Challenges in Farm Country

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Challenges in Farm Country

Large on-farm stocks, coupled with the latest corn acres projection, add downward pressure on already below break-even prices. The United States Department of Agriculture (USDA) released two major reports and another key dataset in the second half of June. Together these pieces of information add clarity to the challenges corn farmers are facing right now.

The June Stocks Report

The UDSA June Stocks Report provides an estimate of the total corn held in commercial storage facilities and by producers on their farms as of June 1. For 2024, USDA estimates total U.S. corn stocks at 4.993 billion bushels, 21.7% higher than a year ago. Aside from the years 2017 to 2020, when the country experienced trade wars and COVID ravaged the world, this is the highest total stocks level since 1988.

Even more notable was the increase in corn on farms. The report shows farmers have 3.026 billion bushels of corn in possession as of June 1, 2024. This is 36.5% more than the 2.217 billion bushels farmers had one year ago and the largest level for this point of the year since 1988.

The June Acreage Report

The USDA June Acreage Report shows farmers had or would plant 91.5 million acres of corn in 2024. This is 3.3% lower than the 94.6 million acres planted in 2023, but higher than the 90.0 million acres based on farmer intentions in March.

Of that 91.5 million acres, 3.36 million acres had not yet been planted as of the time of the survey in the first half of June. It is uncertain whether this indicates a possible retraction to fewer corn acres if some are not planted. In 2023 there were 94.6 million planted corn acres, more than the June Acreage Report projected of 94.1 million acres with 2.49 million still unplanted at the time of survey.

Cost of Production Forecasts

The USDA Cost-of-Production Forecasts for major U.S. field crops were updated in June, confirming costs of production remain high. In the latest forecast USDA raised the average total cost of producing corn in 2024 to $877.53 per acre, up from $869.52 per acre in the previous forecast for the year. Using the USDA projected 181 bushel per acre yield, that translates to a $4.85 per bushel cost, $0.45 per bushel more than the forecast market year average price of $4.40 per bushel as shown in the June WASDE Report.

Although the total cost of production for corn forecast for 2024 is slightly lower than the 2022 peak cost year, 2022 prices were at levels that allowed for profits. From 2022 to 2024 forecasts, the cost to produce corn drops 5.4% ($5.35 to $4.85 per bushel) while the market year average price drops 32.7% ($6.54 to $4.40 per bushel) and margins swing from $1.19 profit to $0.45 loss per bushel.

The Tough Choice for Farmers

Farmers are faced with a tough choice with corn right now: sell at a loss or hold in hopes of better prices.

Last summer the price for the July 2024 contract hit $6.35 per bushel, based on daily trading range data for the Chicago Board of Trade contract sourced from DTN ProphetX. This means farmers had the opportunity to sell their 2023 corn crop for July 2024 delivery at that price, not considering any local basis adjustments. Last week the same contract price fell below $4.00 per bushel.

As an example of the impact of this price difference, consider the 3.026 billion bushels farmers were still holding as of the June Stocks Report. If farmers had pre-sold that corn at last summer's high for delivery in July 2024, they would have received $7.1 billion more in corn sales revenue for the same bushels compared to making the sale last week.

At the farm level, for every acre's worth of corn that a farmer produced in 2023, this price swing represents the difference in over $400 per acre in revenue that could have covered nearly half of the total cost of production.

This tough choice isn't limited to last year's crop, it also applies to the 2024 crop. While final yield and harvested acres could be impacted, for now a 181 bushel per acre trend yield and normal ratio of harvested-to-planted acres indicate corn production upwards of 15 billion bushels for 2024. With the anticipation for carryover and crop size, current prices for the new crop are below break-even levels.

Much like last summer when farmers were reluctant to over-sell as drought threatened production potential, this year heavy rainfall has resulted in flooding that threatens production potential in areas.

Farming is a cyclical industry that has gone through major income swings in the past, and farmers can manage through, but we need policymakers to act on legislation and regulatory matters. Expanding markets for corn ethanol, eliminating trade barriers, and providing support for new markets would provide valuable market-driven support for use of sustainable corn that the nation's corn farmers can abundantly produce.

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