As yields bust bins, prices disappoint

With Ryan Speer's fall harvest about halfway completed earlier this week, the Sedgwick County farmer likes what he's seeing in his corn and soybean crops.

"Yields are at least 25 percent above our average," he said.

It's been that kind of fall for farms across Kansas and many other farming states.

Cooler temperatures, timely rains, seed genetics and improved farming technology have come together this year to create bin-busting corn and soybean harvests.

The U.S. Department of Agriculture has said Kansas will have record harvests for both crops. Nationally, soybeans are pegged to have a record harvest and corn is expected to be just shy of the 2007 record.

And all of that comes on the heels of another strong wheat harvest for Kansas and the country.

But that's not to say farmers are walking in tall cotton when it comes to income.

Another recent USDA report says the nation's net farm income will be down 33 percent from 2008.

Even more significantly, the 2009 projection of $54 billion in net income would be 14 percent below the 10-year average of $63 billion.

There isn't a 2009 net income forecast for individual states, but ag economists and market analysts say they expect Kansas to fall in line with that 14 percent drop — if not more.

"We're a very diversified state," said Mark Nelson, commodities director for the Kansas Farm Bureau, "so we would mirror what's happening nationally.

"But we're also tilted more toward beef and wheat, so we could be off a little more than the rest of the country."

For 2008, Kansas ranked first nationally in wheat production and third in beef.

The USDA has projected the wheat price for the 2009 crop to be 33 percent below last year's average price. Corn is off 24 percent and soybeans 11 percent.

Fed cattle prices for this year are expected to average 8 percent below the 2008 level. Hogs are off 15 percent.

"It's very unusual to have a down trend in both grains and livestock in the same year," said Barry Flinchbaugh, an ag economics professor at Kansas State University. "It's going to be difficult for us to do better than what they're saying nationally."

Comparing with 2008

Comparing numbers with 2008's prices can create a skewed impression. Last year saw record-high prices for many crops, but input costs were also off the charts.

Farm expenses in 2008 were $34.8 billion, an increase from $22.5 billion in 2007 and the largest year-over-year jump on record, according to the USDA.

But while commodity prices have come down, input costs have not dropped at the same rate.

In fact, seed costs are still climbing and are expected to increase 14.5 percent this year. And farm expenses are still expected to be 5 percent higher than 2007.

Plus, farmers produced this year's crops by using some inputs — particularly fertilizer — that remained in the pipeline from last year.

"High inputs have put a damper on things," Speer said. "The input costs are just higher than the market can handle for $3 corn."

While fertilizer prices remained high early in 2009, the USDA has forecast they will average out to an 18 percent drop this year.

That's too late to boost farmers' net income in 2009, but Nelson said it should help 2010 profits.

Of course, low grain prices mean lower feed costs for livestock producers. Overall, feed prices are down only 6.7 percent, but Nelson said the decline has been picking up speed over the past two months.

"That will benefit the livestock prices," he said. "If the guys can hang on long enough, it will help them going into 2010."

He said there has been some improvement for hog producers but that "dairy is hurting as bad as anyone."

That's because milk prices are projected to drop 33 percent in 2009.

As for the grains, record harvests are one reason for low prices. But Flinchbaugh said that's better than the alternative.

"You're always better off with a bumper crop because at least you have something to sell," he said.

Elevators filling up

A consequence of so much grain in Kansas is that many of the elevators are at capacity or close to it.

Instead of farmers paying for storage at the elevators and awaiting a better price, some crowded elevators managers have said they may require farmers to accept the cash price so the grain can be moved out quickly.

Other elevators may store grain on the ground. Nelson said that could hurt the grain's quality and result in it being sold at a lower price.

Prices also have been pulled down by a down export market, which reflects the worldwide recession.

Flinchbaugh said the weak dollar may allow exports to overcome that obstacle and improve in coming months. Lower fuel costs have helped the profit margin.

"There are some positive signs," he said, "but it's still not going to be a good year income wise."

Nonetheless, Flinchbaugh expects Kansas to maintain its level of 65,500 farms. He said more than 90 percent of those are family operated.

"Actually, there has been some uptick in farm numbers," he said. "We're getting a lot of niche farms — organic farmers, people producing for the local market."

Nelson said farmers shouldn't expect a big turnaround in 2010 because there's a lag in the effect of a recession.

"They're going to continue to feel it in 2010," he said.

Speer understands well the cyclical nature of farming and the wide income fluctuations that go with it.

"Last year was one of those one out of 10 deals," he said. "Some years you work all year and barely get the banker paid back.

"Farming has to be in your blood. You're not going to get rich. You have to love what you do."