Gee, That Was Quick!
Oct 23, 2008
Obviously the headlines lately about doom and gloom on Wall Street, and Main Street, have been impossible to escape. Imagine how much worse it would be if we didn’t have the elections as a distraction.
But amidst the Hooverville talk, there was an underlying assumption that the Farm Belt was faring far better, and in fact was one of the very few bright lights in the current U.S. economy (lower gas prices being the only other obvious one).
That assumption was shattered Wednesday when I saw this big story in the Wall Street Journal that the proverbial glory days for farmers are at their end. For those who can’t access the WSJ subscription link, here are a few excerpts:
“The Midwest faces plunging crop prices and stubbornly high production costs. Corn prices have dropped from $7.54 a bushel around July Fourth in central Iowa to just $3.81 a bushel on Tuesday. But growers are hearing from suppliers that fertilizer and seed costs could rise by more than 40% each for next spring's plantings”
“U.S. growers clearly face a riskier, more volatile environment in which to make bets on what to grow and how much. "I was finally enjoying farming, but it's real scary right now," said Keith Richert, a 38-year-old York, Neb., corn and soybean farmer who is shelving plans to replace his eight-year-old harvesting combine, a purchase that would cost more than $300,000”
“For many growers, their breakeven costs have climbed so high that they could lose money next year even if crop prices are above the levels long thought to be too strong to warrant subsidy checks from the U.S. government. Farm trade groups and Farm Belt politicians already are pressing the Bush administration to interpret the newly adopted five-year farm bill generously”
The article also makes a point that I made in this blog just last month, namely, that if you were a crop farmer, 2007 and 2008 have been golden years, but if you were in livestock production, these have already been dark days indeed – and that lower grain prices are actually good news for a significant number of farming operations.
At a time when farm-level milk prices have been dropping steadily, seeing corn return to the $4/bushel level, and dropping soybean and oil prices to boot, is like having a prayer answered just in the nick of time. It just goes to show you that few trends are ever entirely good or bad; it just depends on who’s playing which angle.
Which brings me to a related topic in the news lately, and that is whether USDA will be helping ethanol distilleries cope with the changing economics of grain production. USDA Secretary Ed Schafer has created a kerfluffle with his comments last week that ethanol plants may be able to access a USDA rural development loan program to help their economic situation.
A number of livestock and taxpayer groups, including the National Milk Producers Federation, have raised a stink about the fairness of such an approach, given that USDA wasn’t overly concerned in the past year about the economic plight of cattle, swine and poultry producers having to compete with those ethanol plants for corn back when it was over $8/bu. Again, few things are every entirely good or bad.
[UPDATE NOTE: I see that by some great cosmic coincidence USA Today had essentially the same story Wednesday as the WSJ journal did the same day, also lamenting the decline in crop prices].