Drop In Farm Income Not Surprising, DTN Analyst SaysMon, 17 Feb 2014 13:06:55 CST
The latest USDA Economic Research Service report detailing a 26-percent year-over-year drop in farm income shouldn't come as a big surprise. That's according to DTN Senior Analyst Darin Newsom. He spoke recently with Radio Oklahoma Network Farm Director Ron Hays and says the causes are relatively obvious, but not overly worrisome. (Click on the LISTEN BAR at the bottom of this story to listen to the full interview.)
"If we look at what the value of the crops themselves has done, it's plummeted this last year from, say, where we were in 2012 and 2011. So, no real surprise that farm income is down. But, we have to keep in mind what we were comparing it to. We were comparing it to some very historic times here in the past, particularly on the grain farms."
He says the price levels of a couple years ago were simply not sustainable and we shouldn't expect to see them again anytime soon.
"It's going to take some extraordinary market situations again to get corn back up near the $8 price level and soybeans as high as they ran. It's going to take something out of the usual to see that again. Right now, I think we're more on the downward side. We're going to stabilize in these prices. So, income is not terrible, but it certainly is not what it was in those years."
Newsom says he believes markets may be reaching a point of equilibrium, especially as they pertain to corn. He says soybeans are a different story and that they tend to be more volatile, but stability in the corn market will tend to moderate soybeans as well. Newsom says the new lower-price regime has had some effect on planting decisions, but not as much as had been expected earlier.
"The early talk was that we were going to see three to five million acres of corn switched over to something else and we could still see that. That may be on the high side. And if we do, I think the bulk of it could go over to beans. It would not surprise me to see a smaller switch this year because the U.S. likes to grow corn and the corn market we have right now is still saying that it's not a terrible thing to do. We could get by another year in planting a great deal of corn. So, I do think we've seen a change in mindset a little, particularly in the fringe areas that have been brought into corn production in the last five to ten years. But, at least in the heart of the corn belt, I don't know that we are going to see it change that much."
The price of wheat, Newsom says, is largely tied to corn, but they don't always march in lockstep. He says traders are keeping a close eye as spring weather draws closer.
"Wheat really needs to find some help. It's going to have to find some help from these other grains. As we look at the winter wheat, both in the Southern Plains and up into the Ohio valley and so on, there's this talk right now of the possibility of some winter kill. But, I think it's too early. We have to see the crop come out of dormancy. Hanging over the market's head is this enormous crop that we had in Canada and global supplies that still are a bit burdensome. So, we're going to have our times where there's going to be a few scares and it's going to cause a bit of a rally in the market, but, longer term, it's going to be difficult to get these markets to move very much."
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