Market drop has ranchers feeling down
DENVER (AP)--Like many ranchers and farmers, R.J. Jolly spent heavily over the past year to fatten his calves and put in crops.
Soaring fuel prices made it far more expensive to do everything from buying fertilizer to running equipment to plow his fields between Kit Carson and Seibert on the Colorado plains.
None of that mattered so much when food prices hovered near peak levels.
But then the global financial crisis hit, hammering the commodities markets almost overnight.
While gasoline prices have come down, the price of diesel fuel used by farmers and ranchers remains high.
Even buying seed has become prohibitively expensive because of the high prices being fetched for new disease-resistant offerings.
"I've never gotten my head kicked in quite this hard," said Jolly, one of the thousands of ranchers participating in the annual National Western Stock Show in Denver.
"We got hung out to dry. We're going to take a pretty big licking," he said.
Jolly and his brother--their family has been in the business since the 1800s--decided to sell some of the calves they had pastured, while sending the rest to a feedlot to fatten them for sale later.
They entered into some contracts to protect themselves against falling prices but they hadn't completely hedged against what turned out to be a sharp reversal of fortunes.
Live cattle were bringing $1.01 a pound at the time. The price has since dropped to 86 cents.
On an animal that weighs about 1,400 pounds when it gets to market, that's a huge price difference even for a rancher with only a few hundred head of cattle.
"The market just kept going down," Jolly said. "We're probably looking at a loss for the year."
Longtime rancher Charles Klaseen is among those kicking himself for not selling all his calves before the market plunge.
His operation in Crawford unloaded about half of them by video auction around Labor Day. It held off on the rest because Klaseen thought bidders weren't willing to pay enough.
Then the bottom fell out.
"We probably lost 30 to 40 percent of our value by waiting," said Klaseen, who has spent his life ranching.
Klaseen counts himself among the fortunate ranchers who have been in business long enough to own their land.
New entrants typically have to borrow heavily to lease acreage and buy supplies, making the money back when they go to market--if prices hold up.
Only a bit of relief is expected in 2009.
"We're still looking at market prices which are much lower than they were in 2008," said Tom Lipetzky, division of markets director at the Colorado Department of Agriculture. "Costs are still high, and that's going to squeeze profit margins."
After record cash receipts of about $7.6 billion in 2007, 2008 net farm income in Colorado was expected to drop to $968 million from its high of $1.5 billion the year before, according to the University of Colorado's 2009 Business Economic Outlook.
The forecast said net farm income in 2009 is expected to remain on par with 2008.
Also in the mix: competition from overseas and consumers cutting back on purchases during a recession.
"There's no question that this has been an unprecedented set of challenges for agriculture," said Steve Davies, head of Colorado State University's Department of Agricultural and Resource Economics.
"But even in tough times, people have to eat. There tends to be less of a reduction in the amount of food people eat than in the number of cars they buy," he said.
The higher end of the food chain--organics and specialty products, for instance--could suffer as people lose their jobs and rein in their budgets.
"The families that are marketing their high-end products directly to consumers are going to be harmed by the downturn in incomes," predicted James Pritchett, an associate professor specializing in agriculture at CSU.
That's the wild card for Gina Elliott, part of a two-family, Boulder-based operation specializing in all-natural beef.
"It is more expensive, and people that used to be able to afford it maybe can't right now," said Elliott, who handles sales for Colorado's Best Beef Co.
So far, demand for the company's custom-cut beef remains strong because repeat customers see the roughly $700 outlay for one-quarter of a cow "as a reasonable price to put good beef in the freezer."
Organic vegetable growers and beef producers, such as the owners of Kersey-based Monroe Organic Farms, also remain hopeful that loyal customers will stick with them during the downturn.
"We get the feeling from the years of experience we've had that food is the last thing people start cutting back on," farm owner Jacquie Monroe said. "The economy has so far not affected us. We feel we're on a teeter-totter though. It can go either way."
Still, the eternal optimism of farmers remains intact.
"My father told me if you decide to go into the farming business you will never get rich but you will never go hungry," said Bob Sakata, a produce farmer in Brighton.
"We'll be able to overcome this temporary recession. I'm confident. You just have to be a realist. Don't overinvest and don't overspend."