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Whistling Dixie?

Despite tough times for many, some farmers finding good times

October 1, 1999


Ron Wirtz Editor, fedgazette

Hidden among the complaints and worry over a struggling farm economy are examples of farmers who are actually doing OK, or at least expect to ride out the current trough of low prices. Some South Dakota farmers called 1998 "the best year ever," according to Michael Held, administrative director of the South Dakota Farm Bureau. Most did so by aggressively marketing their crops, Held said, using forward contracts and other tools to get as much as $1 more per bushel for corn and wheat than others were getting on the open market.

The current farm recession also appears to be hitting major commodity crop farmers harder than others. "The small, hobby farms and vegetable [and] fruit farms are not much affected," said Robert Carlson, president of the North Dakota Farmers Union.

Most sources also agreed that good managers who know how to market their farm products will survive, eating into savings or farm equity if necessary while waiting for prices to rebound.

"Most farmers believe they can survive two, three, four years of low prices," said Will Kissinger, deputy commissioner of agriculture for Montana. "The ones hurting are the ones that are overextended or are poor managers."

Some Montana farmers and ranchers, Kissinger said, have found success in value-added products, or direct marketing to consumers, or other creative strategies that increase farm income through means besides simple production. The problem for Montana, according to Kissenger, is shedding its long-time niche as a bulk production state, which has cultivated few nimble farm entrepreneurs.

The farmer-as-businessman is arguably the biggest challenge facing today's farmers. Given the increasing productivity of crop and livestock producers worldwide and a penchant among farmers for overproduction to make up for low prices, some commodity experts see surplus food supplies and low prices for the foreseeable future.

Farmers are used to shifting crop production to take advantage of good prices for different crops. But with gluts in all major commodities, there are virtually no crops left to turn a quick dollar on, at least not by way of traditional farming. Until recently, farmers found soybeans to be a good diversification crop. Many farmers switched over when wheat and corn prices started falling in 1996 at the same time soybean prices were on their way to record highs.

Minnesota growers doubled their soybean output from 1996 to 1998, while Wisconsin production grew by 60 percent. September-ending stocks for U.S. soybeans are estimated to have more than doubled in just two years to 460 million bushels. At the same time, Argentina and Brazil thundered into the soybean market, pushing world supplies even higher.

Soybean prices have since slumped to their lowest point in more than 25 years. Nonetheless, farmers actually increased soybean plantings this year. One government report stated, "Producers are turning to soybeans because it appears to be the best of the less-than-ideal alternatives for the moment."

Some farmers have looked more into niche or specialty crops. A few years ago, Wisconsin and other farmers across the country diversified into mint when prices were high. New acres pushed domestic production up just as other countries were getting into the act as well. Left with a large inventory, mint prices plunged when the Asian financial crisis slowed demand.

Bruce Adams, a retired North Dakota farmer, said farmers have also looked to the canola market in the last few years to take advantage of good oilseed prices. In short order, canola growers were faced with surplus stocks, which crashed head-on with surplus soybean production, causing prices for all oilseeds to drop steeply.

"It seems like we can overproduce just about anything," Adams said.

For that reason, flexible farmers and ranchers with an eye for meeting market demand appear to be the future of agriculture. That stands in stark contrast to the traditional "plant, grow and unload" approach that commodity crop farmers are accustomed to. Public hearings are rife with testimonials by farmers of crop prices that won't cover production costs. Yet come the next planting season, tractors go in the fields like any other year, and farmers hope against hope that price swings will materialize where none are predicted.

"What scares me is some of the thinking of the farmers," said Kenny Rogers, a retired farmer now working with the North Dakota Agricultural Mediation Service. "We've got to change our thinking that got us into this problem in the first place."

For instance, the USDA predicted continued low prices for wheat and feed grain in 1999, mostly due to significant grain surpluses from several consecutive strong years of production. Yet the number of wheat and feed grain acres planted this year dropped by just 3 percent from 1998. Several sources noted that farmers often refuse to consider other nonplanting options, instead trying to make up for low prices by increasing their production.

While empathetic with farmers struggling to stay alive, Rogers said he sees some farmers make poor choices, failing to consider different options when prices for crops don't add up. "If you've been born and raised on a farm you don't even look at [not planting] as an option," he said. "It's against their nature."

Several people said better training in nonproduction areas was necessary for farmers to compete in what many think is a new farming era.

"[Farmers] can't just hope for better markets," said Don Peterson, who runs a feed manufacturing operation in Yankton, S.D. Farmers need more education on risk management tools like contracting and hedging, he said. "Just plowing and planting and going in at noon and praying for a crop and a price just isn't going to work."

Ron Wirtz
Editor, fedgazette

Ron Wirtz is a Minneapolis Fed regional outreach director. Ron tracks current business conditions, with a focus on employment and wages, construction, real estate, consumer spending, and tourism. In this role, he networks with businesses in the Bank’s six-state region and gives frequent speeches on economic conditions. Follow him on Twitter @RonWirtz.