Unraveling the Effects of Commodity Price Decline on Farm Income
Impact on Purchasing and Loan Demand
Farmers have significantly reduced their capital spending. As stated by a South Dakota banker, "Most farmers are not purchasing or trading machinery at this time." This indicates a cautious approach by farmers in light of the economic conditions. Additionally, the increase in loan demand reflects the financial challenges faced by farmers in maintaining their operations.Regional Fed banks in Chicago and Kansas City have also reported lower farm income in their districts. Nationwide, ag bankers have observed a 40% increase in the volume of new operating loans compared to the third quarter of 2023. This highlights the need for financial support to help farmers navigate through these difficult times.
Survey Results and Expectations
Nine out of every 10 bankers participating in the Minneapolis Fed survey reported lower farm income during July, August, and September compared to the same period in 2023. A significant 83% of bankers expect lower farm income in the final three months of this year. The Minneapolis Fed's district, which covers Minnesota, Montana, North Dakota, South Dakota, the northern third of Wisconsin, and the Upper Peninsula of Michigan, is particularly affected.A Montana banker looking ahead noted that with high input costs and land rental rates, "2025 cash flows will be very tight and most likely net losses." This emphasizes the long-term challenges faced by farmers in the region.
Farmland Value Trends
Despite the decline in farm income, farmland values in the northern Plains have shown an upward trend, continuing a four-year pattern. Non-irrigated cropland values are 2% higher than a year earlier, irrigated cropland is up 3%, and ranchland and pastureland are up 1%.In the central Plains, bankers reported a 5% increase in non-irrigated cropland values from the third quarter of 2023. However, in the Chicago Fed district, which includes Iowa and most of Illinois, Indiana, Wisconsin, and Michigan, farmland values remained unchanged. This is the first period since the fourth quarter of 2019 without a year-over-year increase in district farmland values.
Unveiling Kelly Loeffler's Journey to the USDA Secretary Role
Background and Family Roots
Kelly Loeffler was raised as the fourth generation on her family's corn and soybean farm in Stanford, Illinois. Just 8 miles west of Bloomington, Loeffler Farms is now run by her younger brother Brian and his family. On the farm, she learned the values of faith, family, and hard work. Growing up, she worked in the fields and then waitressed her way through school. She was the first in her family to graduate from college, obtaining a BS in marketing from the University of Illinois and an MBA at DePaul University. After almost three decades in the automotive and financial service industries, she advanced to an executive position at Intercontinental Exchange and later launched Bakkt as its founding CEO.Even before her senate appointment in 2019, Loeffler had a diverse career in the private sector, creating jobs and making a mark in the business world.
Stance on Farm Bill
In the 2020 questionnaire, Loeffler emphasized the significance of the farm bill. She stated that it is the single most important piece of agricultural legislation regularly considered in Congress. Her top priorities for the farm bill were to ensure farmers have an appropriate safety net and bolster support given the current unfavorable economic conditions.She recognized the importance of safeguarding the interests of farmers and ensuring their livelihoods during challenging times.
Stance on Trade
Loeffler praised the previous Trump administration's trade negotiations and enforcement mechanisms with China and Japan. She believed that these trade deals should be strictly enforced and that foreign governments, especially the Communist Party of China, should not be allowed to grow their economies at the expense of American workers and farmers.Trump's proposed 60% tariff on goods from China, considering China as the U.S.'s leading agricultural export market, shows the importance Loeffler attaches to protecting American agriculture.
Ag Policy and Activity During Senate Tenure
In May 2020, Loeffler faced scrutiny when she removed herself from a role in the Senate Agriculture Subcommittee on Commodities, Risk Management, and Trade after making stock trades in February 2020 following a classified briefing on the coronavirus. However, she remained on the Senate Agriculture Committee and was later cleared by the Senate Ethics Committee and Department of Justice.During her tenure, she sponsored the American Farmers, Food Banks, and Families Act of 2020 to connect farmers with food banks during the COVID-19 pandemic. Although the bill was introduced, it was not enacted.
She also participated in announcing a $323,834 grant from the USDA National Institute of Food and Agriculture to the University of Georgia for research to improve crop protection and pest management. This shows her commitment to supporting agricultural research and safeguarding Georgia crops.
Industry Praise
Sonny Perdue, who served as the Secretary of Agriculture during Trump's first administration, praised Loeffler after her senate appointment. He recognized her understanding of the agriculture community's needs and her ability to bring that knowledge and experience to her work in the Senate.Perdue's words highlight Loeffler's credibility and potential to make a significant impact in the agricultural sector.
From a Marketing Perspective
With the end of the year in sight, farmers are now concentrating on their finances and planning for the 2025 crop year. The question remains: will corn prices break out of the modest trading range? Some farmers may be tempted to sell corn to pay their bills, while others hope for higher prices due to potential weather issues in South America. Here are three strategies to consider:1. Basis Contract
If you plan to store corn at home, pay attention to your local basis levels. In some Midwest locations, the basis may be attractive as grain elevators try to secure as much corn as possible. Consider entering into a cash basis contract to protect the local basis level. By doing so, you commit to delivering a set number of bushels to the elevator with the basis locked in. However, the grain is not fully priced yet, and you need to determine the right time to finalize the contract based on your target futures price. Make sure to inquire about any associated fees.For example, in a particular Midwest location, the basis might be 10¢ above the futures price. By entering into a basis contract, you can ensure that you receive a fair price when you sell the corn. This strategy provides stability and protection against price fluctuations.
2. Buy a Put Option
If you don't want to make a cash sale but still want to protect the current value of your corn, buying a put option is a viable option. A put option gives you a price floor, protecting the value of your corn futures prices.For instance, March 2025 put options expire on Feb. 21, 2025, providing enough time to navigate through the holidays, the January USDA report, and any weather-related uncertainties in South America. One put option covers 5,000 bushels, and the cost varies between 10¢–20¢ per contract, depending on the strike price. This allows you to have peace of mind knowing that your grain is protected.
3. Make the Cash Sale and Re-Own with a Call Option
If you make a cash sale but worry about missing out on higher prices, buying a call option can be a solution. A call option allows you to participate in any upward price movement even after the grain has left your farm.For example, March 2025 call options also expire on Feb. 21, 2025. One call option covers 5,000 bushels, and the cost varies between 10¢–20¢ per bushel, depending on the strike price and month. This gives you the flexibility to benefit from future price increases while still having the option to sell the corn at a later date.
The market volatility in the coming weeks and months is likely to be significant due to weather uncertainties and geopolitical factors. It's crucial to be strategic in your marketing decisions. Incorporating these strategies can help you navigate the market and make informed choices.
If you have any questions, you can reach Naomi at naomi@totalfarmmarketing.com or visit TotalFarmMarketing.com.
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