Caution is the watchword for many Hoosier farmers, which could mean shift to more corn

China has agreed to make big purchases in agriculture and energy goods, while the U.S. would drop $200 billion of $250 billion in tariffs on Chinese imports, according to the Associated Press. The Trump administration has stated it wants a measure that will enable the U.S. to reinstate tariffs if China does not meet specific promises, according to the AP.

China’s counter-tariffs on U.S. exports have made soybeans and other U.S. farm goods costlier in China and have harmed U.S. farmers. Many analysts say they expect some limited agreement between the U.S. and China to be reached in the coming weeks or months. 

“I think it will be a very cautious year,” said Frank Miklozek, who farms 1,000 acres from Corey to Prairie Creek in Vigo County.

“I think that people are looking at the tariffs, which is pushing them to maybe lean more to corn (production) than soybeans. For our own operation, we will be cautious as we can, but make the best investment we can to get the best return,” he said.

For Miklozek, that means a shift to more corn.

“We were heavy on the soybeans in 2018, so we will be back to 50/50 this year,” planting equal corn and soybeans. In 2018, his farm had 70 percent of crops in soybeans and 30 percent in corn.

Yet, production of corn costs more than soybeans.

Corn can cost $300 per acre versus $75 to $100 for soybeans. That’s the offset, Miklozek said, with a higher expected price for corn.

“If we get the tariff situation resolved with the soybeans and China does honor promises of buying $30 billion worth of U.S. agricultural products, then I think you will see some market recovery. But if they don’t, the market is not being nice, so that is why everyone is being cautious,” Miklozek said.

Additionally, farm production costs — for fertilizer and seed and fuel — are higher “so that is also causing some pain too.”

Not much cushion

Terry Hayhurst, who farms 1,400 acres, 500 of those in southern Vigo County, said government assistance paid after tariffs were implemented with China in 2018 helped farmers with soybean prices, but that cushion is gone for the 2019 crop.

“Last year we were helped because the government gave us the Market Facilitation Program to make up the price on soybeans, which was $1.65 per bushel,” Hayhurst. “Farmers still have some of that money in their cash flows, but what we are able to sell the 2019 crop, for now, is $1 to $1.50 less than this past year.

“It is hard to look at that and think you will be better off this year than last year,” Hayhurst said.

Hayhurst said U.S. crop farmers may still not gain, even if an agreement on tariffs is reached with China because of an outbreak of the African swine fever in China last year.

“There may be less hogs that need feedstock,” Hayhurst said. “Also, the U.S. has almost 900 million bushes surplus of soybeans, which is almost twice the normal for a surplus year, which is about 500 million bushels in a normal surplus year.

“Farmers, I think, are wise enough that they probably are going to play this year very close to their chest and not expose themselves any more than they have to from a financial security standpoint.

“They don’t want to see their equity position drop any more than they have to,” Hayhurst said.

Prior to 2018, with government tariff three years, farm income has been on a decline.

A report from Purdue University shows that from 2008 to 2014, Indiana farm income averaged more than $3.1 billion annually, but from 2015 to 2017, that dropped to $1.4 billion annually. That has caused negative cash flows and declining equity for many farms. Many farms have had to increase debt loads with lenders.

Restructuring debt

John Newton, chief economist for the American Farm Bureau, said 15 Hoosier farms underwent Chapter 12 bankruptcy last year, a 36 percent increase over 11 farms that filed in 2017.

Illinois had 10 farms with Chapter 12 bankruptcy filings last year, up from eight in 2017.

Indiana was among states with decade-high levels. Others include Kansas, Minnesota, North Dakota, South Dakota and Utah. Combined, these six states had 153 bankruptcy filings in 2018, up from 108 in 2017 and 64 filings a decade ago. Those figures include both crop and dairy farms.

“Without some sort of improvement in commodity prices, folks are probably going to be in tougher financial positions later this year,” Newton said. “Whether or not that means bankruptcy, I can’t forecast that. A lot of lenders consider Chapter 12 bankruptcy to be a failure and are working actively with their customers (to prevent bankruptcy) to plan for the current environment that they are in, so folks can continue to do what they do, which is farm ground and raise animals.”

Newton emphasized that bankruptcy does not mean the loss of a family farm. Through a successful Chapter 12 bankruptcy, a farmer may have an opportunity to retain assets and continue the farm operation in some capacity.

There are options before bankruptcy relief, Newton said, and certainly farmers have liquidated assets to discharge debt, but how much longer some farms can endure remains a question.

