Donnelle Eller

The Des Moines Register

Here are some numbers worrying Nodaway farmer Bill Shipley: He could get $8.96 for each bushel of soybeans he brings to his southeast Iowa elevator.

But the statewide average cost is over $9 a bushel.

Corn prices are even more grim: Iowa farmers could potentially lose 30 to 40 cents per bushel, with prices around $3 at Iowa elevators, based on estimates from Chad Hart, an Iowa State University economist.

"It's getting tighter and tighter out here," Shipley said. "Corn and soybean demand is good, but there's just a lot of it."

Despite drought concerns this growing season, Iowa farmers are expected to produce the state's second-largest soybean crop, behind last year’s, and third-largest corn crop, following only 2016 and 2015 harvests.

Nationally, it's the largest soybean crop and second-largest corn crop ever.

U.S. farmers are expected to see a 3.1 percent increase in profits this year, thanks largely to improved pig, cattle and other livestock returns.

But Hart says Iowa farms will be lucky to see a 1 to 1.5 percent increase, given the state's large grain production. "For a good number of Iowa farmers, it will be a fourth year of losses," Hart said.

The ag downturn will likely continue to pull down state revenues, Hart said.

A state panel downgraded Iowa's budget outlook this week, cutting about $130 million from its forecast.

"Ag is still a major component of the Iowa economy," Hart said. "If ag continues to remain in poor financial shape, that will translate into rough times for the state budget."

Iowa economy struggles

Political leaders have argued whether Iowa's budget problems are the result of extensive tax credits and other corporate benefits that eat into state tax revenues — or the impact of the lingering farm slump.

State leaders covered a $263 million budget shortfall for 2016-17 with a series of cuts and transfers from reserves. A new budget year began in July.

Since 2013, Iowa farm income has dropped $5.72 billion to $2.6 billion in 2016, U.S. Department of Agriculture data shows.

Corn and soybean prices have dropped between 50 and 60 percent from highs in 2012, when the nation was gripped in a widespread drought.

"It's not just crop production and prices," said Mike Lipsman, an analyst at Strategic Economics Group in West Des Moines.

It's also farm equipment manufacturers, crop insurers and other providers that get hit, he said. "We've got John Deere, Vermeer, all the fertilizer and seed companies.

"When ag prices are down, it puts pressure on what ag providers can charge," Lipsman said. "Farmers can't pay what they paid a few years ago."

U.S. production costs dropped 10 percent from 2014 to 2016, but are forecast to be 1.3 percent higher this year.

Lipsman said economic data indicates the slowdown could be broader than agriculture, despite growth in Des Moines and other large cities.

For example, the state's economy shrank 3.2 percent in the year's first quarter, according to the U.S. Bureau of Economic Analysis. Iowa ranked 48th nationally.

In addition to agriculture, Iowa's retail trade, finance and insurance, construction and information industries shrank.

Last year, Iowa's gross domestic product increased 0.9 percent, 34th lowest among U.S. states.

Hart doesn't see agriculture improving next year, short of a widespread drought or another weather catastrophe.

Even with steady corn and soybean prices, production costs still "are not matching up with where price levels are today," he said.

Trade, ethanol add to worries

It's not just corn and soybean prices that are on Shipley's mind.

He and Ray Graesser, both southwest Iowa farmers, are concerned about the Trump administration's efforts to renegotiate the U.S. trade agreement with Canada and Mexico.

Add to it: Uncertainty around the amount of ethanol and biodiesel that will be required to be blended into the nation's fuel supply in the months ahead.

Monte Shaw, executive director of the Iowa Renewable Fuel Standard, said some of the changes that were discussed could drive corn and soybean prices even lower.

One proposal could cut 1.2 billion gallons of ethanol from the federal mandate.

"That would devastate the rural economy," Shaw said, adding another 300 to 400 million bushels of corn to the market.

Ethanol production uses about 40 percent of the U.S. corn supply. This year's corn crop is projected to be the second-largest in history.

Scott Pruitt, the Environmental Protection Agency's administrator, told Iowa and other Midwestern senators late Thursday that the agency would not pursue several proposals that could lower the amount of biofuels mixed with the nation's fuel supply.

Shipley and Gaesser, both Iowa Soybean Association board members, hope the Trump administration understands farmers' reliance on trade.

For example, Mexico is the top market for U.S. corn, and Canada is the ninth largest customer, with exports totaling more than $2.68 billion last year, farm groups say.

The NAFTA negotiations are "creating uncertainty that’s not good for the markets," Gaesser said.

"We don’t know if our prices will stay here or go even lower," he said.

'We're hoping to break even'

Alejandro Plastina, an ISU economist, said financial stress is growing among Iowa farmers.

"There are some people who need help," said Plastina, who studied Iowa farmers' financial changes since 2012.

"The level of debt isn't the problem. The problem is cash flow," he said.

Farm lenders are working with farmers to restructure debt and cut payments.

And growers are cutting expenses, selling unneeded farm equipment — and in some cases, auctioning off pieces of land so they can continue farming.

Farmers also helped themselves when prices were high, paying off debt so they're better able to ride out the downturn, Plastina and Hart said.

Graesser said that's a step he and his family took when commodity prices hit highs.

"We may not be able to get ahead much, but we can survive and not go backward," he said.

Plastina said the question many farmers face is how long can they operate without significantly increasing their debt levels.

Some farmers will likely face bankruptcy, "but I don't think it will be widespread," he said.

Bob Hemesath, who grows corn near Decorah, said he expects his yields to be near last year's record.

Iowa again will likely lead the nation in corn production this year, with 2.46 billion bushels.

The state's 557 million bushel soybean production is expected to trail only Illinois.

With some elevators sitting with corn still under tarps from last year, storage is expected to be tight again.

"The challenge will be finding a place to take the crop," said Hemesath, who raises pigs as well.

Many farmers are holding onto last year's crops — and planning to do the same this year — in the hope that prices could improve, he said.

Prices for delivery next summer "are better if you can find a place to put it," said Hemesath, chairman of the Iowa Corn Growers Association.

That will help improve his operation's financial outlook. "We won't make a lot of money, but we're hoping to break even," he said.

"We just can't lose any markets," he said, referring to trade and fuel mandate. "We think things are bad now. It could get a lot worse."