Chris Hurt, Purdue University, hurtc@purdue -...
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Chris Hurt, Purdue University, [email protected]
Transcript of Chris Hurt, Purdue University, hurtc@purdue -...
Chris Hurt, Purdue University, [email protected]
$393
$422 $427
$565
$619
$575
$628
$729
$755$740
$740
$672
$697 $693$682
$667
$367
$435
$601$624
$581
$728
$794$824
$769
$657
$609$627
$579$605
$642$659
$350
$400
$450
$500
$550
$600
$650
$700
$750
$800
$850
Estimated Revenue and Total Costs/Acre on a 50/50 Corn/Soybean Farm on Average Quality Indiana Land
Cost/Acre Revenue
C. Hurt, Purdue, August 2018
Margin SqueezeHigh Costs-Low Prices
Weak IncomesWeak Cash Flows
Declining Asset Values
5155
39
61
87
79
57
70
85
63
75
114
96
124
92
81
61 6460
0
20
40
60
80
100
120
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Bill
ion $
U.S. Net Farm Income:2000-2018 USDA Billion $
Average 2004 to 2010$75 Billion
Average 2011 to 2014$105 Billion
USDA2/7/2018
97.2
89.174
89.6
56
48
45
55
65
75
85
95
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Mill
ion
Acre
sCorn, Soybean, Wheat Planted Acres
Corn
Soybeans
Wheat
320
330
340
350
360
370
380
390
4006
/3/1
8
6/1
0/1
8
6/1
7/1
8
6/2
4/1
8
7/1
/18
7/8
/18
7/1
5/1
8
7/2
2/1
8
7/2
9/1
8
8/5
/18
8/1
2/1
8
8/1
9/1
8
8/2
6/1
8
9/2
/18
9/9
/18
9/1
6/1
8
9/2
3/1
8
9/3
0/1
8
U.S. Corn Crop Ratings: USDA
'06
'07
'08
'09
2010
2011
'12
13
14
2015
16
'17
2018
330
340
350
360
370
380
3906
/3/1
8
6/1
0/1
8
6/1
7/1
8
6/2
4/1
8
7/1
/18
7/8
/18
7/1
5/1
8
7/2
2/1
8
7/2
9/1
8
8/5
/18
8/1
2/1
8
8/1
9/1
8
8/2
6/1
8
9/2
/18
9/9
/18
9/1
6/1
8
9/2
3/1
8
9/3
0/1
8
U.S. Bean Crop Ratings: USDA
'06
'07
'08
'09
10
'11
12
13
14
15
16
'17
18
81 81
87 88
77
70
7878 80
86
7772
6972
75
8185
77
71 70 71
0
10
20
30
40
50
60
70
80
90
100
Iowa Ill Neb Minn Indiana SD U.S.
Corn Ratings 6 Largest States: % Good/Excellent
78 80
88
74
86 84
7572
76 75
70
83
7571
75 74 74
68
84
72
67
0
10
20
30
40
50
60
70
80
90
100
Ill Iowa Minn Indiana Neb Ohio U.S.
Soybean Ratings 6 Largest States: % Good/Excellent
Corn Soybeans
U.S. IND U.S. IND
2018 Trend 174.0 174.0 48.5 53.5
Weekly Crop Ratings Yield Estimates
(Bu./Acre)
6/3/18 178.9 181.5
6/10/18 179.0 182.2 49.9
6/17/18 179.6 184.0 49.8 56.0
6/24/18 178.6 184.3 49.9 55.8
7/1/18 178.8 185.1 49.9 56.2
7/8/18 179.6 186.1 49.9 56.1
7/15/18 178.3 185.3 49.9 56.0
7/22/18 180.0 185.8 50.4 56.2
7/29/18 180.7 182.7 50.4 56.0
8/5/18 180.5 185.0 49.8 55.9
Department of Agricultural Economics
Purdue University
Department of Agricultural Economics
Purdue University
Big Ag Export Customers 2017
Billion $ % U.S. Ag Exports
China $26.0 18.5%
Canada $20.4 14.5%
Mexico $18.6 13.3%
Japan $11.8 8.4%
South Korea $6.9 4.9%
$83.7 59.6%
Date ItemsTariff
Amount Value of Goods Why?
