It's one of the big ironies associated with farming in the 2008 crop year. Commodity prices for soybeans, wheat and corn look better than they have in years. So what's wrong with this picture? Plenty if you're a farmer. The fertilizer, seed and diesel fuel required to raise these crops are costlier than ever.
“Costs of production have escalated almost in lockstep with commodity prices,” says Robert Goodman, an Alabama Cooperative Extension System economist and Auburn University professor of agricultural economics.
And therein lies the irony, Goodman says. Despite these commodity price spikes, farmers are looking at little change in terms of profit potential because of the huge increases in risks associated with rising input costs.
This drives home a lesson often lost to most ordinary Americans who know little about farming, though painfully familiar to most farmers, he says.
“The profit is just one measure to estimate the attractiveness of a farming enterprise,” Goodman says.
As a recent commercial stresses, trouble often comes in pairs, and along with profit, farmers within the last few years have been dealing with an unusual amount of risk — too much in the view of many producers.
In cases where they can, farmers have shifted to peanuts, which offer good prices and fewer expenses, especially in areas where they've traditionally not been widely grown.
But many others unable to raise peanuts, are sticking with grain crops, including corn, despite ballooning operating costs and last year's disastrous drought.
Needless to say, many producers find the current economic conditions frustrating, if not exasperating.
Goodman related a recent account by one farmer exasperated over how everyone in the industry seemed to profit except farmers.
“It seemed this past year that every time the price of corn increased a dime on the Chicago Board of Trade, grain elevator operators marked up storage costs by a dime as well, which meant that they, rather than the farmers, gained the benefit from the increased price,” he recalls.
“It's just one example among many of how input prices have increased to keep pace with price spikes,” he says.
Many outsiders are apt to attribute these rising input costs to spiking fuel prices. But this is only partly true, Goodman says.
Minimal-tillage practices adopted by farmers early in the last decade have helped contain fuel costs.
“Without the sorts of deep tillage practices associated with more conventional forms of tillage, farmers no longer are eating up so much horsepower, which means that fuel costs aren't the deal breakers they once were,” Goodman says.
The fuel farmers buy and burn in their tractors totals about $20- to $30-per-acre range.
“So, it's not like a deal breaker, even if it doubles,” he says.
Rather, it's the rippling effect associated with fuel that is causing farmers the most headaches.
“Like all economics, the price of fuel ripples through the whole economy and leads to cost increases for everything,” Goodman says.
Rising elevator storage costs are another factor that likely will cause considerable grief among some farmers striving this year to benefit from favorable grain prices.
Today, derelict bins and elevators quietly standing guard over many Alabama towns and crossroads attest that many parts of the state once were equipped with grain storage capacity — not the case today.
And therein lies another irony: As interest increases in grain crops, few facilities will be available throughout the state to store these crops — a problem that likely will not change for the foreseeable future.
“Infrastructure shortfalls are going to be a serious problem for farmers if we continue in the grain and soybean business for the next few years,” Goodman says. “It will take a long time before people will be willing to invest in the sorts of multimillion-dollar facilities required to handle this demand.”