American Farm Bureau Federation chief economist Bob Young says the increase in agricultural commodity prices resulted in excellent farm income values over the past decade, but a decline lies ahead.
The tough outlook is primarily based on lower grain values driven by decreased demand. Young says export demand for certain crops and softer corn-for-fuel demand is lowering prices as production numbers return from drought-tortured lows.
Young presented his forecast during the Montana Farm Bureau Federation’s annual meeting where he was the keynote speaker. According to the Billings Gazette, Young acknowledged the rise in farm income value from 2003 to recent years, increasing from $275 billion to $425 billion, but pointed to factors ahead.
“We’ve gone from something in the neighborhood of $275 billion to $425 billion since 2003. That is a hell of a story,” Young said. “You’d almost have to view that as ‘This is the best of times.’ I’d also tell you that whatever goes up like that, sooner or later, more than likely, one has to expect, one has to think about getting ready for it to go the other way.”
Young says ethanol was a key driver in the corn market up until 2010, but ethanol has been affected by lower gasoline consumption. The November WASDE report shows the USDA’s World Agricultural Outlook Board estimated that 4.648 billion bushels of corn were used to produce ethanol and co-products during the 2012-13 marketing year, down 371 million bushels from the estimate for the 2010-11 marketing year.
Soybean demand is also likely to fall with demand from China slowing by half over the next decade.
Land values could also decline from record levels as interest rates tick higher. Young predicts rates will increase from between 2.5 to 3.5 percent to 5 or 6 percent.
Although farm values may fall, farmers are facing historically low debt ratios and Young says farmers are in the best financial situation they’ve ever seen.
Young also identified the 5-year farm bill as a top priority for the organization. Producers face the challenge of planning for next year without knowing what a new safety net will provide.