Reversal of farm fortunes

Times are better for livestock farmers, but not as great for those who raise grain

Andy Monaghan uses his recently purchased 6088 series International Harvester combine tractor for the first time on his soy beans in Masonville on Tuesday, September 30, 2014. (Sy Bean/The Gazette)
Andy Monaghan uses his recently purchased 6088 series International Harvester combine tractor for the first time on his soy beans in Masonville on Tuesday, September 30, 2014. (Sy Bean/The Gazette)

CEDAR RAPIDS — Farmers who for the past three years have harvested subpar crops for big money are now harvesting record crops for little, if any, profit.

Meanwhile, back at the confinement unit, the reversal of farm market fortunes favors livestock producers, who are enjoying historically high prices while increasing their profit margins by feeding cheap grain.

“It’s tough when you raise a really good crop and you’re not going to make any money on it,” said Bob Hemesath of rural Decorah, who is preparing to combine 2,200 acres of corn and soybeans.

“It’s a lot more fun to harvest $7.50 per bushel corn than $2.50 per bushel corn,” added Dave Miller, director of research and commodity services for the Iowa Farm Bureau.

While Hemesath expects to break even this year on his grain — thanks in part to forward-marketing some of his crop — he said he has “done really well” with the 17,000 hogs he will raise this year in his wean-to-finish operation.

Kurt Hora, who raises corn and soybeans on 1,800 acres in Washington County while feeding 10,000 hogs a year, finds himself in a similar situation.

“We are below the cost of production on corn,” said Hora, who is anticipating “probably the best crop we’ve ever raised.”

But with high hog prices — stimulated in part by the porcine epidemic virus that has curtailed the number of hogs available for market — and with “feed costs a lot cheaper than they have been,” Hora said he expects to have a profitable year.

The 2014 cost of corn production ranges from $4.24 to $5.10 per bushel depending upon the yield realized, the seed and chemical inputs required and the manner of cultivation, according to Iowa State University Extension.

The cash price for corn has sagged below $3 a bushel in most Iowa markets, and the December futures contract has been hovering in the $3.30 per bushel range.

For soybeans, ISU Extension pegs the cost of production between $11.02 and $11.24 per bushel, while the cash price has fallen well below $9 per bushel with the November futures contract only marginally above the $9 mark.

Investment banking company Goldman Sachs on Wednesday lowered its three- and six-month price forecasts for Chicago Board of Trade soybeans and corn to $8 a bushel and $3 per bushel, respectively.

The Farm Bureau’s Miller said he believes about one-third of Iowa grain farmers — those with relatively low land costs — will turn a profit this year.

Buoyed by government-mandated ethanol targets that increased demand for corn and by a growing world population with more money to spend on food, grain prices got an additional boost when ill weather earlier this decade limited production.

What some hoped was the beginning of a golden era of profitability has turned out to be nothing more than the peak of the same old market cycle with which farmers always have had to contend.

“We are at the beginning of a cycle of low grain prices,” said ISU emeritus economics professor Neil Harl, who has been observing the farm economy since his 1930s childhood on the family farm in Appanoose County.

“It took awhile to catch up, but after three straight years of below-trend-line crops, farmers have finally outgrown demand,” ISU economist Bruce Babcock said.

That demand also has been crimped by a pending government rollback in ethanol production targets, which Babcock said already has been factored into the market.

Miller said he expects grain prices to be even lower next year.

The low cycle “will last until we have a bad crop,” Miller said, asserting that demand will not grow enough to greatly improve grain prices.

Kimberley said he expects a cutback in corn and soybean acreage in marginal states such as Texas and North Dakota but no appreciable decline in Iowa.

Miller predicted Corn Belt farmers would continue to shift acreage from corn to soybeans.

“You lose less money raising soybeans,” he noted.

Both Kimberley and Miller said farmers may be able to cut their costs of production by renegotiating farm rental rates and making do with their existing machinery.

“Some farmers have been spending money on equipment rather than paying taxes on all their profit. This (the low grain markets) will solve that,” Miller said.

Pork producer Todd Wiley of rural Walker said low grain prices have greatly increased the profit margin on the approximately 28,000 pigs he’ll raise this year in Linn, Buchanan, Benton and Black Hawk counties.

“Typically feed makes up about 70 percent of costs in a farrow-to-finish operation. It’s huge when you can cut your feed costs in half,” he said.

Wiley, who raises just 60 acres of corn, has to buy almost all the corn, soybean meal and dried distiller grain in his ration.

Overall, Wiley said, his cost of production is about $50 per 100 pounds of live weight, which translates into a tidy profit in light of 2014 market prices averaging about $78 per 100 pounds of live weight, according to the U.S. Department of Agriculture.

“It’s just markets at work. A lot of land got put into grain production. Supply caught up with demand. Then we get our turn,” Wiley said.

Meanwhile, estimates for a bump in retail prices for meat were anticipated to continue, according to the U.S. Department of Agriculture. Last month, it projected prices at the grocery store will increase 6.5 percent this year, up from its earlier prediction of 5.5 percent.

That’s above the 20-year average of 2.9 percent, the USDA noted.

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