Iowa farmers struggle to break even

Of all the worries keeping farmers awake at night, none is more pressing than figuring how they will break even this year, according to Wayne Fredericks, president of the Iowa Soybean Association.

Low grain prices and high input costs will make this 'one of the toughest years to make money on corn and soybeans,' said Fredericks, who raises corn and soybeans on 975 acres near Osage in Mitchell County.

With tongues not quite in their cheeks, Fredericks and many other farmers say their best short-term hope for a profitable year lies in a widespread drought that does not affect their fields.

'We're back to where we were in the early 2000s, with prices right around the cost of production,' said Ed Kordick, commodity services manager for the Iowa Farm Bureau Federation.

'Increasing demand brought us good margins for several years, but they are not building ethanol plants, and demand is not going to bail us out this time,' Kordick said.

The U.S. Department of Agriculture predicts farm income will decline 3 percent this year to $54.8 billion, its lowest level since 2002 and down 56 percent from $123.3 billion three years ago, when the declines began.

'Sometimes just surviving for the next year is the objective,' said Kordick, noting that grain prices — well below $4 per bushel for corn and $9 per bushel for soybeans — are below the Iowa State University-projected costs of production.

Farmers need to scrutinize their input costs, economize where they can and take advantage of weather-related market rallies to sell crops at peak levels, Kordick said.

Fredericks said soybean demand has remained steady, but 'good crops around the world' have swollen supplies, driving down prices. The strong U.S. dollar has also made South American grain more attractive this year to traditional trading partners, he said.

'We probably have not had an environment this tough since the 1980s. The math just doesn't work real well right now,' said Steve Bruere, president of the Des Moines-based People's Company, which manages and brokers farmland throughout the Midwest.

Bruere said there has been a recent surge in farmers attempting to renegotiate land rental rates — a spate of activity he attributes to bankers advising farmers to reduce their costs.

Livestock producers, who can take advantage of low feed costs and spread their risk over multiple commodities, have better prospects than grain specialists, according to Kordick.

Tom Wall, who finishes 6,000 hogs a year on his farm north of Iowa City, said he's coming off an unprofitable fourth quarter but expects 2016 to be 'a good but not great' year for profitability.

Beef producers are in a similar situation, according to Phil Reemtsma, a DeWitt veterinarian and cattleman.

Farmers finishing last year's high-priced calves are still losing money, but a steep reduction in feeder cattle prices should turn that around in the second half of this year, he said.

From about 2007 to 2013, U.S. corn and soybean producers realized net profits of from $40 billion to $50 billion a year, according to Brian Jones, chief operating officer of the Iowa Corn Growers Association.

Though some individual farmers may turn a profit, the overall net will be negative this year and probably for the near future, Jones said.

'We're settling into a new normal, a normal farmers were used to in the 1980s and 1990s, when corn prices didn't move much,' Jones, an economist, said.

Jones said the high crop price years had more to do with overall high commodity prices — especially oil — than with fundamental supply and demand for grain.

Jones said the big demand drivers — China's growing hunger for soybeans and soy-fed livestock and an expanding ethanol market for corn — have shrunk and will not likely rebound to earlier levels.

Though he acknowledges tough financial years ahead, Linn County farmer Pete Brecht, an Iowa Corn Promotion Board director, said he's 'still O.K.'

Like many other farmers, Brecht said he took advantage of the recent profitable years to pay down debt and put himself in a position to weather future storms.

'Now the storm is here,' he said.

Brecht said he and his brother rent about 25 percent of the 2,000 acres they farm. Because his landlords did not raise the rent in the good years, Brecht said he is not trying to renegotiate rental rates now.

Brecht said he's heard talk of farmers cutting back fertilizer applications to control costs. 'If you have good soil fertility, you might be able to get away with that for one year, but it's not a good long-term strategy, he said.

Low fuel prices, coupled with declining fertilizer prices, will help, but interest rates and seed and chemical prices have remained high, he said.

Farmers are now going through the hardest and gloomiest part of the year — establishing their budgets, said Masonville corn and soybean grower Dennis Lindsay.

Both Fredericks and Lindsay said this year's elusive profit margin won't keep them from enjoying the planting season.

'You've got to do it for the money, but everyone likes doing it,' Lindsay said.

'We still like growing things and watching them grow. We still take pride in a nice crop, even if it costs us money to raise it,' Fredericks said.