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2013 is setting up to be another interesting year in the agriculture industry, following a very profitable year in 2012 for most crop producers in the Upper Midwest, and a fairly negative profit year for most livestock producers. Following are some items that are likely to be on the forefront in the agriculture industry for 2013.
New Farm Bill
The current farm bill expired on September 30, 2012, and some programs will be discontinued without a new farm bill, or an extension of the current farm bill. A new bill was not completed by Dec. 31, 2012. This means that the likely scenario is that the current farm bill will be extended into 2013, allowing some existing farm programs and other USDA programs to continue at current levels. Congress would then finalize a new farm bill during the 2013 Congressional session. However, do not be surprised if a farm bill extension is linked to the fiscal cliff budget agreement, which could result in the elimination or reduction of direct payments for 2013, and contain other future farm program budget parameters.
The breakeven cost of producing corn at trend line yields will likely be close to $5/bu. or higher for many producers in 2013, and near $12/bu. for soybeans, which are increased compared to 2011 and 2012 levels. The expected 2012 breakeven prices compare to just over $3.50 for corn and near $8 for soybeans as recently as 2008. There has been some concern recently, as the current local forward prices for fall 2013 have declined significantly in the past few weeks, and are now near $5.50 for corn, and just above $12 for soybeans.
Land values ended the year at record levels throughout most of the Midwest, including numerous farmland sales in southern Minnesota1 above $10,000/acre in recent weeks. Certainly not all farmland is selling at those rates, but most tillable farm land in the Upper Midwest is being sold at considerably higher levels than comparable land was a year ago.
Profit margins in the livestock sector were quite strong at the start of 2012, but declined very rapidly as feed costs soared by mid-year, as a result of the 2012 drought. Market prices for pork and beef also fell late in 2012 following significant liquidation of livestock due to low profitability and the effects of the drought.
2012 ended with a considerable amount of uncertainty in the renewable fuels industry. Profit margins were very tight in the ethanol and biodiesel industries, and some production plants in the U.S. have slowed or ceased production. Ethanol profitability has been hampered in 2012 by a combination of high corn prices and low petroleum prices.
Best wishes in 2013 to everyone involved in the agriculture industry!