Hard times are back for U.S. farmers
WALTERS, Oklahoma: The farmers said it would not last, and they were right.
When the price of wheat, corn, soybeans and just about every other food grown in the ground began leaping skyward two years ago, American farmers were pleased, of course. But generally they refused to believe that the good times would be permanent. They had seen too many booms that were inevitably followed by busts.
Now, with the suddenness of a hailstorm flattening a field, hard times are back on the American farmstead. The price paid for crops is dropping much faster than the cost of growing them.
The government reported this week that the cost of goods and services nationwide fell by a record amount in October as frantic businesses tried to lure customers. While lower prices are good for consumers in the short run, a prolonged stretch of deflation would wreak havoc as companies struggled to stay afloat.
In this lonesome stretch near the Texas border, farmers are getting an early taste of a deflationary world. They have finished planting next year's winter wheat, turning the fields a brilliant emerald green. But it cost about $6 a bushel in fuel, seed and fertilizer to put the crop in. That is $1 more than they could sell it for today, and never mind other expenses like renting land.
This looming loss sharpens their regret that they did not unload more of this year's crop back when they harvested it in May.
"I waited all my life for wheat to go from $4 to $5," said Jimmy Wayne Kinder, a fourth-generation farmer. "Then it hit $10, and we were all asking, 'What are we going to do?' "
Kinder, who farms about 5,000 acres with his father, James Kinder Jr., and his brother, Kevin, held onto much of his wheat, hoping that prices would go still higher. Instead, they plunged. "I lay in bed at night kicking myself," Kinder said.
The farmers in Walters still have to worry about drought and floods and grain bugs and army worms, as they have for decades, but they have new anxieties beyond their control: Manic commodity markets. A rising dollar that makes their crops more expensive overseas. And — an urgent new concern this fall — the solvency of their banks.
In September, when banks began failing at the height of the credit crisis, Kinder called Mickey Harris, his banker at the First State Bank of Temple. "Are we going to be O.K.?" he asked.
Harris offered reassurances that the privately owned, one-location bank was fine, but he feels the fate of farmers, until recently one of the strongest sectors in a slumping economy, is less certain.
Unless wheat stages an unexpected recovery, Harris said, "a year from now these farmers' net worth will surely be less."
Oklahoma exports two-thirds of its wheat, more than the country as a whole. That worked to the state's advantage in 2007 and the first half of 2008, as a combination of bad harvests in Australia, the cheap dollar and rising Asian consumption created intense international demand.
The state's farmers responded, naturally enough, by ramping up production. Because of better weather and therefore a better yield, 166.5 million bushels of wheat were harvested in Oklahoma this spring, a 10-year high. And because of the high prices, the crop was valued for the first time at more than $1 billion, nearly twice as much as 2007 and nearly three times as much as 2006.
"They made a killing," said Kim Anderson, a grain economist at Oklahoma State University.
Assuming, that is, they sold. The farmers who cashed in at the right moment are acquiring legendary status. "I know a fellow that sold some wheat for $12 a bushel. That was almost beyond belief," said James Kinder, 74.
But his son suspects that most were like the Kinder family: they either did not sell or did not sell enough.
The Kinders still have about 40 percent of their wheat, stored on the farm and in commercial grain facilities. "Farmers are terrible marketers," said Jimmy Wayne Kinder, 50. "We fall in love with our crop."
It was the same misguided optimism that caused homeowners to think their houses would always keep increasing at a 20 percent annual clip. Farmers across the country fell prey to it.
David Kanable at the Oregon Farm Center, a mill near Madison, Wisconsin, was paying $7.25 a bushel for corn in June. "We never had a farmer lock in at that price. They wanted $8," Kanable said. On Thursday, the mill was paying $3.17 a bushel.
When commodity prices were feverish, the price of good farmland exploded, too. Cropland values rose about 20 percent in the Midwest farm belt last year, capping a multiyear rise, according to the Agriculture Department. Walters and other areas southern Oklahoma, where the land is not as rich and the crops have to be coaxed from the soil, were swept up in the excitement.
The previous land boom around Walters was in the late 1970s, a reaction to the high commodity prices of that era. Land went for as much as a thousand dollars an acre.
"Doctors and lawyers were buying the land from farmers," said the senior Kinder. "Then prices fell, and those same doctors and lawyers were begging the farmers to take it off their hands."
Prices dropped to $500 an acre. Only in the last few years did they begin to approach the records set three decades ago.
On a recent sparkling Saturday morning, two dozen farmers showed up for an auction of 160 acres owned by a Kansas woman whose family had held it for decades. The farmer who worked the land, Russ Scherler, brought his checkbook but little hope that he would be top bidder.
Rick High, the auctioneer, chatted up the farmers from the back of his pickup, saying that credit was tight but land was a safe haven. His opening demand: $150,000. Not a farmer moved. "How about 120?" High asked. No luck. And so the price sank to $60,000, where the first bid was made.
From there, it slowly climbed back up, finally going for $122,000 — about $760 an acre — to a farmer who had sold some land earlier and now needed to buy to avoid tax charges.
Scherler was disappointed, but not surprised. "Missed me by about $30,000," he said.
A half-mile up the road, a parcel the same size that was deemed slightly inferior had sold a few weeks earlier for $128,000. The market for land is definitely weakening.
One reason is that the investors and part-time farmers are once again dropping away. Jim Mumford, an equipment dealer in Walters, says demand for small tractors has dried up. Where part-timers might once have put in a small crop, there are only weeds. "They're holding off till things get better," Mumford said.
The Kinders are making their own adjustments.
"The market says, 'Here's the price. You want to make any money, get below it,' " said Jimmy Wayne Kinder.
One way to do that is by diversifying, so they bought 2,000 head of cattle. This has its own risks: a hard winter will mean less grazing for the cattle, which translates into buying more feed. It is also a gamble that cattle prices will rise instead of sinking, as they have been all fall.
Another way to get under the market price is by trying to do more with less. The Kinders are practically spoon-feeding nitrogen and phosphate fertilizers onto their wheat.
It is a queasy time. "Given the current economic environment, I don't think anyone can predict commodity prices," said Anderson, the economist.
If production costs do not fall or wheat prices do not rise by next spring, he said, farmers will be contacting their representatives in Congress and requesting higher price supports.
The elder Kinder, who is pessimistic enough to think land values will once again fall 50 percent, is taking it philosophically.
"People have great prosperity and everyone gets spoiled," he said. "Then there are times of great hardship and everyone learns patience." |
