Strong harvest expected amid low commodity prices

Recent warm and dry weather across the Upper Midwest is bolstering expectations of a strong harvest season. That outcome, however, could exacerbate already low commodities prices, leaving farmers with a surplus in storage as next year approaches. 

Corn and soybean prices will remain lower than normal well into 2025, predicted Doug D’Aigle, market president for St. Cloud, Minn.-based Stearns Bank. Most area farmers D’Aigle had spoken with as of late September expected above-average yields of corn and soybeans. 

Doug D’Aigle

“The warm weather we’ve been recently experiencing has provided a great opportunity for this season’s crop to mature and finish,” D’Aigle said. “With a little more cooperation from the weather, we should see yields that are average to above average.”

D’Aigle said selling crops at a profit will be challenging this year. Farmers who forwarded contract grains at prices higher than their current levels will be in a better position. D’Aigle’s outlook comes as imbalances between supply and demand have caused the value of 100,000 bushels of grain to fall to $400,000 from $600,000 only two years ago, said Ed Elfmann, senior vice president of agricultural and rural banking policy at the American Bankers Association. 

Although he hasn’t seen a rise in farm bankruptcies, Elfmann flagged some troubling signs: One Missouri banker told him he expects his customers will lose $300 per acre for corn and $200 per acre for soybeans. Corn farmers face an average loss of $150 per acre if prices remain unchanged and will need a record yield of 250 bushels per acre just to break even, said Dana Allen-Tully, president of the Minnesota Corn Growers Association.

Dana Allen-Tully image
Dana Allen-Tully

Producers’ working capital will fall in the coming months even in a best-case scenario, said Doug Fish, president and CEO of Bethany, Mo.-based BTC Bank. Inflation-adjusted net farm income is expected to fall 7 percent this year, according to the U.S. Department of Agriculture.

Fish doesn’t expect commodity prices will improve much next year, barring a significant change in weather or a major international event. The $1.2 billion BTC Bank has farm customers in southern Iowa and northern Missouri. About 40 percent of the bank’s ag exposure is in corn and soybeans, both of which Fish expects will have strong yields. Most of the bank’s remaining ag portfolio is in cattle and poultry, which are also having strong years. 

To account for losses, farmers will need to be aware of how many expenses they incur for every bushel, Elfmann said. They can then strategically sell commodities to maximize profit instead of accumulating too much surplus. 

Despite the projected loss of income, community bankers will utilize existing producer relationships to keep farmers in business, said Mark Scanlan, SVP of agriculture and rural policy at the Independent Community Bankers of America. He expects many farmers will benefit from their buildup of equity, cash reserves and working capital over the past decade. 

“There will be farmers who will have trouble repaying their loans, so those loans will be extended for another year,” Scanlan said. “There will be a lot of producers in some areas, in some cases, who will not have positive cash flow.

Mark Scanlan image
Mark Scanlan

“There’s going to be an elevated level of stress,” he added. “Community banks will have to have a toolbox ready to work with their consumers.”  

Farmer Mac Chief Economist Jackson Takach sees commodity prices settling at 2020 levels. While cattle and hog prices are 25 percent and 10 percent higher, respectively, than at the end of 2022, soybean prices are down 30 percent. Wheat and corn prices are both down 40 percent.

Sun through the clouds

Still, there are positive signs in the ag economy. Although the ag economy is not in strong shape, Fish doesn’t see parallels to the 1980s crisis due to the number of stopgaps and outside land investors compared with four decades ago. 

Soybean production is forecasted at a record 4.6 billion bushels for 2024-25, with the soybean yield forecast at a record 53.2 bushels per acre, according to USDA. Lower production expectations for states in the Lower Midwest are partially offset by higher production forecasts in Upper Midwest states. 

As of Sept. 1, 65 percent of soybean acreage was deemed in good-to-excellent condition. Soybean crops were quickly nearing maturity throughout the Midwest. “Summer weather in the Midwest region was generally beneficial to soybeans, with a lack of extreme temperatures during the pod development stages in August,” according to the USDA.

First Bank of Montana Ag Lender Todd Smith sees low commodity prices as a double-edged sword for producers. While they limit profits for commodity farmers, those same farmers also save on feed costs for their livestock. In central Montana, the regional winter wheat harvest was above-average while spring crops were in worse condition as the weather became warmer and drier at the end of June. 

