Franklin County Farm Bureau

ARE GRAIN PRICES TOO HIGH?

Grain markets have been on an upward climb since before the harvest of 2010. This week future prices on the board of trade topped $7 on corn and $14.50 on soybeans. Wheat has been a surprising commodity as it has almost doubled in price since last summer.

As I talk with farmers many have philosophically stated that perhaps this market is too high. There are some negatives, and only farmers can find negative in high grain prices, but let’s look at some of the possibilities.

First of all, livestock farmers find it very difficult to make a profit with these high levels for feed. Fat cattle are selling for about $105/per cwt and hogs at $52/per cwt but even at these levels feed costs limit the ability of producers to make a profit. Feed costs could cause some producers to reduce herd size and therefore increase meat prices in the long term.

Secondly, the cost of ethanol production is increased therefore limiting the growth of ethanol use and limiting profitability for ethanol plants. We need to maintain profitable levels for ethanol production to remain a source of use of corn production.

Finally, higher grain prices tend to cause land to increase in value and cost to farmers to skyrocket. This could cause a situation, in which many analyst are predicting, which could cause inflated land prices that could plummet and place farmers in a difficult financial situation, which was the case in the 1980’.  This would be similar to the housing market that collapsed in the last two years.

Please understand that ultimately the increase in grain prices has very little effect on food costs as the raw products in most foods are a minimal cost compared to manufacturing, processing and transportation. One comparison is that grain cost for a loaf of bread is equal to one slice of the loaf.

Many farmers are concerned about how increased prices will affect land costs such as landlords wanting higher rent costs and increasing the price of farm land which is at record levels even at this point. I hear many friends make comments that we as farmers are doing very well with these grain prices. Although this is true, much of the grain that is moving to the elevators is grain that was priced anywhere from $3 to the present levels per bushel on corn. I talk with farmers almost every day and even the best of them say that they are delivering corn on contracts as low as $3.50 a bushel.

Just as many of you who deal with markets know that hitting the high point is difficult, farmers find themselves in the same situation. The goal is to make a profit not to hit the highest prices, although that would be good. Most farmers still have some grain to price of the 2010 crop and these prices sure help the bottom line.

Analyzing markets and looking to the future will be the focus of a meeting on February 15^th when Dale Durcholz, Market Analyst for AgriVisor, will make a presentation on grain markets and the futures. Everyone is welcome at 7:30 a.m. for breakfast and a short meeting to follow at the Franklin County Far, Bureau Building in Benton.

Also, we will be going to the Louisville Farm Show on February 16^th with the bus leaving our office at 6:00 a.m.  Please RSVP for both of these events by calling 435-3616.

Remember we are farmers working together if we can help please let us know.