The capacity to repay debt will be further challenged this year, if farm commodity prices do not improve. Continued retaliatory tariffs on U.S. agricultural commodities will only make it harder for farmers to service debt, he said.

“Farm debt has certainly increased in recent years,” Newton said. “Asset values also continue to rise. Farm debut in 2019 is forecast to be a record $430 billion” nationwide.

“It is getting tough,” Newton said.

And then there’s the weather

Jack Strain, a 77-year-old farmer who farms 1,500 acres west of Farmersburg, of which he owns 840 acres, agrees that “things are not very good right now” in the overall farm economy, but he remains optimistic and thinks that trade tariffs will be resolved this year.

Strain, like farmers often do, point to the weather. It’s something he thinks may benefit Indiana farmers this year.

He referred specifically to record flooding in Nebraska, Iowa, Wisconsin, Minnesota and in northern Illinois as a result of rapid snowmelt and heavy rains this month.

“One person’s pain is another person’s gain. You always have to remember that in farming,” he said, adding Indiana crops may help fill production gaps from those heavily flooded areas. 

“Just like anything else, when something has low supply, the price goes up. U.S. farmers have produced record crops, for at least the past five years,” which he said has held down crop prices.

He said farmers still face higher feed and seed costs, pushing up production costs, adding it costs him $500,000 to plant his crop.

“Last year, by the time you pay off bills, it was around $15 to $35 an acre profit, so you can’t do much on that. What helped is we had a big volume, a record yield. That is also part of the problem, so I look for the floods” that will reduce crop supply, he said, and increase crop prices, as well as a resolution to U.S.-China tariffs.

Strain said marketing is important to farmers, adding his 2018 crops are locked in for sale through July.

“I will wait and see what happens. If there are weather problems, I may extend some calls out until December. It is just a guessing game,” he said.

“I have been very fortunate in my lifetime. My boy (Mike) will be taking over for me, which is my lifelong dream to have him farm,” Strain said. “In farming, you just have to understand you will have good years and bad years.”

Uncertainty

While Strain remains optimistic, Jim Mintert, director of the Purdue Center for Commercial Agriculture and agricultural economics professor at Purdue University, said he thinks net farm income will likely drop this year. Farm income was bolstered in 2018 from government payments to reduce impacts from tariffs with China.

“What happens to Indiana farm income in 2019 will depend in large part on yields for the fall harvested crops (corn and soybean crops) in 2019 and what takes place with respect to trade negotiations with China,” Mintert said. “If corn and soybean yields in 2019 are close to trend and the trade dispute with China continues into the latter part of the year, net farm income for Indiana farmers is expected to fall below that of 2018.”

In reference to China, Mintert said hog prices have recently rebounded in expectation of stronger pork exports in response to the African swine fever in China.

One bright spot is Indiana farmland will likely not decrease in value, as the Federal Reserve has signaled interest rates are not likely to increase in 2019.

“No change in interest rates this year will be supportive of farmland values, but it is not expected to provide any additional boost to farmland values,” Mintert said. “Stated another way, if interest rates went up this year, it was expected to put some downward pressure on farmland values. The Fed’s decision to hold rates steady effectively takes away that potential downward pressure on values that a rate increase would have produced.”

Mintert said the U.S. Department of Agriculture “forecasts somewhat stronger prices for 2019 than in 2018 based on the assumption that yields will be closer to trend, instead of well above trend as we experienced in 2018. Obviously there is a great deal of uncertainty about yields at this stage of the season,” he said.

Friday’s report

In a USDA crop planting intentions report released Friday, farmland estimated to be planted in corn is up 4 percent from 2018, while soybean plantings is down 5 percent.

“Corn planted area for all purposes in 2019 is estimated at 92.8 million acres, up 4 percent or 3.66 million acres from last year. Compared with last year, planted acreage is expected to be up or unchanged in 34 of the 48 estimating states,” the USDA reports.

“Soybean planted area for 2019 is estimated at 84.6 million acres, down 5 percent from last year. Compared with last year, planted acreage is down or unchanged in 26 of the 29 estimating states,” the USDA reports.

The USDA also reports that corn stocks are down 3 percent from March of 2018, as 5.13 billion bushels were stored on farms, up 3 percent from a year ago. Soybeans stored, as of March 1, totaled 2.72 billion bushels, up 29 percent from March 1, 2018. Soybean stocks stored on farms are estimated at 1.27 billion bushels, up 49 percent from a year ago.