Billion $
Feb 2018 Washing Machines 16% to 50% $1.800Section 201 WTO Safeguards
Feb 2018 Solar Panels 15% to 30% $8.500 Section 201
7/1/18 Steel 25% $29.000Section 232 NtlDefense
7/1/18 Aluminum 10% $17.400 Section 232
7/6/18 China 25% $34.000
Section 301 U.S. intellecutal property rights violations
8/23/18
China: Chemicals, Industrial equipment, Parts 25% $16.000 Section 301
7/10/2018-Announce In-place September??
Consumer products, food, chemicals, etc
10%-Maybe 25% $200.000
Hearing Aug 20-23 Final by Aug 30, 2018
$306.700
Today B$ Next $200 Billion Next $200 B Autos
Tariffs on $106.700 $306.700 $506.700
Assumed tariff 23.0% 15.0% 15.0%
$ Tariff $24.541 $46.005 $75.000
U.S. Imports $3,100.000
U.S. GDP $20,000.000
% of Imports 0.792% 1.484% 2.419%
% of U.S. GDP 0.123% 0.230% 0.375%
Which AgProducts?
2017 U.S. Sales to China (Million $)
Volume of Sales Percent of U.S. Production Volume
Soybeans $12,356 1,176 Mill Bu. 27.0%
Corn $148 33 Mill Bu. .2%
Wheat $350 54 Mill Bu. 3.1%
Pork $1,080 496,000 MT 2.0%
Beef $915 134,000 MT 1.1%
Poultry $505 375,000 MT
Total 6 $15,350
All Food & Ag $26,000
Tariff (tax) is 25% of the delivered value and goes into place on July 6, 2018
Brazil Origin U.S. Origin
Pre-Tariff Delivered Price $12.00 $12.00
25% Tariff on U.S. +$3.00
Chinese Crushers Costs $12.00 $15.00
-U.S. Soybeans become the highest costs in the worldfor the Chinese
-China buys all the beans possible from NON-U.S. origins-China still will need to buy many U.S. beans-but will buy
the minimum they can from us-Chinese preference for NON-U.S. beans will stimulate
higher prices and acreage among our competitors-Over time this will discourage soybean acres in the U.S
$7.75
$8.25
$8.75
$9.25
$9.75
$10.25
$10.75
$11.25
$11.75
Soybean Price Brazil Port vs. Central Indiana
Brazil Port Central Ind
Impacts of Chinese Tariffs—Purdue Study (Taheripour & Tyner)
-U.S. soybean prices drop by up to 5%
-U.S. soybean exports to China drop 69%
-U.S. soybean production drops 13%
-Harms U.S. soybean industry up to $3 billion per year
-Harms Chinese consumers up to $3 billion per year
-Helps Brazilian ag economy by near $3 billion per year
-Harms the entire world by up to $2 billion per year (net of + and -)
$4.30
$3.50
$3.85
$10.60
$8.25
$8.93
$66
$50
$16.90
$14.25
Change in Value of 2018 U. S. Crops using USDA Production: From June 1 to August 6
$Billion Price %
Soybeans -$6.217 -13.9%
Pork -$5.231 -27.0%
Milk -$4.269 -11.7%
Corn -$3.771 -6.4%
Wheat $0.470 4.5%
Cotton -$0.264 -4.0%
Sorghum -$0.094 -6.4%
Crops+Pork+Dairy -$19.377
USDA estimates 2018 net farm income at $59.5 billion
Department of Agricultural Economics
Purdue University
USDA Announces Up to $12 Billion Tariff Aid Program for Agriculture (July 24, 2018)
1. Market Facilitation Program: Direct payments of $7 to $8 billion to producers:
a. Corn, Soybeans, Wheat, Sorghum, Cotton
b. Pork and Milk
2. Food Purchase & Distribution Program:
3. Trade Promotion Program:
9.2%
13.6%
10.5% To 12.4%
10.9%
13.7% To 14.9%
0%
5%
10%
15%
20%
25%
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Year
U.S. Ending Stocks to Use: Corn & Soybeans
Corn
Soybeans
26.3%
28.5%
28.0%
31.1%
34.4% 34.8%
36.9%
34.8%
29.4%
27.5%
14.2%
21.7% 21.5%
17.9%
13.9%
10%
12%
14%
16%
18%
20%
22%
24%
26%
28%
30%
32%
34%
36%
38%World Stocks to Use %: USDA July 2018
Wheat
Soybeans
Rice
Corn
CornUSDA
174 bu.
