown Off Airplane For Berating Trump Supporter.

            1,772,187 views

            https://www.youtube.com/watch?v=C-3XbycyQrk

        1. No worries Jeff.er.referee, eye’m an amish.taoist sorta fella, eye finds “True.Believer’$” of all types, … rather humorou$

          (Yer ethanol post is more related to the Mega.Industrial.Farming.Financial.Complex, Knot really a $taple of i$$ues facing “$mall.family.farmers” … think Kentucky hemp & Georgia peach & Kansas sunflower producers)

          Comparing Apple’$ to Orange$ arguement$ …

          1. “(Yer ethanol post is more related to the Mega.Industrial.Farming.Financial.Complex, Knot really a $taple of i$$ues facing “$mall.family.farmers”

            “Comparing Apple’$ to Orange$ arguement$ …”

            By Liz Core on Apr 15, 2015

            So, meet a few of Iowa’s farmers

            Brock Hansen

            “Almost 99 percent of our corn goes to ethanol plants”

            Farm stats: 2,300 acres of corn and soybeans in Baxter, Iowa

            What’s the history of your farm?

            On my mom’s side, our land goes back five generations. We strictly grow corn and soybeans, along with a small amount of alfalfa. My mom and dad have their own operation, and my wife and I have our own operation — but we work together.

            How do you sell your product?

            First, I look up who has the best prices and contracts. Almost 99 percent of our corn goes to ethanol plants, and the byproduct is turned around and fed to livestock.

            Mark and Julie Kenney

            Farm stats: 3,000 acres of corn, soybeans, and oats in Nevada, Iowa

            Ward and Sandi Van Dyke

            Farm stats: 2,000 acres corn and soybeans in Pella, Iowa

            https://grist.org/food/think-big-corn-farmers-are-evil-meet-a-few-of-them/

          2. 640 acres = 1 square mile

            How much did$ 2,300 acres equal?

            Define: $mall farmer$

            They is trying to increa$e the chapter 12 bankruptcy to go from $ 4,000,000.00 … to … $10,000,000.00

            Keep.a.tryin’ Jeff.er.referee, something subtle tell$ me you.know.knot.what ye try to $peak.of!

  5. “As Minnesota farmers see another year of depressed profits, some in agriculture wonder if this is another farm crisis in the making: one like the crisis in the ’80s characterized by farmer suicides, bankruptcies, and farmers getting out of the business.”

    Sounds like great times for bankers.

  6. I get it they got their subsidies cut.

    But that’s not the reason the Real Journalists were so angry in the montage I just saw from the end of this week.

    By Mario Parker and Alexandra Semenova
    March 11, 2019, 5:46 PM EDT

    The plan would trim the USDA budget by $3.6 billion to $20.8 billion, lowering subsidies for crop insurance premiums to 48 percent from 62 percent, and limiting subsidies for growers who make less than $500,000 annually.

    https://www.bloomberg.com/news/articles/2019-03-11/trump-to-farmers-love-you-but-still-cutting-your-subsidies

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