Stuck in the cycle: Low prices push farmers for more production, but high yields not cause for celebration
September 7, 2016
Saving money with new wheat measuring techniques
Jeremy Helzer, seed associate at Marc Arnusch Farms, said the wheat industry is on the verge of changing the way it measures seed in an effort to save farmers money and maximize profitability.
Currently, wheat farmers measure the seed they plant in pounds per acre. For other field crops, like corn, the measurement is usually plants per acre. The number of seeds that turn into plants in a corn field depends on average germination rates, but in general, seeding rates are more specific for crops like corn than for wheat. That means farmers are spending exactly what they need to for the maximum profitability on their land.
That’s why seed suppliers are starting to provide exact counts per-pound of wheat seed, Helzer said. Farmers keep track of germination rates for crops like wheat too, and though wheat doesn’t grow in rows like corn, there’s an ideal number of plants per acre. By buying a more precise number of seeds, rather than just a lump sum, farmers are more in control of their expenses.
“We can make less mistakes. We can make ourselves more profitable, especially now, with things on the downturn,” Helzer said. “We need to make everything count.”
Colorado crop prices as of Sept. 1, 2016
(numbers from the Colorado Department of the Ag Marketing News Service)
Hard red winter wheat
Northcentral Colorado — $2.22-$2.52 per bushel
State high: $2.95 per bushel
State low: $2.22 per bushel
Northcentral Colorado — $2.99-$3.25 per bushel
State high: $3.25 per bushel
State low: $2.43 per bushel
$5-6 per bushel, mostly $5.50
$16.50-$17 per bushel
When Jerry Cooksey started farming in Roggen in the early 1990s, the agriculture economy was bad. Farmers stopped buying new equipment and decided which crops were worth keeping around. Some even went out of business before the market could rebound.
So when corn and wheat prices slipped three years ago, it wasn't a shock to Cooksey. He's seen a few bad times by now. But in the last three years, those prices have just kept falling and now are at record lows.
In order to make a profit or break even when prices are this low — corn is less than $3 per bushel, compared to more than $7 per bushel at its peak in 2012 — farmers need to yield more per acre to have any hope of breaking even.
The good news is, that happened.
Cooksey said he saw the largest wheat crop of his career this year.
U.S. corn farmers are rolling toward their biggest harvest ever in 2016 at a projected 15.2 billion bushels, according to the World Agricultural Supply and Demand Estimates report by the U.S. Department of Agriculture.
But with these great yields come even greater worries, and farmers can't celebrate the biggest harvests of their career when prices are so low that even large numbers may not help them break even.
Economic conditions force farmers to overproduce crops to stay in the black. Then the market is flooded and crop prices fall even further.
It's a cycle that Colorado's farmers are stuck in, and some experts say will continue until a major weather event or disaster interrupts global crop production.
After three years of market lows, it's the average farmer, the good businessman and the midsized operator that are at risk of getting buried in debt and even going under, said John Hansen, president of the Nebraska Farmers Union.
"We're burning cash and equity right now," Hansen said. "When does the bank throw in the towel?"
And when do farmers?
THE FARM MARKET
Don Shawcroft, president of the Colorado Farm Bureau, said to understand what's happening to U.S. farmers, you have to look overseas.
Wheat and corn production are at all-time highs across the world. For example, in the 2015-2016 growing year, global wheat production was at 2 billion tons, according to the International Grains Council. Of that, the U.S. produced only about 1.66 billion bushels, or 45 million tons, according to the USDA. The country was outpaced by China, the European Union, India and Russia.
About 80 percent of Colorado's wheat is exported, but with the global market so competitive, local producers are finding it harder to get a profitable price.
Even in the state, there's a surplus at local grain elevators like the Roggen Farmers Elevator, which has several locations across northern Colorado. Around the property at the Roggen location, there are 87 bags from July's wheat harvest that won't fit in silos. Each bag holds 15,000 bushels of wheat. Roggen Farmers Elevator General Manager Keith DeVoe said not including the bulbous white bags, all of the elevator's locations are currently at about 90 percent of their capacity for grain storage.
But the corn for silage harvest hasn't started in earnest yet.
"The macro question is we've grown crops around the world without any crop failure since about three years ago," DeVoe said. It will take weather, disease or something similar causing widespread crop failure to make a difference at this point, he said.
Tim Brown, a farmer in Limon, had to decide between putting fertilizer on his wheat last year or being able to pay his bills, said Shawcroft.
He chose the latter and planted his crop knowing there was little chance of a good outcome. Somehow, with luck and good weather, Brown ended up producing a record harvest.
While standing in front of a mountain of wheat stored in a garage on his property in Roggen, Cooksey said the wheat crop he harvested this year is the best he's ever seen. According to Colorado Wheat, this year's wheat crop was a record harvest at 7.5 million bushels.
In fact, Cooksey had so much wheat he used all the crop storage on his property, borrowed some from neighbors and stored some at the Roggen Farmers Elevator. It's hard to get excited over, though, because he won't see massive amounts of money for the massive amounts of grain.
He's getting ready for winter wheat planting this year — it will take place early to mid-September. With prices as low as they are, planting season, usually a time for hope and planning, is a time for worry.
That's why many farmers are making decisions about their business plans.
Cooksey said there really isn't an option for farmers to plant less — every year, they're going to go for the best, biggest crop they can, because it's a business, and it's a gamble with the weather, the seeds and eventually, market prices.
However, Shawcroft said many farmers are diversifying their crops, cutting back on buying new technology and weighing the cost of every on-farm purchase, from fertilizer to tractors, against the potential for low income.
Many are working in the futures market, where they can sell crops in advance for projected prices, or relying on consistent relationships with local buyers like grain elevators to make good deals. They're falling back on existing relationships with bankers and trust built over time.
For young farmers, who don't have much equity or don't have those solid bonds created, this year may be even more trying, Shawcroft said.
Dustin Cooksey, 31, said in the ten years since he's started farming, most commodity prices have been higher, which has created a friendlier environment for beginning farmers than exists now. Many who were entering the business used this time to buy new equipment and take start-up loans, but now, they can't pay back the financial institutions they borrowed from. Jerry Cooksey said for young farmers, buying land now is more or less out of the question.
For young farmers, the farm economy's plummet meant there was never really a chance to make money, only to go further into debt.
For some farms, like Marc Arnusch Farms in Keenesburg, the answer to low prices is adding value. He grows several crops, like barley, to hit niche markets and make extra money where he can. He also grows certified wheat seed to sell to other farmers, not only for the benefit to his farm, but also to help ensure their crop can withstand weather, pests and other troubles.
"Every seed we put in the ground is more important than ever. We can't make mistakes now," said Jeremy Helzer, seed associate at Arnusch Farms. "(Certified wheat seed) helps drive profit for our farm as well as driving profit for our local farmers by providing a good product."
The Cookseys also grow certified wheat seed for similar reasons. Though there is a profit factor, the most important to them is being able to help the farms around them weather market turmoil as well.
But for Cooksey, a fourth generation farmer whose 19-year-old sons are both studying agriculture in school, that's exactly what it is — a storm.
"We're hoping this one doesn't last too long," he said, "but it may." ❖