While the harvest forecast is strong across much of the Midwest, areas impacted by late June flooding in South Dakota, Iowa and Minnesota are seeing lower yields. As of Sept. 20, only corn silage had been harvested in Minnesota, Allen-Tully said. She expected lower yields in the south central and southwest parts of the state due to crop damage from the storms and the weeks of drought that followed.  

Flooding the weekend of June 22-23 caused record water levels in the western Iowa community of Rock Valley. Flooding in northwest Iowa damaged approximately 2,000 properties and caused evacuations and disaster declarations. Some parts of the state received more than 15 inches of rain, flooding fields and causing some levees to fail. 

One of the cities most impacted by flooding was the northwestern Iowa community of Spencer. The city was cut off from the rest of the state by flooding on the night of June 22 as hundreds of residents were evacuated to two city shelters. The Little Sioux River reached a record 3 feet above its 500-year floodplain. 

Three months later, harvest conditions were “all over the board,” said Seth McCaulley, president of Spencer’s Community State Bank. Many farmers impacted by the flooding replanted their crops following the deluge and are just starting harvest, said McCaulley, who farms 240 acres with his family in the area. McCaulley expects both corn and soybean yields will be down in the area. 

Optimism wanes amid political uncertainty 

Bank CEOs and farmers still lack optimism in the economy. Creighton University’s September survey of bank CEOs in rural areas of the Midwest fell to its lowest mark since the start of the pandemic due to weak commodity prices, falling equipment sales and high input costs. The index for farm equipment sales index increased to 19.0 from 16.7 from August amid tighter credit conditions, negative farm income and higher borrowing expenses, said Ernie Goss, chair in regional economics at Creighton University’s Heider College of Business. Creighton’s monthly sentiment indexes are on a scale of 0-100. Any number under 50 indicates contraction.

Ernie Goss image
Ernie Goss

D’Aigle is noticing the downturn in the farm equipment market in central Minnesota. “We are starting to see some deterioration in used equipment prices which may be painful for sellers but may also provide an opportunity for purchasers, particularly those purchasing slightly used, more expensive ag-related equipment,” he said.  

Creighton’s index for farmland prices fell for the fourth time in the past five months in September, to 43.8 from 45.5 in August. Bank CEOs on average expected farmland prices to drop 5.3 percent in the next year, with nearly 25 percent anticipating price declines of between 10-20 percent. 

The projected drop in prices comes after ag land values increased by more than $200 per acre this year over 2023 — 5 percent to $4,170, according to the USDA. That increase followed a 6.7 percent rise from 2022-23 and was the fourth straight increase in land values. 

The outlook for exports also remains weak. U.S. ag exports are expected to fall $4 billion in fiscal year 2025 to $169.5 billion amid lower unit values of soybeans, corn and cotton along with a drop in beef volume, according to the USDA. Soybean exports are projected to fall $1.5 billion to $22.9 billion, and corn exports are expected to drop $900 million to $12.2 billion as lower unit values more than make up for higher volumes of both crops.  

Goss sees the growing anti-globalization movement as posing a long-term threat to the ag industry due to its reliance on international trade. In the weeks leading up to November’s presidential election, Kamala Harris and Donald Trump both committed to raising tariffs. Goss expects any tariffs will invite retaliation from trade partners. The United States is the No. 1 goods importer in the world, with China being the top supplier at 16.5 percent of total imports. Mexico, Canada, Japan and Germany round out the top five exporters to the United States. 

Goss, who sees Trump’s stance on trade as part of his public negotiations strategy, views the platforms of both candidates as symbolizing the growing anti-globalization movement in numerous countries. 

Another issue Goss sees is slowing economic growth in China and the country’s rising tensions with Taiwan. China’s GDP growth slowed to 4.7 percent in the second quarter, its slowest pace in more than a year. Goss said China could invade Taiwan “at any time.” China President Xi Jinping allegedly told President Joe Biden this summer that the country planned to eventually “unify” Taiwan and China, but did not commit to a timeline. If China invades Taiwan, much of the international trade market would close with the impact spilling to other industries, Goss added.  

“It’s a real risk factor,” he added.  

One bright spot Goss sees in the ag economy is the Federal Open Market Committee cutting interest rates a half-percentage point in September to a range of between 4.75-5.00 percent, its first reduction in 4 1/2 years. Goss expects the FOMC will lower interest rates 1.50 percent by the end of 2025, depending on economic conditions.