Dropping crop prices will squeeze economies in states most dependent on farming
How will falling commodity prices impact the Midwest? All of the region’s major commodity crops — corn, wheat and soybeans — are going to be priced right around the cost of production for the next year, North Dakota State University agriculture economist Frayne Olson told lawmakers this summer at the Midwestern Legislative Conference Annual Meeting. And for the first time in many years, farmers will be losing money on their crops. The U.S. Department of Agriculture has predicted that net farm income will be down 36 percent from 2014 and reach its lowest level since 2002.
The causes of this hit to the farm economy range from a slowing global economy and a stronger U.S. dollar, to higher grain reserves and the weather. But what will be the broader effects of this fall in commodity prices on the region’s states?
The biggest impact will likely be felt in North Dakota, South Dakota, Iowa and Nebraska, states where farm income provides more than 18 percent of gross domestic product and where one in four jobs are tied in some way to agriculture.
A drop in farm income will be accompanied by a decline in the value of assets and an increase in farm debt, all of which will extend beyond the farm gate. Farmers will put off purchases, dip into savings or borrow more, Olson said during his presentation to the region’s state legislators, while household expenditures and spending on equipment will decrease.
Manufacturing companies that rely on farm purchases are already feeling the pinch — for example, John Deere laid off employees at its Illinois and Iowa plants, Kinze Manufacturing reduced its workforce in Iowa, and CNH Industrial cut jobs in Nebraska due to sagging sales of farm equipment. Combine sales alone are down 40 percent as compared to last year.
For states that use a multi-year formula to calculate farmland taxable value, the decline in commodity prices will also impact property tax collections over the next several years. Decreasing grain prices will cause tax revenue to fall for several years beyond the price drops, whereas the cash value of farmland may stay high because investors are increasingly turning to farmland purchases to build their portfolios.
Currently, institutional ownership of farmland is less than 1 percent, but that is growing. Of course, as every farmer in the Midwest knows, agriculture prices depend on the weather, and this could all turn around if South America has weather problems.
|Stateline Midwest: October 2015||3.23 MB|