Purdue
178 bu.
7/12/18 USDA
16/17 17/18 18/19
Carry In 1,737 2,293 2,027 (-75) 2,027
Production 15,148 14,604 14,230 (+190) 14,572
Total Supply 16,942 16,937 16,307 16,649
Feed & Residual 5,467 5,450 (-50) 5,425 (+75) 5,450
FSI Non-Fuel 1,450 1,460 1,480 1,480
FSI Fuel (Ethanol) 5,439 5,600 (+25) 5,625 (-50) 5,635
Export 2,293 2,400 (+100) 2,225 (+125) 2,250
Total Use 14,649 14,910 14,755 14,815
Ending Stocks 2,293 2,027 (-75) 1,552 (-25) 1,834
US Farm Price $3.36 $3.40 (-.05) $3.80 (-.10) $3.65
$3.30-$3.50 $3.30-$4.30 $3.15-$4.15
SoybeansUSDA
48.5 bu.
Purdue
49.5 bu.
7/12/18 USDA
16/17 17/18 18/19 18/19
Carry in 197 302 465 (-40) 465
Production 4,296 4,392 4,310 (+30) 4,395
Total Supply 4,515 4,715 4,800 4,885
Seed & Residual 140 136 135 135
Crush 1,899 2,030 (+15) 2,045 (+45) 2,055
Exports 2,174 2,085 (+20) 2,040 (-150) 2,060
Total Use 4,213 4,251 4,220 4,250
Ending Stock 302 465 (-40) 580 (+195) 635
Farm Price $9.47 $9.35 (-.05) $9.25 (-.75) $8.90
$8.00-
$10.50
$7.90-
$9.90
$393
$422 $427
$565
$619
$575
$628
$729
$755$740
$740
$672
$697 $693$682
$667
$367
$435
$601$624
$581
$728
$794$824
$769
$657
$609$627
$579$605
$642$659
$350
$400
$450
$500
$550
$600
$650
$700
$750
$800
$850
Estimated Revenue and Total Costs/Acre on a 50/50 Corn/Soybean Farm on Average Quality Indiana Land
Cost/Acre Revenue
C. Hurt, Purdue, August 2018
-$26
$13
$174
$59
-$38
$154$166
$95
$14
-$83
-$131
-$45
-$114-$98
-$43
-$8
-$150
-$125
-$100
-$75
-$50
-$25
$0
$25
$50
$75
$100
$125
$150
$175
$200
$225
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
50/50 Corn/Soybean Indiana Average Revenue Minus Total Costs/Acre by Crop Year
2014 to 2020-$506/acre
2006 to 2013+$637/acre
14 15 16 17 18 19
Finished Steers
155 148 121 122 115 117
500-550 Ky.
Calves229 236 151 150 146 150
Hogs 76 50 46 51 44 43
Milk 24 17 16 17.65 16.10 16.75
Eggs 142 182 86 101 142 124
Broilers 105 90 84 93 103 101
Turkey 108 116 117 96 83 87
-$45
-$22
-$46
-$38-$50
-$30
-$10
$10
$30
$50
$70
98 99 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19Pro
fits
/Lo
ss
Pe
r H
ea
dPurdue Estimated Profits/Loss Per Head: 1998-2019
Now What? What’s the Administrations Plan? End Game?
