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Farm profits decline sharply; who will pay the price?

By Alan Bjerga, Bloomberg

February 11, 2014 • Reprints

A waning boom in U.S. crop prices will cut annual farm profits 27 percent this year from a record, potentially denting demand for Deere & Co. tractors and Monsanto Co. chemicals, the government said.

Agricultural net income will be $95.8 billion, down from a revised $130.5 billion last year, the U.S. Department of Agriculture said today in its first 2014 forecast. Income for major crops including corn, soybeans and wheat will be $189.4 billion, down 12 percent, while all expenses for feed, chemicals and other items will be $348.2 billion, down 11 percent.

Flat demand for corn to make ethanol and fewer exports to China may halt gains in farmland values after a 37 percent jump since 2009, leaving farmers with less to invest. The farm law President Barack Obama signed last week also will cut government spending on agriculture, further eroding profit.

“We’re looking at an era of about three, four, five, years of reduced profitability in agriculture,” Matthew Roberts, an economist at Ohio State University in Columbus, said before the report was released. Without significant disruptions to crop production, “by 2015, 2016, farms that expanded very rapidly over the last few years could be vulnerable, and we would see the first significant farm failures.”

The slump in the value of U.S. crops will erode prosperity in Corn Belt states, harming rural business and, if sustained, may lead to a wave of farm failures for the first time in a generation, Roberts said.

Livestock Revenue

In November, the department had estimated 2013 profit at a record $131 billion, and the most since 1973 when adjusted for inflation. About 2.6 million people worked on farms in 2012, according to the USDA, with another 13.9 million in food-related industries. The combined total equals 9.2 percent of the total U.S. workforce.

For 2014, livestock producers’ revenue will be $183.4 billion, up 0.7 percent from last year. Among farm expenses, animal feed, the biggest single cost, will be $52.1 billion, down 1 percent from 2013 because of the lower cost of corn. Seeds will cost $21.6 billion, up 1.5 percent.

Futures for corn, the most valuable U.S. crop, sold on the Chicago Board of Trade slumped 40 percent in 2013, the most since at least 1960, according to data compiled by Bloomberg. Soybeans, the No. 2 crop, fell 8.3 percent and wheat plunged 22 percent.

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Bloomberg 5254Grains 1192Barack Obama 909food 887Illinois 599Chicago Board of Trade 574U.S. Department of Agriculture 349chemicals 239Missouri 212Kansas City Fed 59DuPont Co. 27Monsanto Co. 26Archer-Daniels-Midland Co. 25Deere & Co. 21University of Missouri in Columbia 8Kansas City Federal Reserve 5farm machinery 3farmland 2Agco Corp. 2farm law 2Martin Richenhagen 2Juan Ricardo Luciano 2Nathan Kauffman 2subsidized federal crop insurance 1Ohio State University in Columbus 1Patrick Westhoff 1Matthew Roberts 1Dave Kestel 1

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