St. Louis, Missouri, USA
March 2, 2016
As U.S. row crop farmers brace themselves for a third year of negative net income, Rabobank believes that – for at least the next five years – market forces will drive stabilization in profit margins near the long-term average breakeven levels. These findings are part of a new report from the Rabobank Food & Agribusiness Research and Advisory group, which explores the period of tight margins U.S. row crop farmers are currently operating in and the ways in which farmer focus will change.
“Farmers will need to continue conserving liquidity and maintain alternative sources of capital as the industry adjusts to this ‘new normal’ environment of lower profitability and trends toward more stability,” notes report co-author and Rabobank analyst Ken Zuckerberg.
The report notes there is a cost to this stability, namely that individual input categories will need to readjust as a proportion of the new total crop value.
“The most likely scenario is that high-value-added inputs, particularly specialty seed and crop protection products, will represent a greater portion of farmer wallet share, compared to machinery and bulk fertilizers,” notes report co-author and Rabobank senior analyst Sterling Liddell. “As the crop cycle transitions to stability, we see several implications.”
The report, “Ch-ch-changes: U.S. Row Crops Near the Point of Stabilization,” also finds farm input providers will need to deliver more value to cost conscious growers and smaller scale farms may be forced into strategic mergers or vertical integration strategies.
“There is no doubt that in order for U.S. row crop farmers to be successful and sustainable, they will need to readjust and reposition for the future,” says Zuckerberg.
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