Even after the worst drought in a half-century shriveled crops from Ohio to Nebraska, US farmers are having their most profitable year ever because of record-high prices and insurance claims.
Farmer income will probably jump 6.9 percent to US$144 billion, exceeding the government’s August estimate of US$139.3 billion, said Neil Harl, an economist at Iowa State University.
Parched fields that drove corn, soybean and wheat futures as much as 68 percent higher since mid-June mean insurance payouts may more than double to US$28 billion, according to Doane Advisory Services Co, a farm and food-company researcher in Saint Louis.
“Crop insurance was a savior this year,” said Kyle Wendland, 29, whose corn yields plunged 36 percent and soybean output dropped 11 percent on the 416 hectares he farms near Fredericksburg, Iowa.
“It was the difference between making a profit or sustaining a loss,” he added.
Farming accounted for 0.9 percent of the US economy last year, generating 11 percent of total exports and employing 2.635 million workers, Bureau of Economic Analysis data show. Deere & Co, the world’s largest agricultural equipment maker, on Thursday boosted its forecast of US farm cash receipts for this year to US$388.2 billion and predicted a 3.7 percent gain next year to US$402.5 billion.
Midwest farmland values rose by 13 percent to a record in the third quarter and spurred sales of Monsanto Co seeds, Deere tractors and CF Industries Holdings Inc fertilizer. Costlier grain eroded profit for pork producer Smithfield Foods Inc and restaurant owners, including Texas Roadhouse Inc. The government is predicting food inflation will accelerate next year, led by meat, dairy and baked goods.
The Standard & Poor’s GSCI Agriculture Index of eight farm products gained 9.3 percent this year. Wheat soared 32 percent to US$8.5975 a bushel on the Chicago Board of Trade, corn advanced 15 percent to US$7.4525 and soybeans added 17 percent to US$14.0825. That contrasts with an 8.4 percent gain in the MSCI All-Country World Index of equities and a 2.4 percent return on US Treasuries, a Bank of America Corp index shows.
While smaller harvests are reducing supplies from the US, the biggest agricultural exporter, slowing demand growth and more production in other nations are easing the impact. The UN says the global cost of food imports will drop 10 percent to US$1.136 trillion this year and its gauge of world food prices is 10 percent below the record set in February last year.
Production of corn, the biggest US crop, fell 13 percent to 272.4 million tonnes, the lowest since 2006, the US Department of Agriculture (USDA) estimates. In the two months from mid-June, prices surged as much as 68 percent on the Chicago Board of Trade to a record US$8.49. Crops withered in the US as Midwest states went without rain for most of July and August, and temperatures set heat records going back more than a century.
Soybean output fell 4 percent to 80.86 million tonnes, driving futures to an all-time high of US$17.89 on Sept. 4. Wheat prices reached a four-year high of US$9.4725 on July 23 and the condition of the winter crop on Nov. 18 was the worst since at least 1985, threatening output of grain that will be harvested in June.
The boom may not last. While the US trade surplus in agriculture rose tenfold since 2005, the government predicts an 8.6 percent drop in the country’s combined wheat, soy and corn exports next year. Surging prices will encourage farmers to plant more for next year’s harvest and Memphis, Tennessee-based Informa Economics Inc forecast on Nov. 2 that global corn production may jump 14 percent next year as wheat output gains 7.5 percent.