2008 was a very interesting year from an agricultural perspective. We finally passed a new farm bill, which will offer some reform in ag policy, though not as much as some groups wanted. At a time when much of the overall U.S. and Minnesota economies were struggling, the ag economy remained quite strong for much of 2008, especially in the Midwest. USDA is estimating total U.S. farm income for fiscal year 2008 (ended on Sept. 30) at $95.7 billion, which is about 10% above the 2007 farm income level of $86.8 billion, and 57% above the 10-year average for U.S. farm income of $61.1 billion. Projected farm income levels for 2009 are much more uncertain at this time, and could likely drop if lower commodity prices continue well into 2009.
In 2008, we saw corn futures prices on the Chicago Board of Trade (CBOT) rise to record levels, rising from near $4.50/bu. in early January, to well over $7/bu. in June and July, and then drop back to below $3.25/bu. by mid-December. Similarly soybean futures on the CBOT rose from just over $12/bu. in early January, to over $16/bu. by early July, and then drop back under $9/bu. by mid-December. Local cash prices for corn and soybeans in southern Minnesota have also dropped dramatically from the mid-Summer highs of near $7/bu. for corn and over $15/bu. for soybeans, to Mid-December local price levels of below $3/bu. for corn and below $8/bu. for soybeans. The grain prices have recovered slightly from the very bottom price levels a couple of weeks ago. The high degree of commodity price volatility and the rapid price drop has had a big impact on the agriculture industry in 2008, especially the livestock and renewable fuels industries. The high prices during summer 2008 also led to some very negative public sentiment toward the agriculture and renewable fuels industries.
The livestock industry faced serious financial difficulties in 2008, due to high feed, fuel and other input costs. Some hog producers lost $25-50/head marketed for several months of 2008, while cattle feedlot operators lost $100+/head on fed cattle during much of the year. Profits have also been negative for poultry producers. About the only livestock sector that remained slightly profitable was the dairy industry, due to continued strong milk prices. By year’s end, we’ve seen major liquidation of both hog and cattle operations. Even with the lower corn and soybean meal prices by December, livestock profits remain extremely tight in most sectors as we head to 2009.
The ethanol industry in the Midwest had a very difficult year in 2008, as well as a very low profit year, ending in bankruptcies of some ethanol plants and companies. Most notable in southern Minnesota was the bankruptcy in late October of VeraSun, which is one of the largest ethanol producers in the U.S., and has ethanol plants at Janesville and Welcome, MN. Neither of the Minnesota plants is currently in operation, resulting in lost jobs and a negative impact on local communities. Many farm operators took advantage of the higher local corn prices earlier this year to lock in a price on a significant amount of their 2008 corn crop at the VeraSun plants. Because of the bankruptcy, farm operators who thought they were going to receive $5-6/bu., or higher, for their corn may now receive around $3/bu. Many local grain elevators also had a substantial amount of corn contracted to VeraSun for future delivery, and stand to suffer a significant loss. This will result in millions of dollars of lost income to area farm operators and grain elevators, and a high degree of lost spending power in some local communities.
Crop input costs for 2008 rose considerably from a year earlier, and will likely be much higher again for 2009. The cost of anhydrous ammonia for nitrogen fertilizer is more than double what it was in 2007. Seed costs for corn and soybeans are also expected to be much higher for 2009, compared to the past couple of years. Most land rental rates increased 15-25% in 2008 compared to a year earlier, and rental rates are expected to increase again for 2009 in most areas. One bright spot for farm expenses in 2008 was that short-term interest rates were quite low, and should remain low in 2009.
The breakeven cost of producing corn at trend line yields will likely be over $4/bu. for most producers in 2009, and over $8.50/bu. for soybeans. This compares to $3-3.50/bu. for corn and $6-6.50/bu. for soybeans in 2008. As recently as 2006, the breakeven prices were approximately $2.25/bu. for corn, and below $5/bu. for soybeans. 2009 is certainly setting up as a challenging year from an economical standpoint for most crop and livestock producers.