Roller coaster prices leave many farmer uneasy
DES MOINES, Iowa (AP)--It wasn't so long ago that farmers were frequently asked what they would do with their windfall profits.
That was last summer, in the heady days of $8 a bushel corn and $16 a bushel soybeans, when it seemed farmers could count on an inexhaustible demand from ethanol manufacturers and food companies.
Today, corn prices have dropped below $4 a bushel following a surprisingly strong 2008 harvest and plunging demand. Soybeans were trading at close to $10 a bushel.
Faced with such a huge price swing, combined with the high costs of seed, fertilizer and machinery, farmers could be forgiven for being a bit bewildered. Some are considering switching crops and many are bracing for more questions when they seek annual loans to cover their upfront costs.
"What we've seen these last two years, you almost got to throw out any previous history because we're in uncharted territory," said Ryan Weeks, a 36-year-old fifth-generation farmer of corn and soybeans from Juniata, Neb.
"We've been through a downturn before," Weeks said. "But we've also never had the risk out there that we have now. If we see a huge retreat on grain prices, it's going to be very, very tough."
Many factors have contributed to the roller coaster ride, especially for Iowa's hallmark crop of corn. Among them:
--The dramatic drop in oil prices has forced a corresponding decline in the price of corn-based ethanol. Many ethanol plants have been idled until their profitability improves, reducing demand for corn.
--Last summer widespread flooding in Iowa increased corn prices because of fears it would reduce the harvest, but farmers managed to recover and produce the second-largest crop in U.S. history.
--Another big crop came as an economic slowdown swept over the United States and much of the world, likely lessening demand and causing a drop in purchases by food companies and livestock producers.
The various factors and possibilities have farmers unsure what to expect.
"It's harder to know what is a good price because it might be $1 higher or lower in a couple of months," said William Edwards, an agricultural economics professor at Iowa State University.
There's some indication that farmers who had planned to plant corn are instead opting for soybeans, which have lower input costs, said Bob Callanan, a spokesman for the American Soybean Association.
Others are simply expecting longer talks with their bankers when discussing annual loans. Because banks could be leery of making loans based off uncertain cash-flow projections, more farmers may turn to the U.S. Agriculture Department's Farm Service Agency.
Brian Gossling, the farm loan program director for the agency in Iowa, said the organization offers direct loans as well as a program that guarantees 90 percent of a bank's loan to a farmer as additional collateral.
"That's the intent of our loan program," Gossling said. "To provide some stability and incentive to banks to continue to make loans during riskier times."
Gossling said the program should have enough money to meet an increased demand.
For farmers, it's all resulted in an uneasy waiting game.
"Everybody has a kind of wait-and-see attitude," said wheat farmer Erik Younggren of Hallock, Minn. "You're up the creek without a paddle, really."