Farmer: Find thy place

By Ken Root

Over the next four years, the price for wheat, corn and soybeans is projected by economists to remain historically high. The numbers look exciting with wheat at $6.50, corn at $5.25 and soybeans at $11. If this comes about, the mindset of farmers will change but the relationship with government and consumers will change even more.

In the past three years, as prices have risen to levels no one could project and most could not believe, the farmer has felt good about himself as finally being off most government subsidization and able to stand as an independent business by gaining value from the marketplace. But, at the same time, the rise in food prices (4 percent in 2007 and projected at 5 percent in 2008) has caused resistance from food processors, food retailers, consumers and a growing number of politicians.

Now, economists are projecting that food prices will rise 9 percent per year through 2012. That is huge by American standards and makes production agriculture a target for every group that wants to assign blame for basic necessities costing more money.

This is all new territory for farmers who have a generational mindset that their price for a commodity should be supported at just above the cost of producing it. In the past three years, the cost of inputs has risen sharply but it is still possible to make a substantial profit by utilizing forward pricing for both inputs and output. This is going to make some people rich and that, in itself, is going to change agriculture's image and mindset.

Agriculture's investments in the 21st Century have been among the best. The value of farmland has outpaced the stock market. The escalation in the price of grain has been unequaled and the energy market, captured in part by ownership of ethanol refineries, has added a lot of dollars to the bottom line.

Farmers in the Midwest are now the primary buyers of farmland that is put up for auction. An excellent farm in eastern Iowa sold recently for $9,000 per productive acre. The auctioneer said it came down to three bidders who were all farmers. That's great! You can now have greater control of your destiny by consolidating land holdings.

The social challenge is still there, though. Many still ask, "What will the neighbors think?" This is agriculture's weakness as the business of today has evolved from the social community of yesterday. In past generations, strength was seen as coming from the community and individual advancement and accumulation were considered to be "greed" and met with jealousy.

Those engaged in commercial agricultural production are going to need to find ways to maintain their own moral base and relationship with their peers, while aggressively working to capture wealth from the marketplace. The work ethic is there; the incentive has finally come into play; only the heart and heritage are in question.

Those who draw their livelihood from agriculture will need to consolidate their political power more than ever. The first target of grocery manufacturers, consumer interest groups and the oil industry is ethanol.

What was once considered motherhood and apple pie of American ingenuity is now viewed as a boondoggle for corn-producing states and an unfair imposition on consumers and oil interests.

Ethanol production continues to rise with a projection that it will utilize one-third of the total corn crop by 2009. If oil remains high, then the base for corn prices will be secure but the backlash from strong non-farm interests could open up imports and cut subsidies (tax credits) that have made blending of ethanol attractive. Government might impose a cap, rather than a floor, on ethanol produced from grain. And don't ever count out the price damage that a disruption in exports can cause.

Livestock producers have been caught in the price squeeze and have lashed out at ethanol as the reason for the sharp rise in grain prices. There may be a day of reckoning as the overall interests of agriculture need to be united and having grain interests fighting livestock interests will make it easier for oil interests to prevail.

Grain producers realize that the majority of their production is converted into protein by livestock but the export demand and the ethanol spike has removed all second hand government subsidies from the livestock feeding industry.

The new world of high costs and thin margins for livestock producers may be compounded by very high transportation costs and consumer resistance to rising grocery prices. Only the strongest may survive and economies of scale look as attractive as ever.

There have been no revolutionary predictions made in this commentary. The economic trends of recent years have just been extended forward and social questions added. With a cheap dollar and strong world demand, it appears the price for grain and fuel will remain high for the foreseeable future. The change will come in the reaction agriculture makes to the prospect of profit and prosperity.

Many decision makers in agriculture today have been trained in the land grant university system as well as business schools across the country. The knowledge is there, to run businesses that produce quality products at a profit. The question is whether the social structure of agriculture will enhance or defeat that economic goal.

Editor's Note: This is Ken Root's 34th year as an agricultural reporter. He grew up on a small farm in central Oklahoma and started his career as a vocational agriculture teacher. He worked in Oklahoma, Kansas and Missouri as a broadcaster and was the original host of AgriTalk. He has also been the executive director of the National AgriChemical Retailers Association in Washington, D.C. and the National Association of Farm Broadcasters in Kansas City. Ken is now the lead farm broadcaster at WHO and WMT Radio based in Des Moines, Iowa. He has been a columnist for HPJ and Midwest Ag Journal for seven years.

6/9/08
1 Star WK\2-B

Date: 6/5/08

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