1. Make every effort to resolve tariffs2. Damage becomes more permanent with time3. Buy time: Avoid pricing
a. If have to sell Sell Cash-buy futures??b. Storage on grainsc. Delay major decisions
4. Direct cash payments will help cash flow this fall5. Solution for U.S. Ag:
a. Settle NAFTAb. Negotiate with China to buy $10-$15 billion
added ag and food products
164.7
171174.6
176.6
y = 2.214x + 111.31R² = 0.8353
100
110
120
130
140
150
160
170
180
90 92 94 96 98 00 2 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Corn Yield: 1990-2017
Aug 169.5Oct 171.8Nov 175.4Jan 176.6
4.4%6.6%
5.4%4.6%2.6%0%
10%
20%
30%
40%
50%
90 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Ending Stocks to Use %: Corn, Soybeans, Wheat:
Wheat
Corn
Soybeans
Highest in 30 Years
Highest In 12 Years
Highest in 11 Years
July 2018 Corn Futures-BarChart.com $4.30
$3.95
Expect market to find a trading range after harvest-Consider pricing at high of range-Tend to hold at low of range-Keep bullish expectations modest
Maybe $3.95 July 2018 Futures---5 to 10 under basis
$3.60
$3.95
DEC 2018 Corn Futures-BarChart.com
$4.20 to $4.30
$3.80
$4.02
Remember Pricing and Delivery are Separate Actions and Can Be at Different Times
Corn Interest/Month $0.016 @5%
Beans Interest/Month $0.043 @5%
Mar Apr May Jun Jul Aug
Corn: Cloverdale 3.80 3.82 3.84 3.90 3.92 3.90
Today's Bid + Interest 3.82 3.83 3.85 3.86 3.88
$0.00 $0.01 $0.05 $0.06 $0.02
Soybeans: 10.30 10.37 10.37 10.58 10.58 10.62
Today's Bid + Interest 10.34 10.39 10.43 10.47 10.52
$0.03 -$0.02 $0.15 $0.11 $0.10
34.134.2
37.6
32.6
41.4
35.3
37.6
38.938.9
36.6
38.1
39.6
38.0
33.9
42.243.042.7
41.7
39.7
4443.5
41.9
40
44
47.548
52
49.1
y = 0.4936x + 33.417R² = 0.7094
30
32
34
36
38
40
42
44
46
48
50
52
90 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
U.S. Bean Yield 1990-2017
Soybeans 2/22/2018
1990-16
Trend 17
USDA
Feb'18
Bu from
Trend % of Trend
52.0 54.0 2.0 103.8% STATE
52.5 55.0 2.5 104.8% North West
52.5 57.5 5.0 109.6% North Central
49.9 52.5 2.6 105.1% North East
54.1 57.0 2.9 105.4% West Central
54.8 55.5 0.7 101.3% Central
52.9 51.0 -1.9 96.4% East Central
49.9 57.0 7.1 114.2% South West
45.6 54.5 8.9 119.5% South Central
46.2 53.5 7.3 115.7% South East
Soybeans
7/12/18 USDA
15/16 16/17 17/18 18/19
Carry in 191 197 302 465 (-40)
Production 3,926 4,296 4,392 4,310 (+30)
Total Supply 4,140 4,515 4,715 4,800
Seed & Residual 115 140 136 135
Crush 1,886 1,899 2,030 (+15) 2,045 (+45)
Exports 1,942 2,174 2,085 (+20) 2,040 (-150)
Total Use 3,943 4,213 4,251 4,220
Ending Stock 197 302 465 (-40) 580 (+195)
Farm Price $8.95 $9.47 $9.35 (-.05) $9.25 (-.75)
$8.00-$10.50
Wheat
7/12/18 USDA
15/16 16/17 17/18 18/19
Carry in 752 976 1,181 1,100 (+20)
Production 2,062 2,309 1,741 1,881 (+54)
Total Supply 2,927 3,403 3,076 3,117
Feed & Residual 149 157 50 (-20) 130 (+10)
Other Domestic 1,024 1,010 1,027 1,027
Exports 778 1,055 901 975 (+25)
Total Use 1,951 2,222 1,978 2,027 (+25)
End Stocks 976 1,181 1,100 (+20) 985 (+39)
Farm Price $4.89 $3.89 $4.73 $5.00 (-.10)
$4.50-$5.50
July 2018 Soybean Futures-BarChart.com
Upside objective $10.30 to $10.40 July Futures 20 to 25 under basis-But may take time and S. American weather
$10.60
$9.40
$10.30
Nov 2018 Soybean Futures-BarChart.com
