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Ag: A Down Year

Farmers and ranchers each harness the soil and the rain to feed a hungry world, but this year grains and livestock prices are under a lot of pressure.
Ag: A Down Year

Ag: A Down Year

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Oklahoma State University Department of Agricultural Economics

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Show Details

Show 1701: Ag: A Down Year
Air Date: January 1, 2017



Rob McClendon: Well, net farm income is down by 42 percent since 2013, and it’s set to decline another 11.5 percent in 2017. But if there is a silver lining to this dark old cloud, it’s that the latest downturn follows a historic boom for ag commodity prices. Not much solace though for those who are losing as much farm equity in two years as they gained in the previous four. With more, here is our Austin Moore.

Austin Moore: There has always been a romance associated with agriculture – the farmer in his field, the rancher on the range – each harnessing the soil and the rain to feed a hungry world. But this year, the bloom is certainly off the rose.

Rodney Jones: Farm incomes across the United States and here in Oklahoma are projected to be down dramatically. We’ve seen commodity prices across the board, both grains and livestock, under a lot of pressure. And that, of course, is impacting our net farm income.

Austin: Rodney Jones is an agricultural economist at Oklahoma State University. He recently joined fellow economists Kim Anderson and Derrell Peel at OSU’s Rural Outlook Conference. To better understand this drop in income, we first look at cattle with Peel.

Derrell Peel: We had this phenomenal run-up in prices from 2013 into 2015. We peaked, and we expected, and we expected even that we had probably gone a little too far. What nobody really did expect was how dramatically we would see prices adjust. So we’re seeing prices now that are, gee, 40-45 percent lower than they were this time last year.

Austin: And Anderson tells us the situation is equally upside down for wheat farmers, where a surplus of wheat worldwide has left our local numbers in the red.

Kim Anderson: You look forward to the cost of production, somewhere around $170 an acre, the break-even price up into the $4.80 range. And the market is offering $3.60 right now. So you are looking at, oh, a $40-45 per acre loss on wheat, given current market conditions.

Austin: Leaving farmers with the complicated analysis of managing for loss, meaning some will have to spend money only to reduce the amount of money they eventually lose.

Kim Anderson: So we’ve got to look at the net return of each input on this wheat from now until we get it in the bin at harvest.

Austin: And as Jones reminds us, these impacts echo throughout rural communities.

Jones: When we don’t have money to spend replacing vehicles, replacing family living items, you know, buying consumable items for the home, that obviously has a ripple effect, especially in our rural communities, areas that rely heavily on the agricultural industry.

Austin: So where will an upturn come? For grains, Anderson says, look to the skies.

Anderson: It’s weather, and it’s not weather in the United States. It’s weather in the foreign production countries, so Russia, Ukraine, the European Union, Australia, Argentina. What we’re going to do, like we saw in 2010 where we got a $6 move in a six-month time period, is we lost crops in the European Union. We lost them in former Soviet Union countries. We lost them in Argentina and Australia. And we got that $6 price run. You don’t know when it is going to happen. And when it happens you have got to have the wheat to sell then. Because you can’t wait till it happens and then grow the wheat.

Austin: For cattle, the path forward means weathering a different kind of storm.

Peel: Most of the time we talk about fundamentals. We talk about supply and demand. And ultimately those factors are what’s going to dominate where we end up. The path to get there can be dramatically altered by emotions in the market, and particularly what has happened as a result of this dramatic adjustment down in prices is the entire cattle complex is really operating in fear right now. It’s scared. We are falling. It’s much faster than we expected. We don’t know where the bottom is. And so we’ve got everybody panicked, and fear sort of becomes self-sustaining.

Austin: But fear leads to inaction, something Peel says is truly not sustainable.

Peel: If you are in the cattle business or in the crop production business or any other business, you have got to get off the sidelines. You can run for cover for a while but sooner or later you have got to get back in the game. So I think the question now is to try to get people out of this paralyzing fear mode that they are in and get them to thinking about where’s an opportunity here.

Austin: Because in those opportunities, this rough patch can be left behind and a new chapter turned in this great American romance.