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Ag economy snapshot

2020 could be tough year even with financial support, ethanol margins show marked improvement.

Janet Kubat Willette, E-Content Editor

June 15, 2020

2 Min Read

Even with significant government financial support, 2020 could be a tough year for farmers, according to a pair of Purdue economists

Michael Langemeier, professor of agricultural economics and associate director of the Purdue Center for Commercial Agriculture, and James Mintert, professor and director of the Purdue Center for Commercial Agriculture, presented a snapshot of the agricultural economy during a June 12 webinar.

Crop net returns in 2020 do not look very good, Langemeier said, but they're not as bad as they were in 2015 when a wet June impacted their Case farm in west central Indiana. However, when sources of crop income are combined, expected profitability in 2020 looks similar to 2015.

Net farm income will be significantly lower than in 2018 or 2019 for corn and soybean producers, he said, but that could change with another government program or an increase in prices.

From 2007 through 2019, 2015 is the only year with a negative profit margin.

The negative numbers could put downward pressure on cash land rent in 2021, but don't expect downward pressure on land value.

Depressed working capital and relatively low net returns to land for operators will have downward pressure on land value, but the thin market, low interest rates, investment potential for non-ag buyers and land's ability to be a good hedge against inflation are putting upward pressure on land values. Land has been a pretty competitive investment going back to the 1960s, Langemeier said. Its value is not correlated with the stock market, which makes it attractive to non-ag investors.

Ethanol outlook

Ethanol plant margins have shown a big improvement since late March, Mintert said. They are not back to the margins seen in late November or early December, but they have shown a big improvement since the stay-at-home orders went into effect in March.

Forecasts are suggesting continued improvement in fuel usage, which is good news for ethanol producers and corn growers.

Feed demand

Forecasts were predicting record large meat production in the U.S. in 2020 and Mintert hasn't seen evidence that producers are backing off, which is fueling strong feed demand. The production growth was based on export demand, which is tenuous. It seems everyday new information emerges about exports to China.

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