Upside objective $10.30 Nov Futures Near $10.00 cash harvest priceNormal weather harvest $9.10 to $9.40
$9.30
3 Year Nearby Soy Futures BarChart.com
$12.00
$10.75
$9.00
Last 30 Days Precip % Normal March 6 to March 12: % of Normal
Department of Agricultural Economics
Purdue University
Rosario Argentina: March 6 to March 15Source: Intellicast.com
47%
23%
16%
49%
13%
8%
0%
10%
20%
30%
40%
50%
60%
Argentina Brazil United States
Share of World Soybean Meal and Oil Exports: USDA
Meal Oil
Next 10 days:Temp 87-92 .01 inches 37% highest oddsTemp 85-90 .32 inches 58% highest odds
March------April-------May
Temperatures Precip
2018 Estimated Crop Budget:
Indiana: March 6, 2018
Prices Corn Beans Wheat
Harvest Futures 2018 $4.06 $10.44 $5.20
Expected Basis -0.25 -0.30 -0.30
Expected Cash Price $3.81 $10.14 $4.90
Estimated Yield/Acre and Returns/Acre Above Variable Costs
Rotation Corn Rotation Soybeans Single-Crop Wheat
Land Quality bu./acre $/acre bu./acre $/acre bu./acre $/acre
Low 138 $140 43 $193 61 $126
Average 172 $230 53 $283 76 $180
High 206 $338 63 $378 91$216
Budget: Purdue ID-166 (January 2018) High Quality Land = $246 rent
Low Quality Land = $151 rent
Average
Cash Tenant
Returns for
Time,
Machinery, Risk
Low $15
Average $62
High $112
2012 2013 2014 2015 2016 USDA
2017USDA
2018USDA
2019FutrMYA
2020FutrMYA
Corn $6.89 $4.46 $3.70 $3.60 $3.36 $3.40 $3.80 $4.05 $4.10
Soybeans $14.40 $13.00 $10.10 $8.95 $9.47 $9.35 $10.00 $9.60 $9.50
Wheat $7.77 $6.87 $5.99 $4.89 $3.89 $4.70 $5.00 $5.60 $5.70
Low
MYA Farm Price:PAST and FUTURE
Price Prospects for Next 3 Years???Better
$393$422 $427
$565
$619
$575
$628
$729$755
$740$740
$672$693
$678$663 $664
$367
$435
$601$624
$581
$728
$794
$824
$769
$657
$609$627
$577
$631$653 $659
$350
$400
$450
$500
$550
$600
$650
$700
$750
$800
$850
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Estimated Revenue and Total Costs/Acre on a 50/50 Corn/Soybean Farm on Average Quality Indiana Land
Cost/Acre Revenue
2018 Per Acre: Land Charge = $195 Machinery Dep.= $100Family Living = $37
222
202
218
221
180
185
190
195
200
205
210
215
220
225
96 98 00 2 4 6 8 10 12 14 16 18
Po
un
ds P
er
Ca
pita
Year
Per Capita Total Meats and PoultryRetail Weight: USDA
10/12/17 14 15 16 17 18
Finished Steers
155 148 121 122 120
500-550 Ky. Calves
229 236 151 150 148
Hogs 76 50 46 51 52
Milk 24 17 16 17.65 16.05
Eggs 142 182 86 101 117
Broilers 105 90 84 93 91
Turkey 108 116 117 96 91
$3,556
$9,765
$8,508 $8,529
$2,945
$7,976
$7,041$6,928
$2,367
$6,160$5,863
$5,353$5,280
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
$10,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Indiana Land ValuesPurdue Survey
Top
Average
Poor
Peak to 2017 AdjustmentTop -13%Average -13%Poor -14%
2012 = $6,352
$6,928
$6,385
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
$5,000
$5,500
$6,000
$6,500
$7,000
$7,500
$8,000
75 77 79 81 83 85 87 89 91 93 95 97 99 1 3 5 7 9 11 13 15 17 19
Indiana Land Values: Purdue Survey 2014 =
$7,976
2018 Outlook:-Returns to operations remain low (--)-Strong yields in 2017 (+)-Demand base: Fewer farmers with cash (-)-Limited supply as long as land returns > CD Rates (++)-Interest rates likely to increase 50 to 100 basis points (-)-Down 0% to 6% on Purdue Survey in 2018?
