Glass is still half full for flush American farmers

Brian Roach scrawled a simple outlook for corn prices in a spiral notebook, with a line diving from the upper left hand corner to the lower right.

Sitting in a hotel ballroom at the U.S. Department of Agriculture’s annual Agricultural Outlook Forum last week, the commodity broker predicted increasing supplies and weakening demand would slow a boom in the farm economy that has fattened growers’ wallets and pushed up food prices.

“Nothing is telling me to think any different right now,” said Roach, president of the Florida-based commodity business Roach Ag Marketing.

For the first time in years at the conference that traditionally kicks off the year for America’s agri-business sector, forecasters said the seemingly endless upward trajectory on everything from crop prices to farmer income was coming to an end.

The price of corn, the big daddy of the major U.S. crops, could fall 20 per cent this year and because of expanding production globally, the corn stockpile would double.

It is a significant shift after corn prices reached a record high near US$8 a bushel last summer on concerns about strong demand draining inventories. The surge in prices is expected to encourage an expansion in planting of crops this year.

Pragmatic

Farmers are becoming “very pragmatic about the investments they’re making in machinery, equipment and input costs” after spending freely following last autumn’s profitable harvest, said Thomas Dorr, president of the U.S. Grains Council. Many built new storage bins and upgraded their tractors and combines.

Moving forward, “the mood is one of caution,” Dorr said.

To be sure, farmers are flush with cash after farm income topped $100 billion for the first time in 2011 as the rural economy rebounded from the pothole of the global recession (all figures U.S. dollars).

Even if income slumps to $96.3 billion this year due to larger world and domestic supplies as predicted by the government, farmers and ranchers would be looking at their second-best year ever. Income would remain well above the 10-year average.

“Prospects for U.S. agriculture continue to be strong with record income in 2011 and a strong balance sheet,” said Joe Glauber, the USDA chief economist.

Still, there was a sense of deja vu of 2008 at the conference that attracts some 2,000 attendees. That year, farmers enjoyed sky-high prices for their crops, but marching in lockstep was the price of crude oil.

The recent spike in fuel prices could again add pressure to the farm economy.

“Energy costs to a farmer are obviously a serious concern,” said David Berg, president of the American Crystal Sugar Company, based in Moorhead, Minn. “It’s almost like a few years ago where everyone was in a state of panic.”

He said sugar beet farmers in Minnesota and North Dakota are doing well but a double whammy of lower prices on the market for the commodity and higher energy prices would be hard to swallow for a number of growers.

More corn

The USDA estimates farmers will plant 94 million acres (38 million hectares) of corn, about two million acres more than last year and the largest area since 1944.

Still, Jon Caspers, a producer of about 8,000 hogs a year in Iowa, is not breathing a sigh of relief due to high gasoline prices and lingering uncertainty about demand.

He’s also unsure farmers will plant as much corn as expected. Last year, heavy spring rains dashed their plans to plant from fence post to fence post.

“A lot of producers are waiting to see if it really happens,” he said.

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