U.S. farmers harvested some of the largest corn and soybean crops in history this year.
The timing couldn’t be much worse for farm incomes and commodity prices. And for shares of farm stocks.
Big harvests weigh on crop prices because plentiful supply depresses prices. And this year it’s not just U.S. farmers who are seeing huge crops. South America, and especially Brazil, are expected to see record harvests.
This also comes as production costs for inputs such as fertilizer and seed remain hIgh.
And as the incoming Trump Administration’s tariffs policies threaten another round of retaliation from importers of American grain and meat.
Sterling Smith, an independent commodities researcher, told The Guardian that the national average break-even price for corn is $5.67 a bushel, and $12.72 a bushel for soybeans. Those prices are far above recent Chicago Board of Trade most-active futures prices of $4.43 for corn and $9.76 for soybeans. “We’re looking at this crop, that, when it gets planted, of being a money-loser next year,” Smith said.
Agricultural economists from the University of Illinois and Ohio State University estimate that the average Illinois farm could make a loss of $30,000 for 2024. Their projections place farm incomes at the lowest level since the 1980s’ farm crisis led to bankruptcies.
Trump’s proposed tariffs could hit farm incomes hard. Three countries thought to be on the list for hefty tariff increases, Mexico, Canada and China, are the three biggest importers of U.S. agricultural goods. The U.S. Department of Agriculture estimates 16% of the U.S. corn harvest and 40% of soybeans are exported.
We know how a tariff war would affect U.S. farm exports from the first Trump Administration. Until the first trade war between China and the United States in 2018, China was the No. 1 destination for U.S. agricultural goods. China slapped barriers on U.S. farm imports in retaliation to U.S. tariffs, and even after the two countries signed a two-year agreement on import levels in 2019, China continued to diversify its suppliers with big increases in purchases from Brazil. To serve the new opportunities in the Chinese market, Brazil increased its soybean production the equivalent of an area the size of the state of Kansas.
The only good news I could find in the current situation is that farmers built financial reserves when incomes were at record levels in 2021 and 2022. So it doesn’t look like we’ll see the wave of bankruptcies that we saw in the farm crisis of the 1980s.
Still this isn’t good news for farm stocks such as Deere (DE) or CNH Industrial (CNH). I’m going to let my long-term position in Deere ride–the stock is up 989% since December 2008. But I’m going to sell CNH, which I added to my 12-18 month Jubak Picks Portfolio on November 4. That position was up 0.63% as of the January 8 close. I’m also going to sell shares of fertilizer producer Nutrien (NTR) out of my 50 Stocks Portfolio with a 94% gain since December 30, 2008.
I’m also going to sell my commodities ETF Vance Agribusiness ETF (MOO) out of my Perfect 5 ETF Portfolio. I will post a buy for this portfolio later today.
AND I’m going to complete this selling with my commodities ETFs Teucrium Wheat (WEAT), Invesco DB Agriculture Fund (DBA), and iPath Bloomberg Commodity Index Total Return ETN (DJP) out of my Jubak Picks Picks Portfolio. Those positions, added in the expectation of rising farm commodity prices as a result of the war in Ukraine, were down 59% for WEAT, up 19% for DBA, and down 16% for DJP.
I’m also selling my position in iPath Bloomberg Commodity Index Total Return ETN (down 16%) and in Teucrium Corn (CORN) out of my Volatility Portfolio. The position in CORN is down 35%.
