FOLLOWING some of the best years for growing row crops, an agricultural economist advised farmers to prepare for several years of lower prices.
"The last six years have been extraordinary years if you are a row crop producer," Matthew Roberts, an associate professor in The Ohio State University's department of agricultural, environmental and development economics, told a workshop at the American Farm Bureau Federation's 95th annual convention. "It's been the best six years in history. The next six years will not be like that."
Strong demand from China and the ethanol industry altered corn and soybean production globally during agriculture's recent boom period. A decent U.S. crop year in 2013 and curbed growth from the ethanol sector may mean that some acreage will revert back to pasture and forage crops.
"The question is how fast, after a grower has made an investment into row crops, we'll likely have to see losses before that land reverts to another use," Roberts said.
Roberts advised large, aggressive and young growers to prepare for a bumpy ride by putting cash in the bank.
"We are entering a four- to five-year period of lower costs and profitability. I think we'll see some farms (that expanded aggressively) in the Corn Belt go bankrupt," he predicted. "Put one year's worth of land charges (above normal working capital needs) in the bank as soon as possible. Cash is the only way to ultimately manage risk.
"We have a generation of young farmers who have never experienced hard times," Roberts added.
Pointing out that the world poverty rate has dropped significantly over the past 40 years, Roberts noted, "We are living in the most prosperous time in history."
In 1970, nearly a quarter of the world's population lived on $1 a day or less. That number fell to 5% in 2007. Improving economic conditions in the developing world have caused demand for U.S. agricultural commodities to surge.
From 2001 to 2011, China's demand for soybeans grew by 30 million acres. Over roughly the same time period, U.S. ethanol usage increased by 20 million acres.
"Fifty million more acres were needed just to meet the top two demands," Roberts said. "High prices give incentives to change behavior. As a result, global corn, soybean and wheat production have all increased substantially."
However, ethanol's demand for corn has flatlined. Roberts said 2013 saw the first decent corn yields in four years, and that means lower prices. He thinks more corn will be added back into feed rations, and exports will increase.
Domestic demand is flat for soybeans, but exports are very strong to China, Africa and the rest of the developing world.
As for wheat, he said the U.S. has been using more than it has produced lately, which has positively eaten away at wheat stocks.