Glauber: Farm income, land values could slip in 2014

The continuation of high farmland prices is an indicator the farm sector generally is in pretty good shape despite recent crop price declines, according to Joe Glauber, USDA chief economist.

Joe Glauber, right, USDA chief economist, discusses the financial outlook for the farm sector with George Schweneker, center, Seneca, and Marshall Cusic, left, Marshfield, Wis., during a farmland market conference in Champaign hosted by the University of Illinois TIAA-CREF Center for Farmland Research. (Photo by Daniel Grant)
Joe Glauber, right, USDA chief economist, discusses the financial outlook for the farm sector with George Schweneker, center, Seneca, and Marshall Cusic, left, Marshfield, Wis., during a farmland market conference in Champaign hosted by the University of Illinois TIAA-CREF Center for Farmland Research. (Photo by Daniel Grant)
Published on: Nov 18, 2013

     Numerous auctions around the state in recent months fetched five-figures per acre, or close to it, despite the fact corn prices plummeted about 35 percent this season.

     “The farmland market is a key bellwether to gauge the financial health (of the farm industry),” Glauber said last week at a farmland market conference hosted in Champaign by the University of Illinois’ new TIAA-CREF Center for Farmland Research.

     And what did that gauge show in recent years?

     “We added over $1 trillion in farm equity, mostly from land values,” Glauber said.

     The strong financial position could be particularly important for farmers the rest of this year and in 2014 as Glauber predicted crop prices and farm income will decline.

     USDA this month projected season-average prices of $4.50 per bushel for corn (down $2.39 from last year), $12.50 for beans (down $1.90 from last year) and $7 for wheat, down 77 cents. The lower prices are the result of a big boost in crop production around the world that eased previously tight supplies.

     “We are expecting a decline (in net cash income) this year (of about $10 to $15 billion) due to lower prices,” Glauber said. “For most major crops, we’re seeing a big response to high prices and we’ve seen a recovery of stocks.”

     The drop in crop prices is expected to finally catch up to farmland values by next year.

     “The projection that cash income will drift down would suggest a softening of real estate prices, although I’m not projecting a major correction,” Glauber said.

     Meanwhile, corn demand from the ethanol sector could plateau due to limits of the Renewable Fuels Standard and decreased fuel consumption in the U.S.

     Motor fuel consumption this year in the U.S. is expected to total about 130 billion gallons, down from previous projections of 150 billion gallons, Glauber noted.

     “The growth rate of ethanol has begun to flatten,” he said. “It was not unanticipated.”

     Demand growth is expected to continue, though, for ag products in China and developing countries around the world due to population and income growth.

     Annual crop demand in China is expected to grow 4.7 percent for soybeans and 3.3 percent for corn in the next five years.

     “Long-term growth in ag demand will continue to be driven by foreign markets,” Glauber said. “Trade will become more and more important (for the U.S. ag sector).”

     Glauber predicted U.S. corn exports will post a minor recovery and total around 1.4 billion bushels in the coming year after dipping to the lowest level since the 1970s.