Next great farm bust has arrived, as crop prices fall and debt surges

Wall Street Journal graphic

Farming, always a boom-and-bust enterprise, appears to be in the midst of the next great bust, Jesse Newman and Patrick McGroarty report for The Wall Street Journal. "Across the heartland, a multiyear slump in prices for corn, wheat and other farm commodities brought on by a glut of grain world-wide is pushing many farmers further into debt. Some are shutting down, raising concerns that the next few years could bring the biggest wave of farm closures since the 1980s."

Economist say it shouldn't be as bad this time around, mainly because "farm incomes hit record highs as recently as 2013, leaving many growers with significant cash reserves," reports the Journal. "Interest rates, while expected to rise, are still near record lows. Although debt-to-asset ratios among U.S. farmers are projected to increase in 2017 for the fifth straight year, they also remain historically low." But the U.S. Department of Agriculture says the "U.S. share of the global grain market is less than half what it was in the 1970s" and American farmers’ incomes is projected to drop 9 percent in 2017, "extending the steepest slide since the Great Depression into a fourth year."

Another problem is that smaller farmers have been getting pushed out, reports the Journal. "As farm sizes jumped, their numbers fell, from six million in 1945 to just over two million in 2015, nearing a threshold last seen in the mid-1800s. Total acres farmed in the U.S. have dropped 24 percent to 912 million acres. U.S. wheat exports last season were the lowest in almost a half-century, though government forecasters expect them to improve this year."

"A decade ago, a U.S. biofuel boom and China’s growing middle class lifted prices for crops like corn and soybeans," reports the Journal. "Many American growers spent the windfall buying land and half-million-dollar equipment. The boom also encouraged farmers in other countries to ramp up production. Farmers world-wide put nearly 180 million new acres into cultivation over the past decade. Lower production costs, proximity to fast-growing markets and improving infrastructure gave some overseas farmers an edge. Corn and wheat output has never been higher, and never has so much grain been bunkered away."

"Today, the swings are sharper and less predictable now that the farm economy has become more international, with more countries growing food for export as well as for their own populations," reports the Journal. "American farmers’ share of the global grain trade has fallen from 65 percent in the mid-1970s to 30 percent today, giving them less sway over prices. More producers and more buyers around the world also mean more potential disruptions from bad weather, famine or political crisis. Corn prices once varied year-to-year by less than $1 a bushel. Since 2006 they have shot up and dropped more than $4 a bushel."