U.S. farmers may face biggest loss this century, with projected low prices of farm products over a long period of time

Date:08-12-2024

- Declining farm product prices and rising production cost building up pressure on farmers

- A land tenant in Illinois, United States, for example, is expected to suffer a net loss of US$129/acre or RMB152.6 yuan per mu (1 mu=0.164736920978 acre) in 2024.

- In the coming months, attention should be paid to farmer’s cash position and debt problem.

- There may be a long period of low farm product prices, due to which the pesticide industry operation requires prudent management.

The U.S. farmers are experiencing the worst financial stress since 2000. The decline in the prices of farm products and the increase in cost of production have resulted in a double blow to farmers. For example, a land tenant in Illinois would suffer net loss as high as US$129 per acre in 2024, equivalent to a loss of RMB152.6 yuan per mu.

Cost of planting rising, prices of farm products falling

According to the U.S. agricultural futures contract, the cost of crop planting in 2024 is estimated to be US$4.00 per bushel (equivalent to RMB0.56 yuan / catty) for corn and US$10.50 per bushel (equivalent to RMB1.73 yuan / catty) for soybean, whereas the cost is significantly higher than the price in the previous low price cycle (2014-2019). 

Corn and soybean prices

It is widely projected among the industry that corn and soybean prices in the United States in 2024 would be much lower than the price level in 2021-2023. At present, the real trading price of corn is close to US$4.10 per bushel (Refer to Figure 1). At the same time, there are no market signs of decrease in supply or increase in demand. In other words, adequate corn supply and stable demand have led to an expectation of low prices. CBOT December corn futures have fallen to roughly US$3.80/bushel (RMB0.53 yuan / catty). Overall, the average spot price of productions in 2024 is around US$4 per bushel.

According to the United States Department of Agriculture, the average annual price of corn in the U.S. market per bushel was US$6.00 in 2021, US$6.54 in 2022 and US$4.65 in 2023. In case of the price being US$4 in 2014, it would be the lowest price point since 2019.

Soybean had a similar experience. The projected price of the U.S. soybean for 2024 is US$11.55 per bushel, far lower than the price level of 2022 (US$14.33) and 2023 (US$13.76). The November futures prices have been declining since February, which have now approached US$10.20 per bushel. The spot price at the time of harvesting is likely to be below US$10 per bushel, with a projected overall price of US$10.5 in 2024. The price is expected to remain low in 2025, being roughly around US$10.80 (RMB1.78 yuan / catty).

The high price level from 2021 - 2023 seems to be temporary, which is now returning to a lower level. It is expected that a low-price market cycle would be experienced once again, like what happened in 2014 - 2019.

Rising cost of planting

Moreover, due to the rising cost, farmer’s level of returns is likely to be much lower than that in 2014 - 2019. In Illinois, for example, the non-land cost of corn was in average US$587 per acre from 2014 - 2019 according to the Farm Business Management Agency (FBFM), which is expected to increase to US$772 per acre, an increase of US$185 per acre; the non-land cost of soybean increased from an average of US$363 per acre in 2014 - 2019 to the projected US$512 per acre in 2024, which is an increase of US$149 per acre. The land rent in cash increased from an average of $277 per acre in 2014 - 2019 to the projected US$359 per acre in 2024, which is an increase of US$82 per acre.

These changes have led to a reduction in the returns of the farmers who rent land. In terms of corn, farmer’s returns are expected to fall to -US$185 per acre (A loss of US$218.8 per acre); for soybean, it would be -US$74 per acre (A loss of $87.5 per acre). The 50% corn and 50% soybean rotation in most of the regions of the central Illinois resulted in a net loss of US$129 per acre on farmers who grow corn and soybean in the leased land.

The loss of US$129 per acre (RMB152.59 yuan per mu) would be the lowest level among the comparable records since 2000. Throughout 2000 - 2023, the farmland returns averaged US$90 per acre. From 2007 - 2012, the price of corn was higher due to the increased use in ethanol. In 2021 and 2022, the price was higher for reasons known to all. 

Losses were incurred after two high-price cycles, being -US$3 in 2013 and -US$10 in 2015 while the projected returns in 2024 are staggering - US$129 per acre.

Low market cycle at a starting point or an interim phase

In 2024, the market expectation for corn and soybean is set at US$4 and US$10.5 per bushel, respectively. Looking at 2025, the figure may respectively rise slightly to US$4.3 and US$10.8. However, the price forecast may pose a financial challenge to farmers who rely on cash rent. For farmers who own their own land, the cash flow position may be good but may also gradually become stressed in the next year. The financial standing of farmers is a key concern, which requires close attention. To avoid the potential financial stress, some farms may have to adjust their business operation model.

Nevertheless, in general, the cyclic fluctuation, as a whole, is a part of agricultural operation, as being witnessed in the past, like the long period of low returns from 2014 - 2019, when farmers who could sustain the low price cycled enjoyed the high returns in 2021 and 2022. At this moment in time, farmers may be standing at the starting point of another long cycle of low prices of farm products.