Low corn prices the last two years have been a relief for dairy and other livestock producers. Now, however, it may be time to start worrying about how much longer corn farmers can survive them.

From 2011 to 2013, the average monthly "U.S. corn farm price received" computed by USDA was seldom below $6 per bushel. But since August 2014 it has never been over $3.82 and it has usually been under $3.70.

USDA says $3.70 is roughly the break-even price for farmers who produce 200 bushels per acre. But since the national average is closer to 170 bushels, it means many farmers are losing money in 2016 for the third year in a row.

In the July 12 World Agricultural Supply and Demand Estimates report, USDA lowered its projection for season-average prices received by producers in 2016-17 for all feed grains, with corn down 10 cents to $3.10 to $3.70 per bushel.

To make matters worse, current long-range options prices at the Chicago Mercantile Exchange point to sub-$4 corn continuing through 2018.

It's a situation that simply can't keep everyone in business, which has been an increasingly more urgent message from economists at the last three National Agricultural Bankers Conferences.

They have warned bankers about rising land values and the overconfidence of paper equity, cash rents that have not fallen along with corn prices, new equipment buying sprees, tightening cash flows, and the tendency to increase household spending when times are good but the near impossibility of scaling them back when booming crop prices inevitably go bust.

Corn prices certainly figure to stay low this year, as seen in USDA's June 30 acreage report. This year's total of 94.1 million acres is 7 percent higher than in 2015 and the third most since 1944. Seventy-six percent of the crop was also rated as good or excellent in a recent weekly Crop Progress report, suggesting that robust yields are in the pipeline.

The big question, as dairy producers know all too well, is how long will corn farmers' bankers stick with them during a third year of below-cost prices and bottom line losses, not to mention the potential of two more years to come?

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(c) Hoard's Dairyman Intel 2016
August 8, 2016
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