The changing agriculture economy
Local bankers and officials agree that farmers—particularly cash croppers—will see a profit this year.
But next year is anybody’s guess.
“These are historic times, historic prices,” Clinton’s DeLong Co. merchandiser Tim Lang said.
When farmers make money, they usually reinvest it in their operation, Executive Vice President of Farmers and Merchants Bank Craig O’Leary said. That means farm equipment sales and land sales should be good this year.
But the cost of growing crops and raising cattle is at a historic high along with the commodity prices, too. That’s going to limit profits on many farms, O’Leary said.
“Farming will be profitable, but it won’t be gangbusters because of high input costs,” O’Leary said.
Jim Raymond has never seen anything like it in 30 years of work.
Sitting in his downtown Janesville office at M&I Bank, ag lender Raymond punched numbers on his calculator, scrawled notes on a slip of paper and scratched his head.
“We have had $5 corn before, but it’s been a spike,” Raymond said. “Maybe it’s been because of the weather. It’s never been, ‘This might be for real.’”
It’s real, Lang said.
Fall corn was trading at $5.75 per bushel last week at the DeLong Co. in Clinton.
On May 1 last year, corn was $3.33 for fall delivery. On May 1, 2006, fall corn was $2.34.
But as the corn price rose, so did the price of products and equipment to grow it. Prices for fuel, fertilizer and land are at all-time highs.
In 2006, for example, a ton of dry fertilizer was $330 delivered, DeLong’s fertilizer manager Tim Sanders said.
That same ton costs $1,300 today.
The nerve-wracking thing is that if grain prices ever go down, the input costs might not, Raymond said. Farmer income might drop, but costs might not.
“All of the main ingredients going into growing a crop are maybe doubling,” Raymond said. “Maybe more. Boy, those costs don’t come down very easily.”
Adding to the mix is an increased worldwide demand for American grain fueled by a weak dollar. Other countries are scrambling to buy U.S. grain because, “They can get more bang for their buck,” Sanders said.
And in the United States, ethanol is pumping up the demand for corn.
Seed companies, meanwhile, have stepped up and created corn hybrids that really yield—another thing adding to the volatile economic stew, Raymond said.
Money to be had
Bankers have different opinions about how farmers will profit this year.
They agree that cash croppers are going to have a better year than most livestock and milk producers.
Raymond said all grain farmers have to do this year is produce a crop and they’ll make a profit.
Ron Austin, assistant vice president of production agriculture at Badgerland Financial, is less optimistic. High input costs are going to minimize margins, Austin said.
“December corn is at $6,” Austin said. “That’s three times as much as (grain producers) used to take home. But in all actuality, the opportunity to make money is no greater than it has been before.”
At Farmers and Merchants Bank in Orfordville, O’Leary said farmers are more prepared now than in other times for an economic downturn. Farmers are borrowing less money now than during the last major downturn in the early 1980s, O’Leary said.
All three men agree that high commodity prices are good for cash croppers, but they’re making things tough on livestock farms, where grain is an input, not a product for sale.
Milk prices are holding steady, UW Extension Agent Randy Thompson said. Pork prices, on the other hand, are convincing many local farmers to sell their hogs, he said.
The high corn price is also limiting the beef market, O’Leary said.
“Bull calf sales have decreased dramatically,” O’Leary said. “Farmers are asking, ‘Do I want to feed $6 corn to steers or sell the corn?
‘I think I’ll sell corn.’”
Local bankers aren’t sure how long farmers will be able to ride the wave of high commodity prices.
But they agree on one thing: When farmers make money, they spend it locally by investing in their operations and in land.
Cash croppers still are riding a profit wave from last year, when grain prices shot up faster than input costs, said Ron Austin, assistant vice president of production agriculture at Badgerland Financial, 1705 W. Highway 14, Janesville.
Profits will be slimmer on beef and dairy farms this year, but they should squeeze out a profit, too, he said.
But will the money spent locally by farmers make up for the money not being spent by people who could be losing jobs at Janesville’s General Motors plant, Albany’s Ogden Manufacturing, Janesville’s Simmons Mattress and other companies?
Well, it won’t hurt, but it won’t make much difference, Austin said.
He’s seen his farm customers continue to take out loans for new trucks, tractors and building construction, Austin said.
At Farmers and Merchants Bank in Orfordville, Executive Vice President Craig O’Leary agrees.
“The impact (of agricultural spending) is going to be minimal within the mix of things,” O’Leary said. “But if the ag economy were also sour, it could be worse.”
Leo Johnson, co-owner of Johnson Tractor, 1110 N. Highway 14, Janesville, said it’s not a bad time to be in farm equipment sales.
Nationally, equipment sales are up 35 percent, Johnson said. Local sales aren’t quite that high, he said.
The Plains states, which produce a lot of wheat, are really driving up that number, Johnson said. The price of wheat has doubled from last year.
Rock County farmers grow some wheat, but not much, UW Extension Agent Jim Stute said.
“From our perspective, it’s a good time to be in the farm equipment business,” Johnson said. “Overall, it’s a good time for farmers to be investing in equipment and their operation. It’s about time these guys got a break. They’ve gone many, many years without much of a profit.”
Last updated: 9:08 pm Thursday, December 13, 2012