Farmers feeling pinch: Falling grain prices leave farmers hoping to break even this harvest.

Nov 11, 2008      York Daily Record

Jeff Frantz

Nov. 11, 2008 (McClatchy-Tribune Regional News delivered by Newstex) -- The problems of the economy are coming home to York County farmers.

After several years of relative prosperity -- helped by rising corn prices that, for a long time, outstripped higher fuel and fertilizer costs -- many area farmers are hoping to just get by this fall.

Next year, they say, looks to be worse.

Until recently, grain prices had risen steadily, based on increased demand for ethanol here and in Europe and for grain in the developing world, both for food and feed.

Three years ago, a bushel of corn traded for between $2 and $2.50. This time last year, that price had risen to $4. It reached almost $8 a bushel this summer, according to the Chicago Board of Trade.

Demand is still as large as ever.

But many poorer countries can't afford to buy corn at those prices, which leaves more corn on the U.S. market.

Now, the local market values corn at just under $4 a bushel, said David Warner, who works 120 acres in Chanceford Township.

To grow the corn they are harvesting now, farmers had to use diesel-powered machinery and had to pay the record-high diesel costs this spring and summer, Warner said. They fertilized their fields with chemicals, which cost three times what they did last year.

"It's feast or famine," Warner said.

Farmers needed to sell at those higher prices to make a real profit, said Andy Jackson of Sky Blue Farms in North Hopewell Township.

Because of a wet spring, Jackson, like several other county farmers,

couldn't plant his corn until late May. As a result, he is harvesting only now.

Corn planted later retains moisture longer, Jackson said, meaning he will have to use more kerosene to dry it out before shipping.

Both Jackson and Warner are already worrying about next year.

Seed prices for corn and soy beans are up significantly, Jackson said. New government regulations will require farmers to take out more crop insurance, Warner said, adding to their costs.

Like most farmers, they use operational loans, borrowing money in the spring and repaying it after the fall harvest. Like it has for everyone else, the credit market has frozen for farmers.

"I'll be OK," Jackson said, "but if a guy doesn't have near-perfect credit, he's going to be on a COD basis, I can tell you that."

As property values fall, farmers will not have the same amount of collateral to use when applying for loans, said Jim Pease, a professor of agricultural and applied economics at Virginia Tech.

"If the bank takes a dim view of asset values, you're going to be less credit worthy," Pease said. "Not because of the nature of the farming business or past crop quality, but because the banks are being more cautious than they have been in the past."

He predicts more farmers will apply to the U.S. Department of Agriculture for loans to help them get through.

Expectations on farm revenues have just been too high in recent years, as investors have invested more heavily in commodities markets, Pease said. What's happening now is a harsh correction.

"When people have to make decisions well before they have to plant and certainly well before they have to harvest, there's more of a chance of damage if they make a mistake," Pease said. "People trying to judge input prices based on the kind of output prices we had last year, they're in sad shape."

jfrantz@ydr.com; 771-2062

MORE INSURANCE, MORE COSTS

As part of the Food, Conservation and Energy Act of 2008, farmers who wish to be eligible for government disaster assistance programs must purchase insurance for all crops.

That is a departure from the past, when farmers needed to insure only some of their crops.

Often, a farmer would only insure his or her main crop and leave the others uninsured, said York County farmer David Warner.

Because the bill passed midway through this year's growing season, farmers were able to pay the government a participation fee that covered their involvement.

But beginning next year, farmers will have to buy the full insurance for all crops.

- Source: U.S. Dept. of Agriculture

Newstex ID: KRTB-0229-29442592

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