Over the long haul planting the best rotation for your land, your labor and your equipment will pay off much better than planting the crop with highest price tag, according to a roundtable of grain dealers from North Carolina.
In 2007 too many growers planted corn on land not well suited to corn. They planted corn on dryland acres and got hammered by the drought. They planted corn though they didn't know the characteristics of new hybrids. The result was a lot of disappointment and a lot of lost money.
In the fall of 2007 the scenario was repeated. This time the high priced crop was wheat. Too much wheat was planted late and too much on marginal wheat land. Unfortunately, the result is likely to be much the same as corn.
“Our farmers want us to make a profit. They want us to be there next year and so on to buy their crop. I hear that often from the farmers from whom we buy grain,” says Jimmy Glover, president of the Southeastern Feed and Grain Dealers Association.
Though they want us to stay in business, they don't necessarily understand that high prices aren't always good for them or for us, Glover says. “Right now, for example, wheat prices are near record highs, but we can't sell wheat. If we can't sell it, we sure can't buy it,” he adds.
“The reason grain prices are so high is that in times of tight supplies, which we have now, there is a tremendous global interest in commodities. The Chicago Board of Trade, which we price off of, is at historic high levels, especially on wheat. Those levels are on the board, but they aren't in the cash markets, says Jim King a grain dealer and farm manager in Greenville, N.C.
Right now there is no profit margin, not at current wheat prices, in the milling side of the business. So, grain dealers don't have an end user to buy wheat. Farmers, who planted wheat in the fall of 2007, are in a wait-and-see situation — it's about all they can do right now, King stresses.
In the Carolinas wheat growers have an option for selling their wheat as feed, especially for turkeys. It's not a good option because the price is much lower than what wheat is selling for on the commodity market. It's certainly not the get rich quick scenario many growers expected when they planted wheat in the fall of 2007.
Glover says the big factor right now on grain pricing is investments by financial portfolio managers and investment bankers. These folks are putting millions of dollars in commodities, because of the high prices. If they buy contracts worth 20 million dollars today and the price goes up a dollar a bushel — as it has done in recent weeks — they just made a lot of money for their investors, Glover stresses.
“In 2007, a spring freeze decimated the U.S. wheat crop from Illinois to South Carolina that contributed to the high prices. When prices went up and stayed up, a lot of farmers in our area made a decision late to plant wheat. In some cases they bought wheat out of the bin for seed. It has ryegrass in it and some had been in the dryer, but they didn't care,” says Wesley Foster, with Lock Phelps Grain Company in Cresswell, N.C.
The late-planted wheat is likely to mean late harvest, which will push double-crop soybean planting behind schedule. Over-planting wheat to take advantage of the price may backfire on a lot of farmers, the North Carolina grain dealers agree.
“I've been a grain dealer for more than 30 years, but I've been a farmer all my life, says King, who manages a number of farming operations in the Southeast. The crop rotation is more important than the market. You are always better planting the crop that treats the land properly,” King adds.
Growers who move their acreage just to chase the market, regret it. It happened in 2007 with corn, and historically, it has happened in various crops over the years. In many cases, grain dealers don't have a local market for the crop, and we can't buy their grain, King says.
Many of those people who planted corn on cotton land in 2007 got a real reminder of why they hadn't grown corn on that land in the past 25 years. Cotton, in eastern North Carolina generally survived the drought okay. Yields weren't great, but most growers were average or above. Dryland corn, on the other hand, was a disaster, says Bryan Foster, a partner in Phelps Grain Company and farmer in Cresswell, N.C..
King says cotton prices rose from 55 cents a pound to 85 cents a pound in response to acres planted to wheat and projected acres planted to soybeans. Cotton has had to buy its way back into the commodity picture by pricing the crop to take acres away from corn, soybeans and wheat. All commodities are competing for acreage, and too many times, acreage is driven by price, not by what's best suited to the land.
Farmers don't have a bad choice right now. Even smaller acreage crops, like peanuts, tobacco and even potatoes are priced at high levels. The current pre-plant price structure is an even better reason for farmers to stick to their historic rotations and grow crops best suited to their land and climatic conditions.
Wesley Foster says, “in our area we've seen people get into specialty crop production, lose a lot of money and get out. On the other hand, we've seen people in those crops who stick with it, learn how to grow these crops and how to market their products, and they do really well.”
Grain growers in the Southeast have an advantage because each state in the region is in a deficit grain situation with much more grain fed to livestock than is grown in these states. So, growers have this built in market, but when the grain is over-priced and beef, pork and poultry products have kept pace with the price increase, it creates a situation where these Southeastern-based livestock companies can't afford to buy the grain.
“In reality, King says, “no one can afford to buy wheat, and to a lesser degree corn and soybeans at the prices we see today. It seems the big dollar investors are the only ones willing to buy at such high prices. It hurts our business and in the long-run hurts the farmer,” King says.
Spurgeon Foster, also a partner in Lake Phelps Grain Company, says “it may be possible we are entering an era where we cannot grow enough food to meet supply equal to demand. Or, one day we will wake up and speculators will take their money out of grain and we have an over-supply. Unfortunately, the farmer ultimately corrects either problem and not always to his best economic end.”
Increases in technology allow growers to overcome climatic conditions that could not have happened just 20 years ago. Worldwide we have the capabilities to meet and far exceed the demand for food, King says.
What we need is a fluid market, where we can sell the products we buy from farmers. We need a stable price to do that, and right now we don't know what the prices will be in the future, King concludes.