The drought in the Midwest could have a positive effect on local corn and soybean producers, but there’s a down side to supply and demand in agriculture.
“Any time there is something in short supply that can quickly cause an increase in prices,” explained North Carolina Extension Agent Jack Loudermilk. He added that most local corn producers rotate soy beans and corn from year to year to hinder producing herbicide resistant weeds so they may not have corn planted this season.
Loudermilk said that typically prices for corn are higher later in the year unless a farmer were to strike a deal with a trader at a set price earlier in the season for his crop. Trading continues throughout the growing season and this also could affect prices depending on who else globally is growing corn or soybeans at the time.
Before thinking local farmers are sure to benefit from higher corn and soy prices, consider that North Carolina is a “corn deficit” state. Industries such as hogs and chickens must be fed corn. Others competing for corn are those that produce ethanol and corn is used for corn syrup.
“We (the state) typically buy more corn for feed during the year than we produce,” added Loudermilk. “The down side of this is that at some point prices reach a peak and could fall very fast. Everybody at this point is losing from their profit.”
He said the way this possible price spiral works is that the higher price farmers get for their crops is negated by the higher food prices at the register and higher feed prices for dairy and poultry farmers.
“Farmers could have to pay more for leasing their land because land owners feel they can raise the price of rent,” said Loudermilk. “Steak prices will be higher, for instance and so will farm supplies and dairy.”
Loudermilk said he remembers a similar boom cycle in the 1980s where an associate decided he would take advantage of the high price of soybeans. The farmer got a loan and purchased more than 60 thousand bushels of soy beans which he quietly tucked away in his silo in anticipation of selling them for $10 a bushel. The price plummeted and it took the farmer four years to break even.
He noted that land prices in the Midwest were already on the rise, driven up by bumper-crop seasons with good grain prices. Locally, full-time farmers must tend huge tracks of land because there is no way to make the numbers work. Loudermilk said that equipment expenses as well as the availability of land that can accommodate the equipment makes the logistics of making a profit even harder.
Loudermilk said that the skills of many of the full-time farmers are similar to business executives. Farming on this scale is an industry. Often farms are the biggest industry in many rural areas.
“A farmer is just like an industry manager, except he wears overalls and stays dirty all the time,” said Loudermilk, laughing. “It’s the same skills on the resume when you look at it.” He admitted this is often difficult to explain to the “agriculturally challenged.”
He said persons should remember because a crop farmer is doing well it could mean poultry or dairy will be paying high prices for feed.
“They’re not doing well in a situation like this,” added Loudermilk. He said another factor farmers deal with is government. He explained the down side of the government stepping in and declaring a soy bean embargo.
“It took forever to get markets back,” said Loudermilk. “We didn’t sell internationally and they didn’t order the next year.”
Reach David Broyles at email@example.com or 719-1952.