Farm expenditures go up as crop prices fall

DES MOINES — Producers and advisers say falling grain prices will leave enough room for Iowa farmers to get by, even as some data suggests growing farm expenditures across the state.

While soy prices have stabilized somewhat, corn comes in around 25% lower than its asking price last year. Industry business owners said there were a number of explanations for that.

One is an abnormally high number of corn acres planted in the U.S. last spring, another is a favorable harvest for South America’s producers at the end of their harvest season. A third is the market’s adaptation to Russia’s invasion of Ukraine, a war that rendered international grain markets unpredictable for months after its outbreak.

“It’s a variety of factors, which is why the futures markets are so hard to predict,” said Derek Gordinier, co-owner of Wellman Produce, a grain elevator in Washington County. “There’s a bunch of counteracting macroeconomic events happening, and it all kind of depends on where the market’s listening.”

John Greiner, a commodity broker and crop insurance agent at Kat’s Grain in Washington, said the downward trend represented a return to normal for corn prices as previous, unusual circumstances resolved.

“We tend to have what I call commodity booms,” he said. “If we had maybe a drought, and then South America struggled with their crops, it tends to take two to three years for the supply line … or production to ramp up so that we produce enough to meet demand, and finally create a surplus. That’s what we’re kind of looking at right now, and that’s why we’re falling back into that historical range on corn. We’re at the bottom end of our commodity boom.”

On the other side of the balance sheet, USDA data suggests climbing input costs for farmers in 2023.

In its latest annual farm production expenditure report, the federal agency said Iowa farms spent $1.7 billion more in 2022 than in the year prior, largely thanks to climbing prices of animal feed, rent and livestock care, which combined made up 48% of the state’s farm spending that year.

While the USDA hasn’t published data on 2023 expenditures, early indicators show the trend continuing on those fronts. An Aug. 5 news release showed the state’s average cash rent up by $13 an acre in over last year. The agency’s monthly crop price report showed alfalfa hay up $16 in the same window, while one Iowa Farm Bureau forecast projects feeder cattle returns going into the red as early as November.

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Still, Greiner said he expected a much easier time next year as fertilizer and farm chemical prices go down, recovering from a 30% jump in 2022.

Since then, Witthoft Farm Supply salesperson Brad Witthoft said the consumer cost of staple products like P & K and anhydrous ammonia fertilizer had been cut in half, alongside other price slashes across the industry. While those numbers are slowly climbing once again, he said things looked favorable for at least preseason buyers.

“It dropped, and now it’s actually going back up,” he said. “When prepay comes up, (it’s) going to be the best price … For us, that’s around the January, December time frame. Guys need to get their stuff locked in so they know their inputs for next year.”

Although higher input costs this year may hurt the margins for some farmers as corn and soy prices decline, farmer and independent appraiser Jeff Cuddeback said most growers took advantage of favorable sales earlier in the season, arranging deals before much-needed rainfall relieved much of the pressure to buy early.

“We had a pretty good drought scare in June, and crop prices were pretty high at that point,” he said. “If you did some forward marketing or hedging in the June time frame this summer, you caught some profitable prices … there was some risk when I did that, if we would have had a derecho or a terrible drought that would have continued, and my crop would have been short, I could’ve put myself in a bind.”

For those who didn’t take that risk, Cuddeback said current prices were around breaking-even levels, enough to at least prevent the worst outcomes.

“Most operators try and calculate their break-even over the course of a growing season, and when prices rise above that, they should be taking advantage of that,” he said. “Not every year do you have that opportunity, but we have had that opportunity this summer.”

Comments: Kalen.McCain@southeastiowaunion.com