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US farmer debt rises as crop output climbs, Argus Media reports

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World Fertilizer,


Argus Media is reporting that farm debt is rising in the US as years of depressed grain prices have negatively impacted growers, a trend that could reshape fertilizer buying and application methods.

Net farm income has dropped from its 2013 peak of US$123 billion to US$63.1 billion in 2018 and is expected to hit US$69.4 billion in 2019, according to the US Department of Agriculture (USDA), as grain production outpaces demand, leading to lower corn and soybean prices.

Farm debt is forecast to grow to a record high US$426.7 billion in 2019. Working capital — the difference between asset value that can be easily converted to cash and debt due within the next 12 months — is expected to shrink by 25 pc in 2019 to US$38 billion, a seven-year trough, according to the USDA.

"I think the working capital issue is directly tied to bankruptcies," USDA senior economist Carrie Litkowski said. "If [working capital] continues to go down it might lead to more bankruptcies."

Grain and oilseed farmers have been through several years of declining product prices as production has outstripped demand. Corn growers have dealt with sub-US$4/bushel prices at the farm gate since August 2014, according to USDA data, and are expected to see US$3.40–US$3.70/bushel in 2019. Soybean farmers have faced sub-US$10/bushel since August 2016 and are expected to see US$8.35–$8.85/bushel in 2019.

Lower grain values have been driven by production outpacing demand. Corn growers have averaged roughly 91 million ac of corn from 2010–18, with soybean area rising above 80 million ac since 2013. The USDA expects domestic growers in 2019 to plant 92.8 million ac of corn, while soybean acreage will drop to 84.6 million amid the ongoing trade war between the US and China.

Michael Langemeier, a professor of agricultural economics at Purdue University, argues that a factor driving elevated acreage is stronger demand among the fast expansion of the domestic ethanol industry, which has fostered a “new normal" for farmers. However, corn demand for ethanol production has levelled off in recent years, and inventories have grown in tandem. Corn stocks in March were estimated at 8.6 billion bushels, or 218 576 t, according to the USDA. Corn stocks have risen by 62 pc from a year ago, and are more than double their 2010 levels, which lowers market prices.

Years of depressed income and narrow margins could change the application of fertilizers. Growers could reduce applications during the autumn and increase rates during the spring prior to and after planting to ensure nutrients are being consumed by the plant and not lost.

Buying fertilizer as needed allows farmers to minimise their financial risk, especially booking volumes when fertilizer prices typically reset during the summer and winter.

"We are doing a much better job with spoon-feeding the crop," said Langemeier. "You can't afford to take the chance you're going to lose part of the benefit from the fertilizer by putting it on too early or putting it on in the fall, particularly as the cost increases a little bit."

Delaying purchases of nitrogen fertilizer could also allow flexibility in choosing the upcoming crop mix as corn and soybeans become increasingly competitive.

Read the article online at: https://www.worldfertilizer.com/nitrogen/12042019/us-farmer-debt-rises-as-crop-output-climbs-argus-media-reports/

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