Farmers express concerns about commodities market

Farm leaders Tuesday told federal regulators they’re worried the financial markets that can help producers reduce risks are either not widely understood, used or available to Iowa growers.

Mark Wetjen and J. Christopher Giancarlo, members of the U.S. Commodity Futures Trading Commission, met with Iowa farm leaders at the World Food Prize headquarters to learn how growers are using financial tools, such as forward contracts that set prices for crops now growing in fields.

Bill Northey, Iowa’s secretary of agriculture, said he’s concerned about the fallout from falling commodity prices for corn and soybeans and softening in the pig and beef markets.

And bird flu also is complicating markets after wiping out about 48 million chickens and turkeys nationwide.

“We had an amazing last six, eight years — to see prices that most of us thought we’d never see in our lifetime,” he said. But “now, we’re seeing a change in prices, and access to risk management tools are hugely important.”

Northey said accessing those financial tools can be critical now as farmers struggle with high production costs and lower commodity prices.

“There’s been some quiet conversations about the challenges that are happening out on the farm,” Northey said. “Nobody sees us going through a new 1980s again, but there are stresses that have not been there much.

“In the past five years, you didn’t have to be really good to get along just fine. But we’ve got to be really good to get along fine going forward,” he said. “It’s adding tension and attention to watching the market.”

Some production costs can be managed, Northey said, but others are out of farmers’ control, such as swings in commodity prices. “Prices can be impacted by a rain in eastern Brazil or a comment by a Chinese official about a lack in future demand for pork,” Northey said.

Craig Hill, president of the Iowa Farm Bureau, said Iowa is beginning to see sharp differences in the financial fortunes between farmers who own their land and those who rent land, especially young growers.

“The guy who rents 90 percent of their farmland is probably in trouble,” he said. “No landowner wants to forgo the rate of return they’ve been getting. ... They’ll force farmers to pay what they demand.”

“We’ve got some pretty solid growers, but the ones that are at risk are the ones who are renting, who are trying to grow their enterprises,” he said.

Chad Hart, an Iowa State University economist, said a little over half of farmland is rented to farmers, and a little under half is owned by farmers and used to raise crops.

Steve Wellman, past president of the American Soybean Association, said he’s unsure how many grain farmers use commodity markets to reduce risks.

“I see most of our members going through their local co-ops that they’re selling grain to — getting forward contracts,” he said.

Scandals in the commodity markets, including Peregrine Financial Group in Cedar Falls, which funneled $215 million out of client accounts, erodes farmers’ confidence in using investment tools to reduce risk, leaders said.

Wetjen and Giancarlo said the commission has worked on reforms to prevent another Peregrine and MF Global, a broker that shorted its clients of $1.6 billion. Still, “we can’t guarantee that people won’t break the law,” said Wetjen, a Dubuque native.