Tidbits From The Kansas City Fed – Part 2

• June 2, 2011
• Paul Neiffer

Following our theme of providing tidbits from the Kansas City Fed Report:

• Milk producers have had at least three plus years of unprofitable operations.  The Fed estimated that the average US dairy lost $4 dollars per hundredweight in 2006, made about 50 cents in 2007 and the lost $11, $7 and $4 for 2008-2010.  On average, California dairy farmers (the largest producer in the country) is about $3-$5 better on average and Wisconsin farmers are a little worse than the averages.
• A lot of the pain in the dairy industry has a direct correlation to US dairy exports.  These exports were steadily climbing until early 2008, when the fell off a cliff.  They had peaked out at about $400 million in 2008, dropped to slightly less than $200 in 2009 and have now finally gotten back to the 2008 levels.
• Even though times appear to be good for farmers, commercial bankers are reporting the highest level of non-performing loans for farmers since the early 1990’s.  After bottoming out in early 2008 at about one-half of one percent of total loans being non-performing, this percentage is now up to about 3% or a five-fold increase.
• The Fed predicted what would happen to farm land prices if corn prices were to fall from current levels and stay there.  Using a base line of Eastern Nebraska irrigated corn land at $5,000 per acre (which may be low now), that if corn was at $5 per bushel, prices would drop 29%, at $4, drop 43% and at $4, drop 57%.  Also, this is assuming a capitalized value at 7%.  If this number goes up with an increase in interest rates, the price would drop even further.

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