2015 is setting up to be another interesting year in the agriculture industry, following a fairly profitable year in 2014 for many livestock producers, but a far less profitable year for most crop producers in the upper Midwest. 2015 will bring farm program sign up, as well as continued uncertainty about renewable fuels. There are also crop production costs to consider, and the hope that land values continue to moderate.
New farm program sign-up
Sign-up for the new farm program, which is part of the 2014 Farm Bill, is now underway at local USDA Farm Service Agency (FSA) offices. The new farm program will be in place for the 2014 to 2018 crop years for all eligible crops under the Commodity Title of the farm bill, including corn, soybeans, wheat, and other crops. There are several farm program analysis tools now available to producers and landowners, through various land-grant universities, in cooperation with the Farm Service Agency. Local FSA offices are scheduling several informational meetings in the next couple of months, many of which are bring jointly conducted with the universities.
The sign-up process for the new farm program at local FSA offices will take place in a three-step process. Landowners have until Feb. 27, 1015 to make final decisions on updating FSA payment yields and reallocating crop base acres on each FSA farm unit. Producers have a deadline of March 31, 2015 to complete the farm program choice on each farm unit, and potentially on each eligible crop. Farm program choices include the Price Loss Coverage (PLC), Agricultural Risk Coverage–County (ARC-CO), or Agricultural Risk Coverage–Individual Coverage (ARC-IC) programs. All farm program payments will be made on the basis of crop base acres. Any potential 2014 farm program payments will not occur until October 2015. Producers will still need to enroll in the 2014 and 2015 farm program on an annual basis at local FSA offices, which can be done simultaneously for the 2014 and 2015 crop years in late spring and early summer 2015.
To offer some guidance, I've written an information sheet: New Farm Program Sign-up Details. To receive a free copy of this information sheet, send an e-mail to firstname.lastname@example.org or call (507) 726-2137. The University of Minnesota Extension Service is working with the state FSA office to offer farm program educational meetings for producers. View a complete list of those meetings.
A considerable amount of uncertainty in the renewable fuels industry remains at the end of 2014. The U.S. Environmental Protection Agency (EPA) still has not finalized the renewable fuels standard (RFS) requirements for 2014 and 2015. The original proposal in late 2013 was to lower the RFS requirements from 18.15 billion gallons of renewable fuel to 15.21 billion gallons, representing a reduction of about 16%. This would have been the first time since the Energy Independence and Security Act was enacted in 2007 that EPA has adjusted the annual RFS requirements. The EPA proposal would have lowered the RFS for corn-based ethanol from a level of 14.4 billion gallons for 2014 to a revised level of 13.01 billion gallons, as well as implementing significant reductions in the requirements for bio-diesel and cellulosic ethanol. Farm operators, members of Congress, and others provided a very negative response to the proposed changes in the RFS requirements, which has lead to the delays by EPA in implementing the final RFS requirements. The RFS changes for could potentially have long-term impacts on the ethanol and bio-diesel industries.
The breakeven cost of producing corn and soybeans at trend-line yields for many Midwest crop producers in 2015 will likely be close to $4.25-4.50 per bushel for corn, and $10.50-11 per bushel for soybeans. These are similar to 2014 levels, but compare to breakeven price levels of just over $3.50 per bushel for corn and near $8.00 per bushel for soybeans as recently as 2008. The 2015 breakeven levels for some producers, especially those with higher land rental rates, will likely be above $5.00 per bushel for corn, and near $12.00 per bushel for soybeans. Local forward grain prices for fall 2015 have improved in recent weeks, and are now near $3.60-4.00 per bushel for corn and $9.30-9.80 per bushel for soybeans, but are still below breakeven levels for many producers.
Cash rental rates for farm land increased dramatically from 2011-2014 in many areas of the Upper Midwest, and can be a large variable in the producer break-even prices for corn and soybean production across the region. Approximately two-thirds of the farm land in the upper Midwest is under some type of cash rental agreement. Farm operators need to look for ways to control crop expenses and manage cash rental rates for 2015. They also need to put together a good grain risk management plan, which utilizes crop insurance, the new farm program, and sound grain marketing strategies, in order to achieve breakeven and profitable price levels for the coming year.
Land values in most of the Midwest remained fairly strong early in 2014, but did start to show some considerable moderation during the last half of the year. Certainly not all farmland has dropped in value, but most tillable farm land in the Upper Midwest is being sold at lower levels than comparable land was 12-18 months ago. A recent, highly credible, land value survey from Iowa State University, released in early December, showed that average land values in Iowa decreased by 8.9%, as compared to a year earlier. This was only the second time since 1999 that Iowa farmland values decreased from one year to the next, and this was the largest annual decrease since 1986. According to the survey, the average land values dropped by about 11-13% in the northern one-third of Iowa from November 2013 to November 2014. Continued low grain prices and potential reductions in farm profitability in 2015, along with any increases in farm real estate interest rates, could cause land prices to decline even more by the end of 2015.