Farm economy in recession!
Corn Belt Newsletter for August
ONE BIG THING: Farm country in recession: With the recent news that John Deere would be laying off nearly 500 workers and Kinze manufacturing would be cutting 193 workers, this is the canary in the coal mine for the farm economy. Commodity prices continue to take a beating. New crop corn is down to DEC CORN $3.87 a bushel and new crop soybeans are down to NOV SOYBEANS $9.70 a bushel. These prices are well below the cost of production. Why is this happening? Despite the massive amounts of rain that fell across northern Iowa and Southern Minnesota earlier in the growing season, the rest of the Corn Belt has had good moisture. Take a look at the drought map at the end of this newsletter. With adequate moisture, it looks like we will have a bumper crop in both corn and soybeans. The latest WASDE report confirms this. Couple that with dismal export sales for soybeans and a big crop being planted in South America starting next month, there will be more supply than demand. Simple economics tells us that this will lead to lower prices, which it has. The need for an updated farm bill is more critical than ever. Especially an update of Title 1 of the farm bill, which is a vital safety net when prices start to fall as they have. I have provided a link to the farm bill below. It is a vital piece of legislation that affects every American. And a critical safety net for farmers.
Link: Farm Bill Primer
Link: Kinze Manufacturing lay-offs
Link: John Deere lay-offs
How is this affecting the land market? With the continuation of high interest rates, input prices remaining elevated, commodity prices below the cost of production, and a lack of exports it’s no wonder the price of farmland has decreased. Farm Credit came out with their benchmark Farm Value Trends Report showing that land prices in Iowa have declined -2.4% in the last six months. Interestingly enough, the report showed that Iowa land prices have increased by 58.3% in the last five years. From what I can see there will be more downward pressure on the land market in the coming months. Until commodity prices start to climb and interest rates fall the trend of lower land prices looks to continue.
Check out the rest of the newsletter for important indicators to pay attention to that affect the land market and agriculture, as well as a video with notable land sales from across Iowa for July.
Link: Farm Credit Farm Values
It’s my favorite time of year. There is nothing more fun than attending farm shows. The pictures above are from the Orange Spectacular and Minnesota Farmfest.
Commodity Markets-
Corn
Feed demand- For 2023-2024 feed demand was 5.775 billion bushels. USDA’s latest estimates from the monthly WASDE report remain unchanged at 5.825 billion bushels of feed and residual use.
Why It Matters- Feed demand is about 40% of corn usage. With the continued decline in corn prices, we should see the number of bushels used for feed continue higher which should help support prices.
Link: WASDE
Ethanol- 2023 ethanol demand was 5.45 billion bushels. The recent estimates from the monthly World Agriculture Supply and Demand Estimates (WASDE) left those projections unchanged for 2024 at 5.45 billion bushels.
Why it Matters- Ethanol makes up roughly 40% of corn usage. Lower corn prices should increase demand. Keep an eye out for more guidance in regards to the 45Z tax credit. Also, keep an eye out for continued development of the sustainable aviation fuel market. 45Z and SAF won’t help prices in the short term but could be critical for supporting prices in the future.
Link: WASDE
Exports- Projections for corn exports continue to be 2.25 billion bushels for 2024. The latest report remained unchanged at 2.25 billion.
Why it Matters- Exports comprise about 20% of U.S. corn demand. Lower prices will more than likely increase export opportunities and hopefully support prices. Last week’s biggest buyer of corn was Mexico.
Link: WASDE
Link: Exports
Soybeans-
Crush- The National Oilseed Processors Association (NOPA) crush data for July was 182 million bushels. Last year at this time it was 173 million bushels.
Why it matters- Roughly half of U.S. soybeans are used for crushing. Soybean oil goes into many products like your coffee creamer and mayonnaise. With crush plant expansion across the United States, expect these numbers to continue to trend upward.
Link: WASDE
Exports- About half of our U.S. soybean crop is exported. The USDA revised export projections from 1.825 billion bushels to 1.850 billion bushels. China has been our biggest buyer historically. Last year, they bought 88l million bushels of US soybeans. They have bought 80 million bushels over the last month.
Why it matters- With a huge soybean crop coming the only thing in the short term that could drive the market higher besides a black swan event is exports.
Link: WASDE
Link: Exports
ONE Big Thing for Corn- The pro-farmer crop tour wrapped up last week and showed the national yield for corn will be a record.
One Big Thing for Soybeans- The crop tour showed massive pod counts for soybeans. We need another 10 days or so of good weather to finish off the soybean crop.
Link: Crop Tour
CFTC- Commodity Futures Trading Commission (CFTC) shows Managed Money has a short position in the corn and soybean markets. Short corn contracts of (257,259) and short soybean contracts (167,926).
Why it matters- With the high amount of short contracts the funds have currently this will continue to weigh on both the corn and soybean markets.
Link: CFTC
Interest Rates- The sources I am talking to say yearly operating notes range between 8%-9%.
Why it matters- With the Federal Reserve signaling a rate cut in September this will be welcome news to farm country. Farmers have seen the price to borrow money double over the last couple of years.
30-year mortgage rates- The current 30-year mortgage rate is 6.5% compared to a year ago which was 7.25 %.
Why it matters- When it is difficult to get a 3% cap rate on farmland and you can put your money in a bank CD for 4-5%, simple economics tell you that people will go where they can get a better rate of return. Interest rates are a big driver of the farmland market. With borrowing costs remaining high it will make it less attractive to own farmland.
Inflation- Monthly Consumer Price Index (CPI) data showed just a 2.9% year-over-year increase.
The June jobs report showed monthly job gains of 114,000 with unemployment rising to 4.3%. Compared to last month of 4.1%
Why it matters- With friendly inflation numbers look for the Federal Reserve to lower interest rates in September.
Fertilizer Prices- Sources I am hearing from say generally;
NH3 Anhydrous Ammonia is around $650 per ton. Potash is $420 per ton. And MAP is $750 per ton.
Why it matters- With tight margins for the 2025 crop year input prices which are always important to pay attention to will be especially important in 2025.
Weather- Below is your 8-14 day forecast from the National Weather Service. With most of the crop entering the final stages of grain fill, any weather scares will be limited to wind or hail.
What to watch for: We didn’t see much of a weather market scare this growing season. Our focus will be on weather in South America starting next month as they begin to plant their crops.
Agriculture News of Note-
Notable Land Sales Video- Check out the video below for notable land sales from Iowa for July!
Thanks for reading the Cornbelt Newsletter! If you are looking to buy or sell a farm or want an evaluation of your property reach out to me.
Contact information: Joshua Manske (Farm Realtor)
Cell: 515-707-1774
Email: joshuahmanske@gmail.com