Although Jimmy Thomas’ 2,500-acre family farm near Roxboro, north of Durham, N.C., is hundreds of miles from the fertile soil of the Midwest, he is acutely aware of what farmers there are up to this year.
With prices for commodities such as corn, soybeans and wheat at historic highs, U.S. farmers are expected to plant the most acres this year that they have in a generation. Farmers in the Midwest, where the bulk of those crops are grown, are being particularly aggressive.
The prices and decisions of Midwestern farmers have an impact elsewhere. Farmers are trying to use as much of their cropland as they can, and many are looking to cash in on the current commodities boom by locking in prices as early as possible.
On his farm, Thomas, 46, uses his smartphone to get daily price updates from the Chicago Board of Trade. So last month, when soybeans were pricing at around $12.60 a bushel, he signed a futures contract to lock in about 30 percent of his November crop at that price.
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“We’re really, on our farm, looking at a little more aggressive forward pricing,” Thomas said. “I think this is a year where a guy who’s really got a good plan laid out is going to see a big difference in profits.”
Thomas is taking a risk in locking in prices earlier than normal. If soybean prices go higher, he will be leaving money on the table. If prices are higher and he can’t deliver all the crops he has promised, Thomas must buy them from another farmer or pay the value of the undelivered crops under the terms of the contract.
Prices for commodities have remained high largely because of a weak U.S. dollar – which makes U.S. goods more affordable to foreign buyers – and demand from emerging markets such as Brazil, Russia, India and particularly China.
Of course, what’s good for farmers might not be good for the family pocketbook. Higher commodity prices ultimately translate into higher prices for food and other everyday items. Although commodity prices might come down some from their current level, global demand is expected to keep them from falling too far.
“It’s a world market now; it’s not a national market,” said Kent Messick, section chief for field services with the North Carolina Agronomic Services Division.
Ricky Sears, 59, who grows tobacco, soybeans and wheat on about 1,000 acres in Harnett County, N.C., notes that while commodity prices have indeed been strong in recent years, the costs of other things, such as fuel and fertilizer, have been rising. If farmers agree to futures contracts that don’t ultimately account for those additional costs, their profit margins can quickly erode.
“Imagine driving a tractor that’s burning from 75 to 100 gallons of fuel a day and having to buy that,” he said.
And in addition to suffering from drought last year, Sears is dealing with a serious deer problem; the animals consumed about 50 acres of his soybeans last year.
“We face a lot of obstacles,” he said.
Thomas, who is also president of the state’s Soybean Producers Association, is betting that the soybean price he locked in last month will still look good in November, when he must deliver his beans to the Cargill plant in Raleigh.
While things look promising now, Thomas is well aware that in farming, even the best-laid plans can be upended by unforeseen events that are out of his control.
“If you don’t get to participate in the market, it don’t matter how high the prices are,” he said.
A commodity is any basic product – such as food, grains, metals – that is bought and sold, often through what is called a futures contract because the price is set in advance of delivery. Prices fluctuate based on global supply and demand, and on the speculative trading activity of investors.
For the main field crops such as corn, wheat and soybeans, prices are heavily influenced by yields in the Midwest, where most such crops are grown. North Carolina farmers such as Jimmy Thomas are locking in high prices early this year because Midwestern farmers have signaled they will plant a record amount of acreage.
An above-average, or even an average, growing season in the Midwest is expected to boost supply and cause prices to decline. The risk for farmers locking in prices now is that extreme weather or some other unforeseen event could diminish supply and cause prices to rise further.
Thomas also runs the risk that prices will be higher in November and for some reason he can’t deliver the crops he has promised. In that scenario, Thomas must either buy the necessary crops from another farmer or pay the buyer the value of the undelivered crops.
If the opposite happens – prices decline and Thomas isn’t able to deliver what he promised – the buyer of the beans will usually let the farmer out of the contract or extend it into next year.