Iowa State University economists are cautioning farmers to be prepared for a potential downturn in the values of commodities and land.
John Lawrence, director of Agriculture and Natural Resources Extension & Outreach and associate dean for Extension programs, says four ISU economists give "an analysis of the current state of Iowa agriculture," in a series of papers on the Ag Decision Maker website under the Ag Cycles heading.
"This analysis is not intended to be a forecast of annual prices in the coming months or years. Nor is it predicting gloom and doom for agriculture. Rather, it is intended to help put current economic conditions into a historic context, better understand the factors that will influence prices and margins in the future, and help farmers prepare for whatever direction the market turns," Lawrence says.
Be ready for possibility of economic upheaval after many years of rising commodity prices and land values
The ISU economists offer ways crop and livestock producers can be ready for the possibility of economic upheaval after many years of increasing prices and land values.
Chad Hart, associate professor of economics and Extension economist, points out the cyclical nature of commodity markets and advises farmers to create and follow a marketing plan based on production costs; buy inputs when making crop sales; move to fixed rate loans to protect against higher interest rates; and continue to use risk management programs, such as crop insurance.
Lee Schulz, assistant professor and Extension livestock economist, presents the supply and demand situations for beef cattle and hogs. He highlighted the importance of managing costs and price risks in a successful operation.
Michael Duffy, professor of economics and Extension economist, reviewed the history of Iowa farmland values and sees a likely decline as corn and soybean prices fall, but suggested the decline won't be as steep as the farm crisis of the 1980s.
Commodity prices have increased significantly since the mid-2000s
Commodity prices have increased significantly since the mid-2000s. Corn, soybeans and wheat all have seen record high prices during that period. Recent low prices have been above the pre-2005 high prices. Prices for cattle, hogs, poultry, eggs and milk also set new record high prices since 2005, although the higher prices have not kept pace with the higher feed costs, and production in these sectors has stalled or declined.
Dermot Hayes, professor of economics and Pioneer Chair in Agribusiness, uses an Iowa State-developed method to extrapolate futures prices for five years into the future. The worst-case scenario shows corn prices as low as $4.27 in 2013, $3.85 in 2014, $3.41 in 2015, $3.12 in 2016 and $2.89 in 2017; with soybean values for the corresponding years at $9.69, $8.89, $7.85 $7.09 and $6.55.
An analysis of agricultural debt by Jason Henderson and Nathan Kaufman, economists at the Federal Reserve Bank of Kansas City, is included on the Ag Decision Maker web- site. It refers to previous articles that deal with cycles in agricultural and how they have affected farm debt.