A few weeks ago we considered the state-level impacts of the farm economy slowdown. While net farm income has decreased 42 percent nationally, the impacts have varied across the country. As many would expect, the Corn Belt and Great Plains states were hard-hit. Based on reader feedback, this week’s post considers the farm-economy slowdown across commodities.
Figure 1 shows the difference in cash receipts for 2018 compared to observations from 2010 and 2018. The measure is one way of considering how significant the farm economy slowdown has varied. As we have noted in several posts, conditions for wheat production have been particularly challenging. Cash receipts in 2018 were 45 percent less than the best numbers observed in 2012. It’s worth noting that wheat cash receipts in 2018 are actually 5 percent less than worst numbers reached in 2017.
Corn has also experienced a large decline, with cash receipts decreasing one-third from 2012 best numbers. Outside of crops, livestock producers have also been hard-hit. Cash receipts for cattle and calves have decreased 18 percent, hogs have decreased 25 percent and dairy has decreased 29 percent. They have all faced significant declines from 2014’s best numbers.
Perhaps the data-point that is most noticeable is for soybeans with only a 9 percent decrease in cash receipts from the best numbers. Keep in mind the data are cash receipts – or a measure of annual sales. It will take some time for the full impact of the decline in soybean prices in 2018 to work its way into the data. Furthermore changes in the data are driven by price and quantity. I’ll talk more on that later.
Figure 2 shows annual cash receipts from 2010 to 2018 for select commodities. For corn, soybeans and wheat, cash receipts peaked in 2012. For livestock, cash receipts peaked later in 2014.
In recent years cash receipts have been stable for several commodities. Cash receipts for cattle and calves, corn and wheat have been mostly sideways since 2016. But two commodities have trended less in recent years – soybeans and dairy. The continued slide for those commodities makes current financial conditions and 2019 increasingly challenging.
While the data presented in figures 1 and 2 are informative, they are not a perfect measure of farm-level conditions. Changes in area planted have a large impact on annual cash receipts. Soybean production, for example, has increased by more than 12 million acres during the past nine years. The increased production has masked declining field-level economics.
Table 1 uses U.S. Department of Agriculture data that considers acre-level revenue as well as returns for corn, soybeans and wheat. Specifically the data considered were 2010 to 2017; 2018 data are not yet available. The data are national averages.
The first column shows the difference in per-acre revenue comparing 2017 to the best numbers from 2010 to 2017. Wheat, again, was hardest hit with a 41 percent decline in per-acre revenue. But the acre-level impact for corn and soybeans is much closer than shown in figures 1 and 2. Specifically corn revenue in 2017 was 26 percent less than the earlier best number, while soybean revenue was 24 percent less.
The middle column shows the change in revenue for 2017 compared to the average per-acre revenue from 2010 to 2013.
The last column considers the contribution margin. Contribution margin is the difference between revenue and variable costs of production – such as seed, fertilizer, chemicals, etc. Hired labor, depreciation and land – to list a few – are not included. Contribution margin is a helpful measure because it shows how much remains to cover fixed overhead expenses and generate a profit, if sufficient.
For corn the contribution margin in 2017 was 34 percent less than the average of 2010 to 2013. The measure, for example, tells us there is now only $64 of contribution margin – to cover fixed expenses and generate a profit – for every $100 of contribution margin there was between 2010 and 2013.
Again, the impacts were most dramatic for wheat, with a 44 percent decline in contribution margin. Soybeans have also shown a significant decline, contracting 22 percent.
Wrapping it up
As we noted in an earlier post, it can be difficult to capture and articulate the impacts of the current farm-economy slowdown. In many cases data that captures farm-level impacts and conditions can be challenging to capture – if not impossible.
Commodity cash receipts are important and helpful measures. Furthermore the data are frequently updated. Cash receipts have captured sharp declines and significant challenges for producers of wheat, corn, cattle and calves, hogs and dairy. But recent data have understated the challenges for soybean production, which has increased acres even with significant revenue and contribution-margin declines.
Finally it’s important to keep in mind that producers can, in some cases, pursue alternatives. When conditions in wheat were most severe and bleak, many producers had the option to plant alternatives. That’s why wheat production contracted by more than 9 million acres in two years. Conversely producers of livestock have few alternatives they can pursue. An investment in a dairy facility and production isn’t easily switched to hog or cow-calf production. That’s to say that in some cases producers were able to adjust production to pursue less-bad options. In other cases producers had limited options when managing the downturn.
Visit ageconomists.com for more information.