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Bumper harvest turns bittersweet

Wednesday, December 14, 2005

The corn piles up in northwest Iowa, but sagging prices won't bring what it cost to grow

Only in the heartland could good news sometimes be bad news.

Area farmers brought in what is considered to be their second largest crop ever, only to see it sitting around as prices fall.

"If you had to make a living on the cash price of corn, you would be 40 to 50 cents per bushel in the hole for every bushel you raise," explains Tom Olsen, ag market expert for the ISU Extension Service in Buena Vista County. "The break-even price would be $2.40-$2.50, and I don't know if a guy could get $1.75 for a bushel of corn today."

It is the age-old supply-and-demand quandary of farming. The better you do in the field, and the more crop is being raised in the state and nation, the lower the price.

"Especially in western Iowa, we have a lot of corn still sitting around. Storage has been a real problem," Olsen said.

"What the market is telling us is that it doesn't want our grain now. It will pay us a certain amount to hold onto it until next summer."

Known as "carry," the Chicago marketplace is offering very low prices for corn shipped this season, but better prices if it is sent out in May, June or July.

Those farm families that can't afford to carry the crop that long, or don't have access to storage, are hurting. And if another big crop comes in statewide in 2006 to further flood the market with grain, the outlook is painful.

Add to that big jumps in the price of fuel and fertilizer - $15-20 more cost per acre over a year ago is not unusual locally - and farm families are worried, even as they celebrate that bumper yield.

"They are nervous, and understandably so," Olsen says.

On the plus side, the price spike and problems in freight and export shipping which reached its worst after Hurricane Katrina is easing. One local elevator manager estimates shipping costs have declined by half from the harvest time to the January bid.

And on the long-term horizon, ethanol plant developments in Iowa are going to drive demand up and raise the price of corn, Olsen feels.

Buena Vista County has traditionally exported at least 25 percent of its crops out of the area for use, but in the age of ethanol, every bushel of corn can be used within the county, Olsen said.

"The ethanol plant if Fort Dodge and the enthanol plant in Albert City when it is complete will each use about a-county-and-a-half's full production of corn. In a five-county area just east of Storm Lake, a net export of 120 million bushels of corn was the norm five years ago, now 80 million bushels is imported to meet the demand of ethanol."

So far, economists say that farmers have not changed their crop rotations to adapt to the slightly better prices for soybeans today, or the outlook for ethanol-driven corn in the future.

"I do expect a change in the mix of corn/soybean rotation," Olsen said. He feels that a change will not risk the quality of the soil. "We're not going to wear out our dirt. We have the technology to change the rotation and still continue to produce incredibly well."

Local farmers should start seeing economic benefits from ethanol development," Olsen said. "By about 2008, we should see ethanol plants, feed mills and exporters really competing for our crop. But that doesn't help us in 2006. We just can't get the grain away from us in an overloaded market today."

While local growers are very happy with their production this year, the rising costs have cut deeply into their profit. The situation could be dangerous.

"At this point, we rely on a good crop to make it. We absolutely rely on a good crop every year. An average yield, and some people don't make it," the Extension expert said.

Nerves also fray as farmers realize that a new federal farm program is due in 2007, he said.

"There is a fair amount of uncertainty. Federal programs aren't icing at this point. They are a necessity to keep our operations together," Olsen said.

The situation is such that that local farmers may need to hang on through a couple of lean profit years. "We either have to eat or ferment our way out of this," Olsen says.

Local cropland continues to sell at rising prices, but the ISU expert said he doesn't know how long that will continue. "The price of land in my mind has become decoupled from the economic engine underneath it," Olsen said. "A handful of non-farming buyers can also push the whole land market."

Typically, area farm families are not complaining about the big crop-little prices mess they find themselves in.

"I hear a smattering of worries. Farm people around here have always been very private, they don't talk about their troubles," said Rhonda Christensen, local extension education director.

However, big crowds are turning out for pesticide training and events like Women in Denim, perhaps seeking to pare down their costs by learning new skills.

Farm families in economic difficulty are still turning to programs like Iowa Concerns counseling, legal assistance, extension family resource specialists and farm business advice programming, she said.

Looking to next year, farmers have concerns including languishing prices, high energy costs and a mushrooming federal deficit that could pressure Congress to consider reducing farm program payments.

Revenue from this year's U.S. crops, including cash receipts and government payments, is expected to total $138.6 billion, a record, according to the USDA. Farmers in Iowa, the nation's leading corn- and soybean-producing state, could capture more than $9 billion of that amount, said Robert Wisner, an Iowa State University Extension economist.

That bodes well for Iowa's economy.

Yet, for two years, cash market prices have plummeted. Those who use farm commodities, such as livestock feeders and grain processors, have benefited from low-priced corn and soybeans. So have food processors and manufacturers - a major agricultural sector in Iowa.

Low commodity prices tend to generate jobs, but higher farm income is reflected in better business on Main Street.

Farmers complain about Depression-era prices for corn and escalating prices for fuel and fertilizer.

"At $1.30 (per bushel of) corn, there's not much money in it," said grower Jerry Clark- even with yields of 200 bushels of corn per acre, which plenty of Iowa farmers achieved this year.

"People are concerned because a lot of this year's cash income is coming from the government, a lot more than people would like - $22.7 billion," said Keith Collins, chief economist at the U.S. Department of Agriculture in Washington. "That's a ton of money."

Wisner said that cash prices for Iowa corn in the year ahead will average $1.65 per bushel. The price for the marketing year just ended averaged $1.96 per bushel.

He and others believe it could take another two to three years for prices to rebound to above $2 per bushel.

"It's just going to be really hard to get a decent price out of selling this corn," said Leslie Miller, an officer at Iowa State Savings Bank. "The large crop sitting out there, we've got to dispose of it, and until we dispose of it, it's going to put downward pressure on next year's crop."

Lenders and farm management specialists are urging farmers to begin locking in prices now for some of their 2006 crops, even if those prices are less than what they could have secured ahead of time on this year's crops.

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