Farm margins, credit could tighten in 2013

Farmers hit hard by the drought this year may have to deal with financial stress again next year

Dan Grant

Published: Sep 9, 2012

Farmers hit hard by the drought this year may have to deal with financial stress again next year, even if the weather pattern returns to normal.

The University of Illinois recently projected crop prices next year could average $6 for corn and $12.50 for beans, which would be a significant drop from recent levels.

The price estimates, implied from futures contracts, would reduce average operator and farmland returns in 2013 compared to this year.

The U of I projected returns on highly productivity Central Illinois land next year could average $654 per acre for corn, down $45 per acre compared to this year’s estimate, and $405 for beans, down $14 per acre, if yields return to trend.

Meanwhile, input costs for 2013 are expected to remain near record levels, which would add more pressure on farm margins.

Total U.S. farm inputs this year posted a record $104 billion, up from $94.2 billion in 2011 and $81.4 billion in 2010, according to USDA.

Joel Mortenson, financial officer with Farm Credit Services of America, urged farmers to watch their input costs and take a hard look at the crop insurance program that works best on each operation.

“It’s real important to manage risk and take advantage of what’s out there,” Mortenson said recently at the Farm Progress Show in Iowa.

If crop prices remain strong, Mortenson recommended farmers consider signing up for crop insurance with revenue protection for next year.

“Farmers do pay a premium for crop insurance,” he said. “But it’s a trade off to make sure you stay in good (financial shape).”

Mortenson noted 80 to 85 percent of farmers bought some form of crop insurance this year. He said he believes it will be key to helping them cover expenses next year as some farmers could face tighter credit conditions.

“There could be some guys hurting,” he said. “But I think there will be enough credit (available) to get the 2013 crop in the ground.”

Mortenson said he does not believe the possibility of record crop insurance claims will threaten insurance companies’ ability to pay. It just could take some extra time.

“There should be enough funds available. It’s not going to be a problem,” he said. “But the adjusters are going to be extremely busy. It could take awhile to work through all the claims.”

Crop insurance companies are coming off a strong year, there are reserves in place, and the companies have re-insurance to help cover major losses, Mortenson added.

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