Inflation new element of farmer’s uncertainty
Aug 26, 2008 9:24 AM,
By Hembree Brandon
Farm Press Editorial Staff
“I was down in the dumps and feeling sorry for myself,” the old story goes, “and my friends told me, ‘Cheer up — things could be worse.’ So, I cheered up, and sure enough things got worse.”
Farmers can relate.
While the past couple of years brought record prices for several major crops, it didn’t translate into an instant gravy train for producers.
“We read in the papers how farmers are doing well with high commodity prices,” a producer lamented recently. “If they could look at our bills for fertilizer, fuel, seed, chemicals, labor, and other costs, they’d see a different story — we’re struggling just like everyone else.”
But however challenging the high prices/costly inputs scenario, the greater fear for farmers is that commodity prices will fall precipitously as production adjusts to demand, and input costs will not.
“I can reasonably cope with $4 diesel and $750 nitrogen when corn prices are $6 or better,” a farmer says. “But I can’t do it if corn drops back to $3 and input costs stay where they are, or go higher. Because it was so dry, I had to make 10 circles with a pivot on one corn field. That took 5,000 gallons of diesel. It takes high corn prices to offset these costs.”
Farmers are, of course, in a somewhat different situation when it comes to dealing with the vagaries of inflation and the cost/price squeeze than are the manufacturer or the retailer. The latter can increase the price of their merchandise to offset costlier inputs, transportation, and labor, while prices for the farmer’s commodities are determined by the market — he can’t arbitrarily set them higher to compensate for his increased production costs.
And as farmers know all too well, markets are nothing if not unpredictable.
Earlier this year, when a large portion of the Midwest was under water and it looked as if corn production there would be sharply curtailed, prices zoomed to near $8. But the crop finally got planted and prices pulled back somewhat. Then the August USDA crop estimates came out, forecasting the second largest corn crop on record, sending prices into further retreat.
A lot can happen, of course, between the August estimate and the time corn’s in the bin; today’s rosy forecast can improve more or go downhill, with prices rising or falling with the changing supply/demand situation.
Uncertainty has always been a part of U.S. farming — there are just too many variables: weather adversities, pests, bumper crops/crop failures in other countries, etc. — and producers, as best they can, have to roll with the punches.
Now, though, there is the additional uncertainty of inflation, fueled largely by energy costs that have sent prices spiraling for virtually every production item and, in July, resulted in the greatest month-to-month increase in consumer prices in nearly 17 years.
Toss in an ongoing meltdown in the housing and financial/banking sectors, continuing energy woes, an all-time record national debt piled up in eight years of perhaps the most fiscally-irresponsible Congress and administration in history, and farmers, consumers, and the next president/Congress face a monumental mess.
e-mail: hbrandon@farmpress.com
