These states hit hardest by falling farm prices

Farm farmer corn harvest
Small_frog | Getty Images

Economists and central bankers have lots of theories these days about whether global commodities prices will continue to fall.

For American farmer's, the drop in a wide range of agricultural prices is very real.

Weaker demand from a slowing economy has put downward pressure on the global price of a wide range of farm products. Now, those weak food prices are starting to take a bite out of U.S. farm income.

Last week, the Department of Agriculture predicted that farm incomes will drop to less than half the peak reached two years ago. The USDA projected farm incomes this year will come in at less than $59 billion, down 36 percent from last year and 53 percent from a record high of $123.7 billion two years ago.

If those forecasts are correct, the drop would push farm incomes to the lowest level since 2002, after adjusting for inflation.

News of a sharp economic slowdown in China—one of the world's biggest buyers of U.S. farm products—has recently sent many commodity prices tumbling. The decline will likely reverse a steady rise in overall farm income.

"The bigger picture for many agriculturals is that falling prices can largely be seen as a continuation of a general downward trend over the past few years as large global supplies weigh on prices," Capital Economics commodity analysts said in a recent note to clients.

The economic fallout from the drop in farm income will hit some parts of the country much harder than others.

While California leads the country in the total value of farm production, the state's large economy is diversified throughout a number of other industries. Though gross farm income in the Golden State topped $56 billion last year, it accounted for less than 3 percent of the California's $2.3 trillion economy, according to government data.

Texas, whose farmers generated more than $31 billion in income last year, will also feel little economic impact from the pressure on food prices; farm income accounts for less than 2 percent of its gross state product. (Texas, along with other oil patch states, has already felt the impact of falling energy prices.)

The biggest economic hit will come in farm-belt states that are much more heavily reliant on agriculture. Last year, South Dakota generated 27 percent of its gross state product from farm income. Other farm-reliant state economies include Nebraska (24 percent of gross state product), Iowa (21 percent) North Dakota (18 percent), Idaho (15 percent) and Kansas (13 percent).

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For individual farmers, much depends on what farm products they raise. Corn and wheat prices have fallen by about a third in the last two years, for example, hitting grain producers hard.

The fallout extends beyond the individual farmers hit by weaker prices. Last month, Deere & Co., the world's largest farm equipment maker, posted a 40 percent drop in third-quarter profits and warned that sales would be weaker later this year.

Poultry producers, on the other hand, have seen prices hold steady or rise in many parts of the country. And egg farmers are expected to see a big jump income this year, up nearly 40 percent from 2014, according to the USDA forecast.