Up, down commodity prices leave farmers uneasy
DES MOINES, Iowa (AP)--It wasn't so long ago that U.S. farmers were 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, 36, a 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."
Part of the reasons why the industry, especially for Iowa's hallmark corn crop, was seeing such uncertainty were the decline in oil prices, a large crop harvest and the global economic downturn.
The dramatic drop in oil prices has forced a corresponding decline in the price of corn-based ethanol, idling many ethanol plants until their profitability improves and reducing demand for corn.
And while flooding in Iowa last year increased corn prices because of fears it would reduce the harvest, farmers this year produced the second-largest crop in U.S. history. But the harvest came as the 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.
"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 costs for production, 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. Department of Agriculture's Farm Service Agency for help.
Brian Gossling, the agency's farm loan program director 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. He said the program should have enough money to meet an increased demand.