Mohammed El-Erian, chief economic adviser at Allianz, says that if you look at the market, it’s the best of times, but the world economy seems to be losing steam again. He later talks about the importance of a Phase Four incentive phase and responds to Federal Reserve policy.
After a growing season last year filled with burdensome rainfall and bitter trade wars, American farmers hope that 2020 will give them a chance to make some land. Instead, the situation has become much worse because prices remain depressed.
Despite a windstorm that tore through Midwestern farms last week and drought conditions in isolated areas, a bumper crop of both corn and soybeans is still expected this year.
“Overall, the trade seems to be coming to the conclusion that … there will still be too much supply of corn in the US and in the world,” said Tomm Pfitzenmaier, an analyst with Des Moines, an Iowa native. based Summit Commodity Brokerage, in a research note Friday.
That case was exacerbated Friday when Pro Farmer, after a week-long tour of agricultural land across seven states, estimated the national yield of corn at 177.5 bushels per acre, and the national soybean yield at 52.5. That is slightly lower than previous estimates from the U.S. Department of Agriculture, but higher than the 2019 water-addicted crop.
IOWA REQUESTS A FREE DELIVERY TO DERECHO WITH $ 4B, GOVERNOR SAYS IS ‘HURTING’
For many American farmers, the prospect of low grain prices remains untenable. “It’s almost a day-to-day battle to decide what to do next year,” said Doug Sombke, president of the South Dakota Farmers Union and a farmer on 3,000 acres of corn and soybeans in Brown County, SD
Mr Sombke says his local grain elevator pays $ 2.87 for a bushel of corn. That’s almost a dollar lower than what he would need to collect to break even. The same goes for his soybeans, for which the elevator is willing to pay roughly $ 8.50 per bushel.
Prices for corn and soybeans have not risen since the beginning of the year, when the signing of the US-China phase-one trade agreement that stated that China would buy $ 36.5 billion in agricultural products from the US, gave farmers hope that exports from China would buoy prices. Instead, the most active corn futures on the Chicago Board of Trade have dropped 16% since early 16, while wheat has fallen nearly 6% and soybeans have dropped nearly 5%.
Chinese exports of U.S. corn, soybeans and wheat are 144% higher than they were last year at this point, according to data from the USDA’s Foreign Agricultural Service. But the start of the coronavirus pandemic in the US in March hovered domestic demand for cereals as restaurants and other establishments closed nationwide.
Soybeans are derived from a combination during the harvest in Brownsburg, India. (AP Photo / Michael Conroy, File)
IOWA FARMERS ASSESS LIGHTS TO STORM FLATTENED CORNFIELDS
If the situation does not improve soon, Mr Sombke said he could be forced out of agriculture. “We need to make some choices,” he said. “The last three years we’ve lost money on our farm. Do we want to continue that?”
Bankruptcies are high in farmland. Roughly 580 farmers filed for Chapter 12 bankruptcy protection by the year ending June 30, according to federal data. More recent data from the Federal Reserve Bank of Kansas City shows repayments of farm loans are expected to fall in the next three months.
“We entered Covid with many operations that were in need,” said Brian Philpot, CEO of Lakeland, Fla.-based AgAmerica Lending. Most bankruptcies are reported by small family farms, while larger agricultural operations take the opportunity to buy land from troubled farmers, Mr Philpot said.
“The big producers are doing well and they’re getting it,” Mr Philpot said.
Winter white is harvested at McCracken, Kan. (AP Photo / Charlie Riedel, File)
US FARMERS SCRAMBLE FOR HELP AS COVID-19 SCUTTLES INTRIGANT WORK FORCE
Government support in the form of assistance from the USDA and the $ 19 billion Coronavirus Food Assistance Program have helped reduce the financial damage of low commodity prices, but farmers say it is only a Band-Aid.
“We in the ag economy really appreciate the assistance we received from the federal government,” said Richard Guebert Jr., president of the Illinois Farm Bureau and a farmer of corn, soybeans and wheat in southeastern Illinois. “But we really want to get our revenue from the market.”
While the weather in the Midwest has more support for growing a strong crop than last year, the growing season this year was not without weather problems.
Seth James clears tree members after strong winds and heavy rain swept through the area Aug. 10 in Davenport, Iowa. (Kevin E. Schmidt / Quad City Times via AP)
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Earlier this month, a powerful storm hit winds hovering over 100 miles per hour through much of the Corn Belt, causing widespread damage to property and crops. Wind snatched a lot of Iowan corn from its stalls and destroyed grain bins with corn farmers saving for sale as the price increased.
Farmers affected by the storm are now in a hurry to harvest and store the corn before it rots. “They had a very good crop before the windstorm,” said Brian Grete, an editor with Pro Farmer who leads the eastern leg of the crop circle. “Now it’s a race to see how much they can get in the bin before they run out of time.”
When grain prices are low, farmers often try to grow larger crops to sell more and cover costs. “When you have low commodity prices and low yields, it’s very hard,” Mr Guebert said.
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