Corn farmers need liquidity as price prospects grow dimmer: Fed

By Daniel Enoch

© Copyright Agri-Pulse Communications, Inc.



WASHINGTON, Jan. 31, 2014 - U.S. corn growers should probably resign themselves to lower prices from the 2014 harvest and have a strong cash reserve to get through the tougher times ahead.

That's the advice from Nathan Kauffman and Maria Akers writing in the latest issue of the Main Street Economist, a publication of the Federal Reserve Bank of Kansas City. They note that the record 2013 crop of almost 14 billion bushels helped push corn prices down from $7.50 a bushel in March to just over $4 in late 2013. In futures trading Thursday on the Chicago Board of Trade, corn for delivery in December 2014 was going for about $4.51 a bushel.

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“Farmers making decisions about production in 2014 and beyond should carefully consider their own levels of liquidity in the face of more certainty about lower prices in the future and reduced profitability,” Kauffman and Akers write.

Why the increased certainty? The authors cite a number of reasons, including slowing demand from the ethanol industry, competition in foreign markets, and increased global grain production, all of which is tempering market volatility.

Record profits in the agricultural sector in recent years have helped many farmers improve their cash positions. Still, the authors warn: “Some less liquid operations may be more exposed to short-term risks than others and weaker profitability could intensify challenges beyond 2014.”

Younger farmers appear to be less prepared in terms of liquidity than their older counterparts, according to Kauffman and Akers. Also vulnerable are large operations that borrowed to expand during the recent boom years.

In addition, “farmers who have negotiated multiyear cash rent leases may be particularly exposed to short-term risks,” they say.

Kauffman is assistant vice president and Omaha branch executive at the Kansas City Fed; Akers is an associate economist at the bank.

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