Corn is selling for half of what it did two years ago, which could hurt farm-related businesses.
The prospect of a bin-busting crop has driven corn prices to their lowest levels in four years and raised fears of a prolonged slump for crop farmers in Minnesota and elsewhere.
After three years of profits, analysts are calling 2014 a break-even year, at best. Some think prices could drop more and stay low into 2015.
“It’s the absolute flip of where we were at 12 months ago,” said Mark Greenwood, senior vice president at AgStar Financial, referring to corn prices that have dropped from more than $6 per bushel in 2013 to around $3.60 on the Chicago Board of Trade in the past couple of weeks.
The sputtering prices have significant implications for the economy of the Upper Midwest, which has outpaced much of the nation in recent years partly on the strength of a strong agricultural sector. Not only are corn prices down, but soybeans and some other crops have also dropped sharply.
Beyond thinning farmers’ wallets, the impact could ripple outward to weaken a host of service businesses: seed companies, farm implement dealers, fertilizer marketers, herbicide applicators, and landlords who rent fields to farmers. The record harvest will also overflow grain bins after harvest begins this fall, according to federal officials, further straining railroads that are far behind in shipping last year’s crop.
“A big part of Minnesota’s overall economy is from the outstate that flows through the metro eventually,” said Michael Swanson, agricultural economist for Wells Fargo. “So we better take care of it if we want to have long-term health for a big part of the state.”
Lower prices, of course, are good news for buyers. When corn drops, livestock operators and ethanol producers benefit from cheaper feed and fuel.
Swanson said consumers at the grocery store may benefit eventually from cheaper corn, which is an ingredient in cereals, cookies and other products. But he said it may take months to see price cuts as food companies first try to recoup losses from when corn prices were high.
He said it’s not clear what is driving the magnitude of the swing in commodity prices.
“We say it’s about supply and demand, but you really wonder sometimes,” Swanson said. It “boggles the mind” that the market thinks that corn was worth $7 at one point in 2012 and half of that value two years later, he said. “It’s incomprehensible.”
For Tim Wiersma, who grows corn and soybeans near Albert Lea, it’s time to “pull back on the reins.”
“Typically if a farmer has a buck he spends two, buying machinery, upgrading the house, buying a pickup or some toys or investing into another business or in the market,” Wiersma said.
That happened when corn prices were high between 2011 and 2013, Wiersma said, and both farmers and local businesses benefited. This season will be different, he said, with decent yields in Minnesota and record crops nationally.
“I don’t see this to be a devastating time because we’ve come out of some good years,” Wiersma said. “But if [low prices] persist and the costs don’t retract, we could see some exiting of farmers out of the industry,” he said.
Wiersma said that he and other farmers often hedge their losses by selling on the futures market. He sold some of his expected 2014 corn crop months ago when prices were higher, he said, so that will ease the pain if he loses money or only breaks even on other acres.
Bruce Peterson, who grows corn and soybeans with two brothers and a nephew near Northfield, said that farmers who did not “forward market” by selling some of their crop ahead of time are probably “below water at this point.”
“It’s not all doom and gloom because the prices run in cycles and we’ve had a pretty good run recently,” he said.