MONEY

Spring planting predicts break-even year — at best, farmers say

Donnelle Eller
deller@dmreg.com

This is the kind of growing year when farmers count themselves lucky if they can break even — pessimism born from tumbling commodity prices and high production costs, say an Iowa economist and growers.

"I'm not whining and crying about it. You have to take the good with the bad, and this year isn't going to be so good," said Matt Bormann, who was planting corn near Humboldt earlier this week. "No business has a good year every year."

Bormann is among about 90,000 Iowa farmers taking advantage of warm, dry weather this week to plant about 13 million acres of corn across the state. Some farmers also could begin planting soybeans on about 10 million acres this week.

But while planting conditions have been nearly ideal, farming's financial picture is not.

It will be hard for most farmers to avoid the collision of falling corn and soybean prices and stubbornly high production costs — land, seed, fertilizer and pesticides, said Chad Hart, an agricultural economist at Iowa State University.

"Commodity prices are significantly lower than they've been for several years, and costs are on the upswing," he said. "Hence, the squeeze."

Reduced demand for corn and soybeans from the rapidly spreading avian influenza also could push prices lower, Hart said, especially when it's combined with pressures from a strong U.S. dollar that hurts exports, and shrinking ethanol demand for corn. Ironically, those lower prices could push demand higher and help boost commodities.

But Hart anticipates prices will continue to slide through the fall without a significant market or weather event, such as war, drought or flood.

Tumbling income

Already, commodity prices have dropped below Iowa State Extension's break-even estimates — $4.40 to $4.50 per bushel for corn and $10.75 to $11 a bushel for soybeans. Corn is trading below $4 per bushel, and soybeans below $10.

The federal government projects that U.S. farm income will fall 32 percent to $73.6 billion this year over last. Iowa's farm income in 2013, the most recent data available, hit nearly $10 billion. If Iowa follows the national trend, it could see income drop to $5.9 billion this year.

That has the potential to hurt the state's $165.8 billion economy, Hart said. Production agriculture comprises up to 6 percent of the state's economy.

That's before it ripples through manufacturing, food production and other industries.

Hart hopes large layoffs by Deere & Co., a large state employer, will mean additional cuts won't be necessary in the months ahead. Deere announced about 2,000 layoffs last fall at plants in Waterloo, Ankeny and the Quad Cities. It has added 220 workers in Dubuque and Davenport as demand for forestry and construction equipment increases.

That trickles down to suppliers for larger manufacturers, farm equipment dealers and other businesses. For example, nearly 30 workers were laid off from a Deere equipment dealer in western Iowa earlier this month.

Land rent still high

The farm slowdown means every expense is under a microscope, said Bormann and Brian Sampson, who farms near Nevada, Ia.

It started in March with tough discussions with landlords over farm rents. Hart said the cost to rent farmland has only inched down.

Average cash land rents statewide dropped 3.7 percent to $260 an acre last year over 2013, but they're still 41 percent higher than 2010, data from Iowa State University show.

Decisions made during the boom times could have a significant impact profitability now, said Bormann and Sampson.

Farmers might have locked into long-term cash rent rates, believing prices would stay high. Or they bid up rent prices in an attempt to build size, a move that can reduce the cost per acre to farm.

"If you were trying to get farms away from others by aggressively paying more, does the landlord need to lower the rent for you?" Sampson said. "That's a tough question."

Bormann, 36, anticipates even more farmers and landlords will struggle to reach agreement over rents next year, after a difficult year nailing down profits.

The fallout, he said, could open up opportunities, especially for young growers who might not have been able to compete for high-priced land.

With the current market outlook, "you can't cut enough expenses to pay rents from two years ago," he said. "If farmers lose money, they're not going to be bidding as much for land."

Another opportunity is lower farm equipment prices.

"A 400-horsepower tractor that cost $180,000, you can now buy for $100,000," he said. "You can find some nice stuff that's well worth the price."

Improving farming practices

Water quality is on the minds of many farmers this spring, and some of the conservation practices could trim costs.

Des Moines Water Works filed a lawsuit in January against three northwest Iowa counties, claiming drainage districts there are contributing to high nitrate levels in the Raccoon River, a source of drinking water for 500,000 residents in central Iowa.

The utility claims that drainage tiles act as a conduit for nitrogen to enter Iowa waterways. The utility said it's becoming more difficult to remove the higher levels of nutrients.

Farm leaders say addressing Iowa's water quality challenges are complex, and often impacted by weather. They're advocating long-term cooperation to encourage farmers to adopt conservation practices such as cover crops, bioreactors and saturated buffers.

Bormann, who farms with family members, said he's strip-tilling about 750 acres, and it's "been huge as far as making us more efficient."

With the practice, farmers till a strip in each row that can dry and warm for planting. Bormann said it means lower fuel bills with less tilling, and potentially downsizing equipment needs — both the number and size.

He's using slow-releasing nitrogen products that are less able to move into the water. And the remaining crop residue helps hold phosphorus — another nutrient farmers and state leaders are working to keep out of waterways.

"We think looking for better ways to farm will make us more competitive," he said.

Looking for ways to save

Some farmers also are growing non-GMO corn and soybeans to cut seed costs — and possibly get a premium for their crops. Genetically modified seed is engineered to resist insect pressure and make spraying herbicides easier.

But efforts to cut seed genetics, trim nitrogen and other actions might cost farmers in the fall, with lost yield or higher chemical costs, Bormann said.

"You can save yourself poor sometimes," he said. "You need to be careful."

Sampson, 57, said farmers are typically looking for ways to trim costs.

The cattle producer, with about 1,500 head, said he plans to increase his herd size over the next year, given strong beef prices.

He said he's been worried that consumers would pull back with climbing grocery store prices, but demand remains strong.

"I'm really glad the market has been so resilient," Sampson said, adding that he can feed the corn he raises to his cattle, if he doesn't like the market price.

But Sampson worries the avian influenza hitting the Midwest could impact demand for beef — and pork. Both markets are seeing historically strong prices.

Sampson said the U.S. market could see increased chicken, eggs and other products — along with lower prices — after major export markets such as Mexico banned poultry and poultry products from Iowa and other states with bird flu outbreaks. Iowa exported about $90 million worth of egg, chicken, turkey and other poultry products last year.

"I'm a big beef guy, but if you're feeding a family, $10 of chicken might feed more people than $10 of beef," he said.