For Farmers, Lower Grain Prices Could be Sign of Things to Come

Not only is a big crop coming in, many farmers are sitting on more grain than usual from last year’s harvest, so they’re facing a double-whammy of having to make room for this year’s crop while selling last year’s grain at lower levels.

Tanner Ehmke, lead economist for grains and oilseeds at CoBank’s Knowledge Exchange research division, says after a few years of “phenomenal” crop prices, farmers lost discipline with their marketing. “You didn't have to do much marketing because the price just came to you. Now that story is changing,” he says.

Data from CoBank shows farmers in 2024 have 36% of their corn and 44% of beans in commercial storage, which are delayed-price bushels. Comparatively, in 2023, 12% of corn and 22% of soybeans were under delayed-pricing contracts. In delayed pricing, farmers deliver the bushels, with the option of pricing at a later date. 

Ehmke says local basis levels are falling faster than futures prices because farmers are cleaning out their bins from last year’s crop. That’s on top of higher transportation costs caused by elevated, rail, barge and ocean-freight rates, adding further pressure to local cash prices.

With weaker prices, farmers need to study their financial sheets to understand their cost of production and where they’re profitable, a figure that needs to include paying themselves a salary, Ehmke says. 

“From that, then you can back into a marketing plan. What does that look like in the deferred contracts? What are you being paid to deliver at a later date?” he says.

Whether that grain is stored on-farm or in commercial storage matters, Schnitkey says, and farmers need to look at those storage charges and what that implies about prices. 

As price risks mount, more producers have turned to CME Group options contracts with a shorter time horizon, allowing them to guard against a sudden turn in prices after a crop report or change in the weather. 

Interest rates will factor into how farmers market this year’s crop as well, and how quickly the Federal Reserve eases monetary policy will make a difference. Interest rates will also matter in 2025 during spring planting decisions.

Schnitkey says since 2006, corn and soybean prices reached a plateau of $4.55 and $11, respectively, driven by ethanol demand for corn and export demand for soybeans. While grain markets saw higher highs in 2012 due to global shortfalls and a Midwest drought, and then during the 2021-2023 cycle, crop prices can also spend considerable time below their longer-term averages, most recently between 2014 to 2020, when prices for both crops were under those plateaus.

The September Ag Economy Barometer shows farmers are concerned about the possibility of a repeat of the extended weakness seen 10 years ago.

Lower prices bring lower returns and lower farmer incomes, he says. Input costs will likely fall, but adjustments will lag. Schnitkey says looking at the 2014-2020 timeframe, returns fell, and in 2015, grain farms in Illinois had nearly $0 net income. He also noted fertilizer and fuel costs dropped eventually, but seed and pesticides costs were stable. Cash rents slowly came down as income eroded.

Farmers also experienced an increase in the average debt-to-asset ratios, and Schnitkey expects that to occur in 2024. The silver lining for farmers in an otherwise dim outlook is that many producers, especially those who have been farming for some time, have solid liquidity and low debt-to-asset ratios on average. 

“Many farmers have a nice financial position, and they're going to have to think about how they want to use that, before they make some changes to their operations,” he says.