By DIANE STAFFORD
The Kansas City Star
An overall lackluster economy is masking a bright spot: the farm economy. Despite isolated droughts and floods that have ruined some Midwest crops this spring, times are generally good for U.S. farmers.And that is creating a financial trickle-down throughout agriculture-related industries. Sales of big farm implements, for example, are strong.Net income at John Deere & Co. doubled in the first half of this year compared with the same time last year. And that’s good news for more than just Deere.
“When farmers buy a $300,000 combine, the people at the factory who build the combine have jobs, the parts supplier has jobs, the truckers who take the stuff up and down the highways have jobs, and I make a living off a farmer,” said Greg Schwartz, who sells agricultural implements at the Heritage Tractor dealership in Baldwin City, Kan.
Even the government’s report last week that the corn crop is likely to be smaller this year sent farm machinery company stocks higher based on the upward push that report gave to corn prices — fostering the expectation that more farm equipment will be bought.
Schwartz is careful to note that the high crop prices pumping up farm income are balanced by high expenses.
“Farmers’ costs are incredibly high and keep going up,” he said. “Record prices on the commodities board means the price of a bag of seed corn goes up, along with the price of fertilizers and chemicals and the fuel the farmer needs to put in that combine in the field.”
A bag of seed corn costs more than $200 to plant about four acres, he noted.
But the good news on the sale side is that a bushel of corn is up to about $7.50 from $4 a year ago.
Overall, net farm income is expected to be about 20 percent higher in 2011 than 2010, said Jason Henderson, economist at the Federal Reserve Bank of Kansas City’s Omaha, Neb., branch.
“The row crop side — corn, wheat, beans and cotton — will lead most of the gains, but cattle and hog producers are returning to profitability,” Henderson said. “That translates into more jobs on the farms and ranches, and it fosters increases in hours worked and wage rates in the food processing companies.”
Henderson also noted that farmland values are up. At a time when housing prices have slumped or stagnated, farm acreage is selling at up to 20 percent higher than last year in some markets, with institutional investors as well as farmers buying.
“An indirect effect is that improves farmers’ balance sheets, and that makes it easier to get loans,” said Tom Jackson, a regional economist with IHS Global Insight. Farming, he noted, is a “very credit-driven industry.”
Another big plus for the farm economy is higher export demand, especially from China. In addition to row crops, pork, particularly, is a rising export.
Rising domestic demand and global demand are fueling a need for bioscience experts to help improve crop yields.
The health of the farm economy — unlike the economy at large — isn’t as tied to employment or unemployment statistics, simply because the demand for labor is relatively small.
Still, employment in the agricultural sector rose 1.83 percent from March 2010 to March 2011 — a healthy sign compared with a barely perceptible gain of 0.69 percent in the non-farm sector, according to the U.S. Bureau of Economic Analysis.
And more job growth is expected.
“In the past five years we hired 4,000 people, and we expect to add another 4,000 in the next five years,” said Randy Minton, business director for Pioneer Hi-Bred International, a seed and crop protection company. “We need more genetics researchers, more plant breeders, more agronomic sales and marketing folk.”
Pioneer, among other agricultural research companies, is recruiting deep into college agricultural programs — especially, Minton said, at about 30 land grant universities such as Kansas State, Iowa State, Nebraska and Missouri.
“Worldwide, people are eating better, demanding more protein in their diets,” Minton said. “It’s a very small population of farmers that will actually meet the global demand for food for people, the feed for animals and the bio materials needed.”
The United States is the world’s largest exporter of corn, soybeans, wheat, cotton and sorghum. This year, the forecast calls for about 13.3 percent of the corn crop and 51.4 percent of the wheat crop to be exported.
There’s a flip side to higher crop prices, though, that’s hitting livestock and dairy producers who are coping with higher feed costs. And that flip side also affects consumers, who are paying more in the grocery store.
But when the crops are good and prices rise, it allows farmers to invest in the equipment that bolsters productivity.
“Machines are doing the work, so even when farms expand, the requirement for men per acre is down,” said David Lambert, an agricultural economist at Kansas State University.
“Driving a combine is not labor-intensive, so there isn’t an explosion in jobs. Lots of people have been pulled or pushed off the land because of mechanization.”
Jackson left his family farm in western Ohio to hold a desk job as an economist.
But the farm is prospering without his contribution of daily labor.
“My family farm hasn’t gotten bigger. It’s still pretty much my brother and my dad,” Jackson said. “But the equipment has gotten bigger. Seed and fertilizer growth has increased productivity. Crop prices are up. So, yes, things are doing well back home.”
Will that kind of farm prosperity last?
Those who remember the farm foreclosure crises of the 1980s say some downturn — perhaps a 20 percent drop in corn prices — is expected, but there are big differences from a generation ago. Then, rising land values and low interest rates motivated many farmers to go into debt to expand on the assumption that commodity prices would continue to rise.
But the farmland bubble burst, overproduction sent prices lower, and a grain embargo limited exports, causing ripple effects in banking and industry as farms failed.
“The difference today is that farmers haven’t piled up debt,” said Henderson, the Fed economist. “Their debt-to-asset ratio is at a near-historic low. Even if there’s a correction in values, farmers have a lot of wealth in equity, enough to withstand correction.”
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