The Farm Belt, one of the hottest parts of the U.S. economy in recent years, is rapidly cooling.
The Midwest faces plunging crop prices and stubbornly high production costs. Corn prices have dropped from $7.54 a bushel around July Fourth in central Iowa to just $3.81 a bushel on Tuesday. But growers are hearing from suppliers that fertilizer and seed costs could rise by more than 40% each for next spring’s plantings.
Some farmers are postponing equipment purchases and considering whether to plant less of such high-cost crops as corn come spring. Stock prices of agricultural companies have plummeted: The shares of Bunge Ltd., which sells fertilizer to farmers and processes soybeans, have dropped 67% since June, while Archer-Daniels-Midland Co., a grain processor and exporter, is 60% off its 52-week high
The price of soybeans, recently harvested, has fallen by half since July.
Many Midwest farmers worry that the combination of lower crop prices and high costs will usher to an end, by next year, one of the most flush periods in American farm history. This year, the U.S. Agriculture Department is predicting that U.S. net farm income will hit $95.7 billion, up 10.3% from last year’s $86.8 billion and nearly double the $58 billion of two years ago.
Now, farmers fear a big drop in next year’s profits. Most economists figure the Farm Belt can weather a slowdown, partly because farmer balance sheets are strong, and partly because federal mandates will increase the amount of corn consumed to make ethanol fuel next year. Also, economists think global demand for U.S. crops will remain robust despite recent economic troubles.
Still, U.S. growers clearly face a riskier, more volatile environment in which to make bets on what to grow and how much. “I was finally enjoying farming, but it’s real scary right now,” said Keith Richert, a 38-year-old York, Neb., corn and soybean farmer who is shelving plans to replace his eight-year-old harvesting combine, a purchase that would cost more than $300,000.
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