Kent Darr is the Business Record’s Agriculture beat reporter.
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For agriculture, 2013 will begin with three big ifs
Weather, taxes and the farm bill will weigh heavy on the farm economy in 2013.
With the entire state of Iowa locked in varying degrees of drought, just raising a crop could be an issue. It is generally believed that the unexpectedly strong yields of 2012 were due in large part to carry-over soil moisture from the previous year. Some forecasters are predicting another dry year, with reduced yields and continued depletion of corn and soybean stocks.
“I’d say the No. 1 issue will be the drought and if it continues,” said Iowa State University agriculture economist Michael Duffy. “Several parts of the state are in extremely poor shape with respect to moisture, and that is going to have a big impact on profitability.”
Steve Bruere, president of Peoples Co., agreed.
“With record-low ending stocks of corn and beans, another dry year would be devastating for biofuels, livestock producers and exports,” he said.
Bruere, whose company specializes in the management and marketing of farmland, said the apparent inability of Congress to pass a farm bill and uncertainty about the tax increases and spending reductions that are set to kick in Jan. 1 - the so-called fiscal cliff - will cause more uncertainty.
“The fiscal cliff will bring to bear a potential increase in capital gains (tax rates) in 2013,” he said. “This, combined with the new Obamacare (Medicare) tax on capital gains, and we believe there will be limited supply of land come to the market.”
That limited supply of land is one of the factors leading to farmland prices that averaged $8,296 per acre, according to a study that Duffy released earlier this month.
Bruere said that means every 160-acre parcel is worth a little more than $1.3 million, which would place that ground in excess of the estate tax exemptions that will kick in after the first of the year, again depending on the outcome of fiscal negotiations.
And then there is the matter of a farm bill, or lack of one, going into 2013. Secretary of Agriculture Tom Vilsack recently told the U.S. Chamber of Commerce that he doubts a bill, which provides farmers with crop insurance and other forms of risk management, will be in place after Jan. 1.
“Given the stakes in agriculture right now, having a farm bill in place to protect downside risk is very important,” Bruere said.
Economist Duffy pointed out other concerns related to supply and land prices.
He noted that supply and demand in the world – China acknowledged that it has canceled an order for more than 300,000 metric tons of soybeans that was placed during a visit to Iowa by a high-profile delegation earlier this year – will have a major impact on agriculture.
Iowa also is competing against countries such as Brazil, which is second to the U.S. in soybean production, in the world marketplace.
“This will impact prices, and even though prices may stay high, if you don’t have any grain it doesn’t matter,” Duffy said. “So, income and the impact of yield and/or price will be keys. Finally, and somewhat related, is what will happen to land values and land costs in general. Will people be exposed to a situation like the early 1980s is a common question? I don’t think so, but people are still concerned.”