Farm profits decline sharply; who will pay the price?

Lower Prices

Archer-Daniels-Midland Co. said lower corn prices prompt farmers to hold their crop, reducing profit because the company has less to ship, Chief Operating Officer Juan Ricardo Luciano said in a conference call last week.

Lower prices may cut tractor and combine production as much as 10 percent this quarter at Agco Corp., maker of Massey Ferguson products, Chief Executive Officer Martin Richenhagen said last week.

U.S. loans for farm machinery are at a two-year low, the Kansas City Federal Reserve said last month. Lower crop prices will make farmland less attractive to investors and discourage farmers from seeking financing, which may hurt purchases throughout rural areas, Nathan Kauffman, an economist with the Kansas City Fed, said in an interview last week.

For seed-seller Dave Kestel in Manhattan, Illinois, a drop in profit is evident. Customers who paid more to buy profitable corn now demand less expensive soybean seeds.

Tightening Belts

“Everyone is tightening their belts,” said Kestel, who sells DuPont Co. seeds while raising 1,200 acres of corn and soybeans about 60 miles southwest of Chicago. “We’ve had a windfall the past few years. Moving forward, it’s scary.”

Farmers produced a record 13.925 billion bushels of corn last year, the USDA said yesterday. Corn used for ethanol was 5 million bushels for the current year, little changed from three years ago. Farm goods sold to China may drop to $21.5 billion this year from $23.5 billion in 2013, the USDA said in December.

Government subsidies to agriculture will be $6.1 billion, down 45 percent from last year. The farm bill signed by Obama last week, hailed by farmer groups as a way to better target aid toward producers during times when they need it, probably won’t add much to profit this year, said Patrick Westhoff, an agricultural economist at the University of Missouri in Columbia.

The law ends a $5 billion annual crop subsidy and relies on subsidized federal crop insurance to guard against floods, drought, pests and other risks.

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