Waterloo Cedar Falls Courier, IA
05-20-07
Corn not as profitable as people may think
By MATTHEW WILDE, Courier Staff Writer
WATERLOO --- Contrary to popular belief, farmers aren't made of money.
Producers hear people --- with little knowledge of production costs --- in
restaurants and grocery stores talk about the windfall farmers must be getting
from high corn prices. It is true some producers are enjoying very profitable
prices, and this year's crop is expected to generate income not seen in more than
a decade. But the fact is the majority of farmers have yet to cash in on the price
surge that started last fall.
Marketing experts and farmers say most of the 2006 crop was sold prior to cash
and futures prices hitting 10-year highs in February --- more than $4 and $4.50
per bushel, respectively. Input costs have skyrocketed as well.
The problem, farmers say, most people don't realize this.
"If the landlords get together and do what I hear in the back corner of the cafe,
that will create problems," said John J. Thoma, a farmer who rents a sizable
portion of ground northeast of Waterloo.
"The vast majority (of the public) have no clue where expenses have gone," he
added. "I'm not going to say I'm not making money. ... Barring a drought or other
severe conditions, like it getting cold and wet again, we will make some money,
but not as much of a windfall as people think."
It costs about 50 cents more to produce a bushel of corn than it did in 2001.
Compared to last spring, farm-use diesel has jumped more than 50 cents a
gallon to about $2.50. Anhydrous ammonia --- a popular corn fertilizer --- is about
33 percent higher at about $550 per ton for spot delivery.
Last year Iowa State University estimated Iowa farmers spent an average of
$3.40 to produce a bushel of corn following corn and $2.83 for corn after
soybeans. The average cost of inputs (seed, fertilizer, fuel, etc.), labor, land and
assumed yields are used to calculate these numbers. This year, it will cost $3.53
and $2.96, respectively.
Record land prices, both to buy or rent, may have farmers worried the most.
Most farmers rent some or all of the land they farm, and fear rents could increase
to the point profitability will be in question.
Mike Duffy, an ISU Extension farm economist and land value expert, said it is
a real possibility. Cash rental rates were pushed sharply higher this year by
strong grain prices in ISU's annual farmland rental survey earlier this month, up
$13 per acre to an average of $150 statewide. In Black Hawk County, highly
productive land averages $185 per acre.
It was the largest yearly increase since the survey began in 1994.
That is a scary thought, Duffy said, considering the surge in prices didn't start
until November, two months after rates and rental contracts needed to be
terminated or revised. Local farmers expect rent increases for the 2008 growing
season to dwarf this year's numbers.
"People see $3 and $4 corn and landlords say, 'I need a piece of this,' All of a
sudden there it (profits) goes," Duffy said.
Corn prices didn't start exceeding production costs until November. By then,
most farmers had already sold a good portion of their 2006 crop. Farmers often
sell grain before it goes in the ground. Some need the cash to pay bills. Others
don't have enough storage space or hope to take advantage of what they think
are the best prices.
Prior to the 2006 harvest, many farmers had already sold their crop for future
delivery at $2.40 to $2.75 a bushel, a good price when the contracts were signed.
Cash corn was worth less than $2 a bushel for most of 2005.
"I would say 80 percent of farmers already had corn marketed. Ninety-five
percent of my corn was priced before Nov. 1," Thoma said. "At the time it
sounded great."
Then the ethanol boom hit.
Government mandates for renewable fuels and the phasing out of the toxic fuel
additive MTBE fueled the frenzy.
More plants came on line and were planned. Demand jumped for the corn-based
fuel and profits followed.
Corn demand drove prices, normally lowest during harvest, skyward. Prices
peaked in about mid-February, when local cash corn exceeded a whopping $4
per bushel and July corn contracts topped $4.50.
Prices have since dropped by about 80 cents per bushel as of last week, mainly
attributed to a much larger corn crop being planted nationally.
So, given current corn prices and 2006 production costs, how profitable is corn
still in storage?
Input costs and yields vary among regions. Typically, Black Hawk County land
costs more than the state average, but yields are much better as well. The cost
of producing corn locally is about 30 cents less per bushel than ISU estimates,
farmers say.
Corn after corn, not counting government payments, will net about a 9 cents per
bushel when sold immediately at an elevator. Cash corn following soybeans will
net about 66 cents. Corn after corn usually yields less and costs more to produce
due to fertilizer requirements.
July corn on the Chicago Board of Trade was trading at $3.63 per bushel on
Tuesday. If local farmers sold that day for July delivery, they could expect a net
profit of about 53 cents and $1 per bushel, respectively.
After the last few years of farm program payments providing all or nearly all of
their income, grain farmers say the upturn in prices is refreshing.
"We're making some money now, but we need to. Just like people working in
town, we need a raise sometimes, too," said Bob Sienknecht, who farms
northwest of Dunkerton. He is one of the lucky ones with about 30,000 to 40,000
bushels of corn yet to sell --- about one-quarter of last year's corn crop.
"I'm not a book-ahead person," he continued. "A lot of them don't get what I call
the big kahuna."
Producers who rent land urge landlords to exercise caution in September when
rates are set. They understand landowners need to make money, but hope
production costs and income potential are used when making those decisions.
Duffy said farmers also are partially responsible for land rate hikes. Something is
only worth as much as someone will pay for it. Farmers say some land up for bid
each year is fetching more than $200 and acre, with some topping $300.
"Unfortunately some farmers are doing it to themselves," Duffy said. "Farmers
end up handling more money and keeping the same or even less. A farmer has
to remain profitable rather than become a drag on the community by not
spending money."
Contact Matthew Wilde at (319) 291-1579 or matt.wilde@wcfcourier.com.