Farmers trying to decide how much corn or soybeans to plant in 2015 are being pulled in different directions, agriculture experts from Wells Fargo & Co. said.
The outlook discussion, conducted online for farmers and others in the food industry this week, came just before the U.S. Department of Agriculture publishes its prospective plantings report for 2015, scheduled for March 31.
Corn is still king with the greatest potential profits, but it is also the most costly crop to put into the ground, said Lon Swanson, Wells Fargo agricultural consultant in Kansas City.
"We've enjoyed high grain prices for several years," he said, and even though corn prices dropped lower last year, good weather and near-record yields kept revenue high. Those profitable years have pushed up costs for seed, fertilizer, herbicides and cash rent for fields, he said, none of which are showing signs of dropping significantly.
The result is that farmers will need to sharpen their pencils to determine how to shave costs, such as using less fertilizer or buying less expensive seed. Some may plant more farmland with less expensive soybeans in 2015, or stay on track with corn and gamble that corn prices will improve.
"A lot of decisions will be made by what their bankers will allow them to put into the ground," Swanson said.
Large shifts between crops, such as a switch to planting a few million acres more soybeans and less corn, can affect the futures markets for both commodities.
Ted Tice, a Wells Fargo agribusiness consultant based in Chicago, said a big factor in farm economics is land costs: whether farmers own most of their land, whether they purchased farmland recently at high prices, and whether they pay high cash rents to farm others' fields.
Many farmers are strong financially from recent profitable years, Tice said, and may choose to plant corn even with thin margins for profit, potentially.
"There are estimates that a lot of farmers have about two-and-a-half years' worth of liquidity that they could burn through before they really get into some tight situations," he said.
Tice said fertilizer costs increased in the past year, even though the natural gas and feedstocks used to make synthetic fertilizer declined. He expects that fertilizer prices will remain high until late spring because farmers need to buy the products now and apply them in the next four to six weeks. After that, he said, fertilizer will likely drop in price.
Mike Swanson, chief agricultural economist for Wells Fargo, said land rental prices will also need to adjust down at some point. "There's going to be too much pressure for them not to come down," he said.
Other financial institutions and academics also speculate about farmland planting at this time of year, but the industry also awaits the U.S. Department of Agriculture's prospective planting report next week.
The report is based on surveys of 82,000 farmers each March — including about 3,300 in Minnesota — to determine their plans for the upcoming growing season.
Dan Loftus, Minnesota state statistician for USDA, said the projections are one of the most important surveys that his agency conducts each year. It includes the types of crops farmers intend to plant, how many acres they intend to plant, and the amounts of grain and oilseed they store on their farms.
Mike Swanson said the information will be important, but not necessarily definitive.
"We'll see what the farmers say," he said. "But what we need to be concerned with is that they sometimes say one thing and do another."