A harvest with no bounty: Area farmers may struggle to break even this year

WYNDMERE, N.D.--Talking to Carson Klosterman, one would never guess that farmers in the upper Midwest are heading into their fourth straight year of slumping commodity prices.

Klosterman, who just turned 30, is upbeat as he talks about the corn, soybeans and sugar beets he grows in Wyndmere on land that's been in his family since 1918.

This attitude comes from a recent rally that's allowed Klosterman to move some of his harvest from last year onto the market.

But looking toward the end of this year, he and many other farmers in North Dakota and upper Minnesota will be happy if they can break even.

"There's a little unrest. Everybody's a little bit nervous," said Klosterman, who is president of the North Dakota Corn Growers Association board. "I don't think anybody wants to hit a home run, but if you can at least get on base, that's probably what everybody should try to do this year."

Farmers have several tools to go about that: grow more, diversify crops, cut costs. But much of their financial future is in Mother Nature's hands.

In addition to low prices, soil in the region is drier than usual because of a dry fall and open winter, and that typically leads to lower yields, said Frayne Olson, a crops economist and marketing specialist with the North Dakota State University Extension Service.

"On the plus side, we've had a very early spring," Olson said. "Usually when you are able to plant earlier in the year, the yield potential is greater."

Falling prices

Many local farmers have built up financial reserves thanks to high-profit years such as 2012, when drought hit the corn belt but spared the upper Midwest.

Since then, though, prices have fallen "further and faster than anyone expected," Olson said.

The shrinking prices for corn, soybeans and wheat--the top three crops in North Dakota and Minnesota--can largely be attributed to ample supply and softer demand, plus increased global competition.

This week, corn was going for about $3.20 to $3.34 a bushel in Cass County and $3.13 to $3.30 in Clay County, according to local grain elevator postings of cash bids for May delivery. Soybeans were about $9.72 to $9.80 a bushel in both counties.

Those are painful numbers, especially for corn farmers.

The 2016 break-even price for corn in Cass County is $3.78, and $8.95 for soybeans, according to the NDSU Extension Service crop budgets. In Clay County, it's $3.90 for corn and $9.04 for soybeans, said Josh Tjosaas, a farm business management instructor with Northland Community and Technical College.

Corn is the second-biggest crop by acreage in both counties, behind soybeans.

Is it so bad that some farmers might not plant? "We're not to that level yet," Olson said. "We would need several years of really, really horrible prices."

But "profit margins are going to be very, very thin this year," he said.

John Kringler, an agent with Cass County Extension, said farmers are "eternal optimists, so they're hoping that prices will increase by harvest, or before the next growing season."

That's the way they have to be, said Klosterman, who grows corn on at least half of his land.

"There's always the chance that you might not make money, but you can't worry about that," he said. "You just always got to have your best foot forward and assume you're going to have a good year, otherwise you might as well not even get out of bed."

Making adjustments

There are two ways for any business to stretch profit margins: make more or spend less.

But in farming, it's difficult to find expenses to cut that don't impact revenue, Klosterman said.

Farmers can't cut fertilizer, because that hurts their yield. They can't cut chemicals, because then their fields are full of weeds.

"Really, all you can do is maybe shop around. Maybe there's cheaper chemicals somewhere versus where you've been buying. Maybe make a couple less trips across the field to save some diesel fuel," Klosterman said. "You just really got to think twice about doing what you normally always did."

Many will delay big expenses, like replacing a planter or a tractor, because "it doesn't kill you to run it one more year," Klosterman said.

As for making more, they can try to improve their yield by planting on time and controlling for pests, Olson said.

Some might raise different crops at different times, though that's not necessarily fruitful.

"They'll try to diversify, but the problem is, what do we diversify to that one, we would be able to grow and two, that the revenue would be any better than what they're currently going to try to grow?" Kringler said.

Ultimately, it's a bit of a waiting game--waiting for rain, waiting for prices to climb.

"The big unknowns as we move forward are yields and the prices, and there's still a lot of growing season left. A lot of things can change," Olson said. "If we have poor yields and low prices, there could be some pretty serious financial implications."