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US farmers stay hopeful, despite declining profits
By Karl Plume |
January 11, 2009, Sunday
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Print Edition
Print Edition
IOWA farmer Gordon Wassenaar says he is optimistic about 2009, displaying a sometimes puzzling "glass half full" mentality needed in a profession in which mother nature can wipe out months of work overnight.
He and other United States' farmers notched record profits in 2008 as crop prices soared to all-time peaks, but economists say they may be lucky to break even this year because grain prices have plunged 50 percent while farm costs remain high.
"We're cautiously optimistic, but nobody thinks that prices are going to go anywhere near as high as they were in 2008," he said from his 607-hectare farm in Prairie City, Iowa, where he grows corn and soybeans.
"Realistically, unless you have an exceptionally good crop, you're going to have to have (corn) prices over US$4 a bushel to make any money at all. For soybeans, we probably need somewhere between US$8 and US$9 a bushel, but we're in an area where we normally get pretty good soybean yields," Wassenaar said.
Currently, corn futures prices are near US$4 a bushel, an historically high price for corn but still down 50 percent from the record high of US$7.65 a bushel posted last summer.
Soybeans are around US$9.80 a bushel, down 41 percent from last summer's all-time peak of US$16.63 a bushel.
Scorching demand for grains and oil seeds from livestock and poultry producers, exporters and the rapidly expanding bio-fuel industry helped drive the historic bull run in 2008.
An influx of investment fund money into grains and other commodities further fueled the advance to record highs. But markets turned sour by autumn as the housing market bubble burst, credit markets seized up and financial markets dived, sending investors fleeing the traditionally volatile commodities markets for safer havens.
Now, with a deep and prolonged global recession ahead, there is concern about demand for agricultural products.
"Farmers are certainly nervous about where the general economy is going. The umbrella that's making everybody a little nervous is how deep the recession will be and how long will it last," said University of Illinois agricultural economist Darrel Good.
The export market is a concern as the global recession drags on. Domestic demand for feed grains is also off. Producers of beef, dairy cattle and hogs reduced herds in response to the summer's soaring feed grain costs, while poultry producers scaled back flocks.
Pilgrim's Pride, the largest US chicken producer, filed for bankruptcy protection in December, citing high feed costs and low meat prices.
Bright spot
The ethanol industry remains a bright spot for corn growers despite struggles after fuel prices tumbled. But many producers remained locked in high-priced contracts with corn suppliers.
The turmoil prompted some ethanol producers to shelve new plant construction. Verasun Energy Corp, the No. 2 US ethanol producer, toppled into bankruptcy in October.
Still, US Agriculture Department data projects that ethanol makers will consume 3.7 billion bushels of corn in 2009, roughly 31 percent of US production - up from about 3 billion bushels in 2008, about 23 percent of production.
Farmers view the new administration as supportive to renewable fuels like ethanol and soy bio-diesel. "Most farmers, at least Midwest corn farmers, don't see any big debacle in renewables with this new administration. With McCain, there was some fear that he would have been hard on renewables, but I think Obama, by and large, has been friendly to renewables," Wassenaar said.
He and other United States' farmers notched record profits in 2008 as crop prices soared to all-time peaks, but economists say they may be lucky to break even this year because grain prices have plunged 50 percent while farm costs remain high.
"We're cautiously optimistic, but nobody thinks that prices are going to go anywhere near as high as they were in 2008," he said from his 607-hectare farm in Prairie City, Iowa, where he grows corn and soybeans.
"Realistically, unless you have an exceptionally good crop, you're going to have to have (corn) prices over US$4 a bushel to make any money at all. For soybeans, we probably need somewhere between US$8 and US$9 a bushel, but we're in an area where we normally get pretty good soybean yields," Wassenaar said.
Currently, corn futures prices are near US$4 a bushel, an historically high price for corn but still down 50 percent from the record high of US$7.65 a bushel posted last summer.
Soybeans are around US$9.80 a bushel, down 41 percent from last summer's all-time peak of US$16.63 a bushel.
Scorching demand for grains and oil seeds from livestock and poultry producers, exporters and the rapidly expanding bio-fuel industry helped drive the historic bull run in 2008.
An influx of investment fund money into grains and other commodities further fueled the advance to record highs. But markets turned sour by autumn as the housing market bubble burst, credit markets seized up and financial markets dived, sending investors fleeing the traditionally volatile commodities markets for safer havens.
Now, with a deep and prolonged global recession ahead, there is concern about demand for agricultural products.
"Farmers are certainly nervous about where the general economy is going. The umbrella that's making everybody a little nervous is how deep the recession will be and how long will it last," said University of Illinois agricultural economist Darrel Good.
The export market is a concern as the global recession drags on. Domestic demand for feed grains is also off. Producers of beef, dairy cattle and hogs reduced herds in response to the summer's soaring feed grain costs, while poultry producers scaled back flocks.
Pilgrim's Pride, the largest US chicken producer, filed for bankruptcy protection in December, citing high feed costs and low meat prices.
Bright spot
The ethanol industry remains a bright spot for corn growers despite struggles after fuel prices tumbled. But many producers remained locked in high-priced contracts with corn suppliers.
The turmoil prompted some ethanol producers to shelve new plant construction. Verasun Energy Corp, the No. 2 US ethanol producer, toppled into bankruptcy in October.
Still, US Agriculture Department data projects that ethanol makers will consume 3.7 billion bushels of corn in 2009, roughly 31 percent of US production - up from about 3 billion bushels in 2008, about 23 percent of production.
Farmers view the new administration as supportive to renewable fuels like ethanol and soy bio-diesel. "Most farmers, at least Midwest corn farmers, don't see any big debacle in renewables with this new administration. With McCain, there was some fear that he would have been hard on renewables, but I think Obama, by and large, has been friendly to renewables," Wassenaar said.
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