Record-High Grain Prices Bolstering Rural Economy; Farmers Face Planting Choices.
Record-high grain prices are fueling a rural economic boom in farm states such as Kansas. Farm equipment dealers have a backlog of several months in orders for new machinery. Cropland rents are rising, along with agricultural land prices. And with spring planting just weeks away, farmers are watching the volatile commodities markets as they decide which crops to grow in the coming season.
While their city neighbors are struggling with foreclosures and fears of a recession, a lot more money is circulating in rural Kansas today, said Jere White, executive director of the Kansas Corn Growers Association. "They are kind of riding the wave, running counter to the rest of the economy," Terry Kastens, a part-time agricultural economy professor at Kansas State University, said of his fellow farmers.
White said that after several lean years in Kansas agriculture, many farmers are using money they're making from their grain to upgrade, not just on their farms, but in their homes and elsewhere. "If you can envision tens of thousands of farmers in Kansas receiving a good price for virtually any grain they grow, the impact it has on rural communities has to be substantial," he said. "That filters its way to people who sell cars and tires and shoes and clothing and everything else."
Perhaps one of the most telling barometers of the farm economy is the rising numbers of orders for new farm machinery. Kastens, who farms in northwest Kansas near Atwood, bought a new planter in August so he'd have it for spring planting.
New combine sales were up 15.4 percent nationwide in 2007, sales of four-wheel-drive tractors were up 22.7 percent and sales of large-scale, two-wheel-drive tractors were up 25.7 percent, Kastens said. Although equipment prices haven't increased much more than 10 percent, farmers are buying a lot more "bells and whistles" for their machinery, which is pushing up the cost of equipment as much as 20 percent, Kastens said.
But input costs -- items such as fertilizer, herbicide and seed prices -- are also soaring, something farmers will take into consideration when deciding what and how much to plant. "Corn is very expensive to plant," said Mike Woolverton, grain marketing economist at Kansas State University. "It takes a lot of fertilizer and seed costs are high."
Still, Kastens said, grain prices are "plenty high" to cover the increased costs. "Another big plus for farmers today is that despite the fact there is a lot of borrowing -- all input costs have risen -- interest rates have been pretty low," he said. "Government officials lowered the interest rates, which is another nice, positive thing."
Corn is the first spring crop planted in Kansas. With input costs so high, farmers are now making almost irreversible planting decisions as they buy fertilizer and seed. The Agriculture Department plans to issue on March 31 its report on what farmers are planning to plant. Soybeans and wheat may seem like a better option than corn when looking at relative prices, but the selling price of corn today makes it a profitable crop.
"They have to look ahead at harvest-time prices, and that is where the picture could change," Woolverton said. He said nothing in the past farm economy compares with the volatility of today's commodity markets. One option for farmers may be to lock in prices in the futures market.
"What we are telling people is to forward contract as much of their 2008 and 2009 crops as they are comfortable with, but no more than they can cover with crop insurance," Woolverton said. "We can't tell them any more than that, otherwise they are speculating."
While grain growers are relishing an unprecedented market for their crops, some sectors of the rural economy are hurting from the high prices. Cattle feedyards, particularly in big cattle-feeding states such as Kansas and Texas, have been hard hit. Higher feed costs are also affecting cow-calf producers. "The livestock industry is not doing all that great. They are just kind of plugging along," Kastens said.
Record-high grain prices are fueling a rural economic boom in farm states such as Kansas. Farm equipment dealers have a backlog of several months in orders for new machinery. Cropland rents are rising, along with agricultural land prices. And with spring planting just weeks away, farmers are watching the volatile commodities markets as they decide which crops to grow in the coming season.
While their city neighbors are struggling with foreclosures and fears of a recession, a lot more money is circulating in rural Kansas today, said Jere White, executive director of the Kansas Corn Growers Association. "They are kind of riding the wave, running counter to the rest of the economy," Terry Kastens, a part-time agricultural economy professor at Kansas State University, said of his fellow farmers.
White said that after several lean years in Kansas agriculture, many farmers are using money they're making from their grain to upgrade, not just on their farms, but in their homes and elsewhere. "If you can envision tens of thousands of farmers in Kansas receiving a good price for virtually any grain they grow, the impact it has on rural communities has to be substantial," he said. "That filters its way to people who sell cars and tires and shoes and clothing and everything else."
Perhaps one of the most telling barometers of the farm economy is the rising numbers of orders for new farm machinery. Kastens, who farms in northwest Kansas near Atwood, bought a new planter in August so he'd have it for spring planting.
New combine sales were up 15.4 percent nationwide in 2007, sales of four-wheel-drive tractors were up 22.7 percent and sales of large-scale, two-wheel-drive tractors were up 25.7 percent, Kastens said. Although equipment prices haven't increased much more than 10 percent, farmers are buying a lot more "bells and whistles" for their machinery, which is pushing up the cost of equipment as much as 20 percent, Kastens said.
But input costs -- items such as fertilizer, herbicide and seed prices -- are also soaring, something farmers will take into consideration when deciding what and how much to plant. "Corn is very expensive to plant," said Mike Woolverton, grain marketing economist at Kansas State University. "It takes a lot of fertilizer and seed costs are high."
Still, Kastens said, grain prices are "plenty high" to cover the increased costs. "Another big plus for farmers today is that despite the fact there is a lot of borrowing -- all input costs have risen -- interest rates have been pretty low," he said. "Government officials lowered the interest rates, which is another nice, positive thing."
Corn is the first spring crop planted in Kansas. With input costs so high, farmers are now making almost irreversible planting decisions as they buy fertilizer and seed. The Agriculture Department plans to issue on March 31 its report on what farmers are planning to plant. Soybeans and wheat may seem like a better option than corn when looking at relative prices, but the selling price of corn today makes it a profitable crop.
"They have to look ahead at harvest-time prices, and that is where the picture could change," Woolverton said. He said nothing in the past farm economy compares with the volatility of today's commodity markets. One option for farmers may be to lock in prices in the futures market.
"What we are telling people is to forward contract as much of their 2008 and 2009 crops as they are comfortable with, but no more than they can cover with crop insurance," Woolverton said. "We can't tell them any more than that, otherwise they are speculating."
While grain growers are relishing an unprecedented market for their crops, some sectors of the rural economy are hurting from the high prices. Cattle feedyards, particularly in big cattle-feeding states such as Kansas and Texas, have been hard hit. Higher feed costs are also affecting cow-calf producers. "The livestock industry is not doing all that great. They are just kind of plugging along," Kastens said.
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