$154
$294 $292 $285
$257 $253
$126
$232 $229
$204 $205
$99
$179 $175$157 $163
$50
$100
$150
$200
$250
$300
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Indiana Cash Rents: Purdue Survey
Top
Average
Poor
Peak to 2017 AdjustmentTop -14%Average -12%Poor -9%
Department of Agricultural Economics
Purdue University
$106
$72
$112
232
205
189
$50
$70
$90
$110
$130
$150
$170
$190
$210
$230
$250
75 77 79 81 83 85 87 89 91 93 95 97 99 1 3 5 7 9 11 13 15 17 19
Indiana Average Cash Rents: Purdue Survey
2014 = $232 2015 = $2292016 = $2042017 = $2052018 = $1972019 = $189
June 2017 Purdue Survey-Cash rents down 5% for 2018
-My guess down 2% to 6%
Department of Agricultural Economics
Purdue University
-Reduce capital purchases
-Cut family living expenses
-Liquidate excess assets
-Seek lower cost per bushel
-Seek additional farm related income
-Seek off farm income
-Pursue reduced cash rents
-Crop Insurance, Government Payments, FSA Disaster Loans
-Work with Your Lender as Your Financial Assistant
Restructure time periods
If you can’t fully repay your operating loan, let your lender know
Increase borrowing against real assets
-Have a 1 year and a 3 Year Plan
16.6%16.1%
10.0%
11.0%
12.0%
13.0%
14.0%
15.0%
16.0%
17.0%
18.0%
73 75 77 79 81 83 85 87 89 91 93 95 97 99 1 3 5 7 9 11 13 15
July Beef Replacement Heifers/July 1 Beef Cows
$110
$120
$130
$140
$150
$160
$170
$180
1 2 1 2 1 2 1 2 1 2 1 2 1 2 1 2 1 2 1 2 1 2 1 2
Jan Feb March April May June July Aug Sept Oct Nov DecFirst-half and second-half of each month
2014, 2015, 2016 Finished Steer Prices: Iowa Southern Minnesota: Futures Forecasts November 6, 2015
201420152016
2013 = $126
2014 = $1552015 = $1492016 = $130
Animal Industries
6.9
21.2
17.8
12.7
0
5
10
15
20
25
90 92 94 96 98 00 2 4 6 8 10 12 14 16
Perc
ent
Exports % of Domestic Production
Pork
Broilers
Turkey
Beef
Eggs
$10
$30
$50
$70
$90
$110
$130
1968 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990
Iowa State Budgeted Costs Per Acre: Nominal
Machinery Seed/Fert/Chem Labor Land
Iowa State University Budgeted Corn Costs: 1987 minus 1982
% Change % of
$/acre in Category Total Adj
Machinery -$6.62 -8.3% 11.6%
Seed/Fert/Chem -$2.06 -2.2% 3.6%
Labor -$0.49 -2.5% 0.9%
Land -$48.00 -39.3% 84.0%
Total -$57.17 -18.1% 100.0%
Iowa State University & Purdue
Biofuels policyCorn use for ethanol has a slight increase but not as much as
yield increase: Slight negative on corn acreageBeans for biodiesel: Increase usage means 1% to 2% more
bean acres needed by 2017
China??? Economy’s growth rate is slowing down, but still growing. More bean acres will be needed.
Macro Economics:Inflation, rising interest rates, debt or financial crisis, Chinese
recession?
Boom/Moderation Favored
1. Supply slow to adjust down in response to tight margins
Potential for long periods of tight margins
2. Crop production has high fixed costsBest solution… increase output with same fixed inputs to drive cost per bu.
down
3. Tenants want more land to spread fixed costsResult is an ultra competitive market for cash rent
4. Industries with excess capacity have narrow marginsa. Producers willing to just cover variable costs & bid the rest of returns into
cash rentsb. Short-run this is best strategy, but for how long? Eventually the family has
expenses or a major piece of machinery has to be replaced
5. Agriculture is technologically progressivea. If you don’t keep up with cost reducing technology, you become less
competitiveb. Difficult to go backwards with technology and still reduce cost per bushel
Outlook means crop agriculture is facing problems
