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.
“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.
#30
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