Rod Johansson, an economist with the U.S. Department of Agriculture, says those commodity prices have continued to drop and have now reached a crucial point.
“They may be coming down so far that in some cases, farmers aren’t meeting the cost of production,” Johansson says. Despite predictions for record or near-record yields, the abysmal prices mean many farmers may have to make some difficult decisions as they plan for the months ahead.
“Producers start digging into their capital reserves and they also see a reflection in the negotiated land rent values,” he says. “We would expect to see an increase in loan activity occurring in the banking sector.” As they head into spring planting season in a few months, some Iowa farmers may chose to leave select plots of land unplanted, as it may cost more to grow a crop than the crop is worth.
Johansson says, “Marginal production acres, low-yield acres, high-cost production acres would likely exit from production if prices remain too low to cover production costs on those acres.” Some farmers may have to dip into their rainy day funds to make ends meet. He says the good news is there are back-up plans in place as many farmers have insurance and there are safety net programs built into the Farm Bill.