Drought will have lasting effectsPublished 6:18am Sunday, August 5, 2012
Despite endless chatter of a severe drought, high grain prices and high feed costs, Alden farmer Robert Nelson isn’t biting his fingernails. Neither are many others in the area, except for dairy farmers, that is.
One could tell by the somber tone of Rick Smith’s voice that this year’s drought is taking its toll on his dairy operation near Adams.
Nelson and Austin area farmer Corey Hanson sound as if they are content that grain markets will even out, that food shortages won’t be a threat and grocery store price scares won’t be problematic. Smith, on the other hand, he just sounds tired.
“It’s not fun; I mean, just for example, five or six years ago we made about $600 to $700 a cow, or maybe $800 a year,” Smith said. “Now, when you figure them out … you are lucky to scratch $150 or $200.”
Grain prices have risen in the past months, and feed costs have been creeping up on Smith and other livestock farmers for weeks. As always, the strain is particularly hard on dairy farms. In 1995, a farmer could expect to pay $300 to $400 to feed a dairy cow. Now, it’s closer to $1,300.
“These are the highest ones I’ve ever seen,” Smith said about feed costs.
Smith and his cows have been fighting with the climate throughout the summer. Though cattle didn’t eat as much feed during an extreme heat wave about a month ago, milk production lagged as a result. Smith’s cows are producing again, but now his milk is selling at about $17 per 100 pounds when he needs it to be closer to $20. That price could be more realistic this winter.
For some, however, 2012 may have already been too burdensome. Many are comparing this drought to 1988’s. Yet Smith said there are more factors in today’s market causing price swings and hikes, such as the ethanol demand, making this drought more difficult for dairy farms. He suspects some operations will fold.
“It all depends on what relationship they’ve got with their lender,” Smith said. “I would assume some would go out. A few in this neighborhood are going to sell regardless.”
It could be worse
While southern Minnesota isn’t in the thick of it, nearly half of the nation’s corn crop was rated poor to very poor as of this week, according to the USDA’s National Agricultural Statistics Service. About 37 percent of the U.S. soybeans were lumped into that category, while nearly three-quarters of U.S. cattle acreage is in drought-affected areas, the survey showed.
The potential financial fallout in the nation’s midsection appears to be intensifying. The latest weekly Mid-America Business Conditions Index, released Wednesday, showed that the ongoing drought and global economic turmoil is hurting business in nine Midwest and Plains states, including Minnesota, boosting worries about the prospect of another recession, according to the report.
Creighton University economist Ernie Goss, who oversees the index, said the drought will hurt farm income while the strengthening dollar hinders exports, meaning two of the most important positive factors in the region’s economy are being undermined.
The survey covers Arkansas, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma and South Dakota.
The power of grain
It’s far from luck, but Smith’s cornfields are doing well compared to others in the region. Throughout southeastern Minnesota and northern Iowa, the quality of corn is a scattershot. Some fields in sandy regions have grown no ears, and some fields are withering.
However, Smith suspects there will be enough hay and silage through the winter to alleviate some of the feed strain. Furthermore, the federal government and Minnesota Board of Water and Soil Resources opened land in the Conservation Reserve Program Reinvest in Minnesota program for emergency haying.
Nelson experiences the high feed costs as well, as he runs a beef cattle operation near Alden. However, beef is selling at an all-time high, and he’s not whining.
“The beef price, as far as the futures, they are the absolute highest in history,” Nelson said.
As far as corn, Nelson suspects about one-third of the yield potential has disappeared, but he’s still optimistic.
Bean fields are still hanging on, however. Though spider mites — uncommon this far north — are appearing in fields, many fields like Hanson’s south of Austin are doing well.
“The beans, they don’t actually look that bad,” Hanson said.
If those produce, it could partially make up for some lost corn yield.
Hanson knows many are talking about high feed prices, the ethanol industry bidding on its share of corn, and fear that prices will spike at supermarkets.
“I know people are really worried about how much groceries are going to cost,” he said.
Like Nelson, however, Hanson doesn’t buy into all the hype, and added supermarket price spikes mostly stem from those trying to make a profit where there is a scare.
Nelson puts his trust in the American consumer, and says regardless of price, people are going to buy what they think is reasonable. He notices that grocery prices are more affected by fuel and transportation costs. And that may be true, according to Mark Knauer of Knauer’s Meat Market in Austin.
A tiresome circle
Even though farmers are selling their beef cattle at record-high prices, Knauer has watched meat prices fluctuate all year. But he hasn’t noticed any spikes directly correlated with high grain prices. He also places confidence in the power of the consumer.
“That’s the only hedge you have against any kind of price spike,” he said.
Perhaps the only significant price spike will occur in the same sector as its hard-hit producer: dairy.
Smith heard that milk prices could go up about 6 percent, or 15 to 18 cents per gallon at the store. That may not be much to a person grabbing a jug from the cooler. The guy producing it, however, is feeling the ultimate effects — most of which are and may continue to be caused by drought.
While Nelson may finish the year with some crop and cattle success, he always sympathizes with his local dairy farmers. He understands oppressive heat’s effect on production and high feed cost’s effect on profit margins. On top of it all, he understands that dairy farmers are going to wake up and keep plugging away — milking cows, straining their backs and doing it every day, all year. Guys like Smith have a right to be tired.
“They just can’t win,” Nelson said.
— The Associated Press contributed to this report.