I have spoken several times about the profit squeeze that seems imminent for most grain farmers. Inputs like seed and fertilizer have remained stubbornly high, rents have only decreased slightly, and grain prices just won’t cover costs.
This week a story by Reuters about farmers dropping acres just before the March 1 rent payment deadline ricocheted around the farm media. To be sure, there were only a couple of real examples and plenty of speculation, but it was information producers had been anticipating.
Prices don’t go down the same way they rise. When there is more money to spread around, everyone can fuss about how much more they get but not enough to threaten the whole business chain. When it comes to cutting payments, those affected are struggling to throw the other guys under the bus.
It has been my hunch that inputs and rents won’t decrease significantly until there are real casualties on the field, so to speak. That may be beginning. Another necessary ingredient is a widespread belief by competitors that not rushing in to take a fallen comrade’s land could mean the price will be lower tomorrow.
He result is a tendency to overshoot the economics in many cases. Landowners will end up with less that they could have bargained for with gradual decreases. Input suppliers will lose market share and customers instead of percentage points of profit. This brinksmanship is eerily similar to the constant standoffs we see in government. Refusing to accept a small setback, we raise the odds of a huge defeat.
My guess is this tempest will reach its height this summer, if prices are similar or lower than today. It will be all we will be talking about. And a new player will enter the debate and have the final say: ag lenders. Consider them the equivalent of agriculture’s Supreme Court.