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Corn, soybean growers aren’t breaking even again on crops

FARGO, N.D. - Farmers in the region again face low corn and soybean prices as they approach the end of harvest, which means spending into the reserves they built up during the good years.

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Mikkel Pates / Agweek

FARGO, N.D. - Farmers in the region again face low corn and soybean prices as they approach the end of harvest, which means spending into the reserves they built up during the good years.

"We're probably going to pay most of the bills, but there certainly isn't going to be much for family living at the end of the year," said Kevin Skunes, a board member with the North Dakota Corn Growers Association. "So we'll have to borrow more money and hope the next year is better."
He grows corn and soybeans at his Arthur farm. And, like many growers of these two popular crops, he watched as the price for both followed a generally downward trend the past few years since peaking in 2012. Today, both crops sell for less than it costs most farmers to grow them, experts say.
So farmers have little incentive to sell and are storing crops in hopes that prices will rebound, said Ola Andersson, a general manager at the Arthur Companies, which owns grain elevators in eastern and central North Dakota. They've had to do that in the past couple of years because of persistently low crop prices, but farmers and elevators are better equipped now with more storage.
North Dakota farmers planted 2.75 million acres of corn this year and 5.8 million acres of soybeans, according to the U.S. Department of Agriculture. They're the third and second most planted crops, respectively. Minnesota farmers planted 8.2 million acres of corn and 7.65 million acres of soybeans. Corn was No. 1 in Minnesota and soybeans No. 2.

Highs and lows
As usual, the low prices are due to the mismatch between supply and demand, said Frayne Olson, a crops economist at the North Dakota State University Extension Service. Farmers in the Midwest -- mostly in southern Minnesota, South Dakota and Iowa -- have enjoyed bumper crops this year, but the global economy is slowing down.
In 2012, when corn peaked at $8.82 a bushel in August at the Chicago Board of Trade and soybeans peaked at $17.90 in September, the Midwest had suffered a crop-withering drought. Those were good years for farmers here because the drought hit hardest in areas farther south.
Prices have seen some ups and mostly downs since. On Wednesday, corn traded at $3.76 a bushel and soybeans at $8.82. Local elevators pay less because of shipping and other costs, which means the average farmer would probably get about $3.10 for corn and about $8 for soybeans, Olson said.
Those are dismal numbers for farmers.
The break-even point for corn in eastern North Dakota is about $4.30 to $4.63 given the average yield per acre and the average land rent, according to NDSU Extension data. For soybeans, it's about $8.79 to $9.93. The break-even point for corn in Minnesota is $4.50 to $5, according to University of Minnesota Extension. For soybeans, it's $11.50 to $12.50.
"We squirreled away some money over the last few years," Skunes said. "A lot of us are using some of our equity and working capital to finance our farming now because unless you have a really good crop to put in all of your fixed costs and all of your input costs, you really can't cash-flow it."
He said like most farmers, he'll hold on to some of his crops in case the market picks up as it did late last year. But, even with all the investments in grain bins farmers have made, Skunes said most will probably not be able to store all their crops. Skunes Farm can only store two-thirds of this year's crop, he said.

'Sticky' costs
In some ways, farmers are paying now for the years of high prices that peaked in 2012 and continued into 2013.
Olson said production costs more now because the big profits farmers made encouraged them to invest in more productive farm machinery and landlords demanded higher rents. Prices go up and down very quickly in today's market, he said, but costs tend to be "stickier" because debt on farm machinery doesn't get paid over night and land contracts last for many years.
There are few ways for corn and soybean growers to diversify, though.
These crops and wheat are among the most popular commodities, which means willing buyers are easier to find, Skunes said. Elevators are more picky about wheat, though, so there could be steep discounts if, say, the wheat is too moist. Other popular cash crops in the region, such as potatoes and sugar beets, require contracts or other arrangements with a buyer, such as a potato chip company or a sugar cooperative.
"There are very few crops that we can actually switch to that can actually pencil out and make any money," he said.
"It's kind of a high-risk business," Olson said. "When things go well you can make a pretty good profit. When things don't go well, you can lose a lot of money really fast."

Related Topics: CROPSCORN
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