By Bill Beggs Jr.
Farmers are used to the vagaries of the elements. If it weren't a flood, it might have been a drought. Last year a late spring freeze wreaked havoc on orchards. This year, flooding meant that crops went in very late, and for some farmers, not at all.
Some years are better than others, but rarely does a farmer get rich overnight or go broke because of Mother Nature.
It's the economic pressures that are so troubling, among them record prices for fuel.
We surveyed five regional agribusiness executives in Missouri and Illinois to get their perspective on how producers fared in 2007, and the outlook for 2008 and beyond. Each was posed the same seven questions, and responded in writing, to create our "virtual roundtable."
Participants:
Laurie Hiler, president,
St. Louis Agribusiness Club
Charles Kruse, president,
Missouri Farm Bureau
Dale Ludwig, executive director/CEO, Missouri Soybean Association
Philip Nelson, president,
Illinois Farm Bureau
Rodney M. Weinzierl,
executive director,
Illinois Corn Growers Association
1. In your view, how did the regional agriculture
industry fare in 2007? What are the main obstacles
the ag business has faced so far this year?
Hiler: Regional agriculture was a mixed bag this past year. Record commodity yields and prices in corn and soybeans have allowed some producers to flourish, while others who need those commodities to feed livestock or to manufacture food products have had to face strong headwinds in terms of ingredient pricing.
The main obstacle that the ag industry has faced so far this year is high oil prices. This has a direct effect in the pricing and demand for fuel, both directly in the price of biofuels and gasoline, and indirectly in the costs associated with production, such as fertilizer and fuel costs.
Kruse: Every year you have weather problems, but overall 2007 was a good year, crop-wise. We saw input costs rise—whether you're a livestock producer or a crop producer, fertilizer and fuel costs escalated. Agriculture is such an energy-dependent industry, so the cost of energy is a huge part of the cost of food production.
Looking back now, we didn't see anything in 2007 like we've seen in 2008. While fertilizer costs have been going up the past few years, they've literally exploded in 2008.
Of course this year, when you talk about obstacles, we've had unbelievable weather circumstances in most of the Midwestern states, and Missouri has not been spared. There's been more rain than people can deal with, flooding, delayed planting, in some cases not being able to plant crops. We're not talking two or three weeks, we're talking in some cases over two months. We'll see what the outcome of that's going to be. Livestock producers, while they're grateful for the abundant pasture, it's been a real challenge just to get hay cut.
Ludwig: It depends on the segment of the industry you're in. If you grew crops, either corn or soybeans, or were a fertilizer/agchem distributor or technology company, you had one of the most outstanding years in history. For farmers, high corn and soybean prices with respectable yields made gross dollars per acre the highest they've ever been. And companies like Monsanto, technology providers, had the best year in their history. If you happen to be a livestock producer, 2007 wasn't nearly as friendly, especially for hog producers. As a result of the high corn and soybean prices, we pushed feed prices in some cases beyond break-even.
Nelson: 2007 was a mixed year in our state as some producers harvested their best crops of corn and soybeans while some producers in the southern part of Illinois had soybean yields below 20 bushels per acre and corn below 100. From a livestock perspective, hog producers and cattle producers experienced challenges like they've not experienced before with higher input costs for feed grains.
We have faced many obstacles this year; dealing with floods in the southeast and western parts of our state and delayed planting in the southern third of our state. Couple that with the red ink of our livestock industry's bottom-line, it has been a challenging year thus far.
Weinzierl: For the Midwest corn farmer they received record income. For 25 years, the price of corn has averaged $2.40. Farmers were finally able to receive an income that reflects the risk and investment they have had to put into their farm operations.
The impact of high energy prices on
the input costs of agribusinesses and
farm operations throughout the Midwest has been tremendous. Tied to that is the onslaught of an aggressive PR campaign blaming farmers for the increase in food prices, which has caused great frustration in the countryside.
2. What do you think are the most important trends
in the industry; regionally, nationally and globally?
Kruse: We've seen a significant increase in demand for our agricultural products. Part of that is the function of weather problems in other parts of the world. Australia, for example, normally a very significant producer of wheat, has had some very serious drought problems.
The middle class in India and China is growing substantially, which means that people have the wherewithal to be more selective in their diets and demanding about the foods they want.
Also, and I say this as a farmer myself: we should think more often about how blessed we are in this country for the abundant supply of food and fiber. But it's not by accident. It's a lot of hard work by a lot of people, but it's also what I call the agribusiness support system in this country, which really makes us the envy of the world.
Ludwig: The most important trend globally is we are seeing economic growth moving more people into the middle class. When people have more disposable income, the first thing they do is improve their diets, which usually includes meat, or more meat. When that happens demand for corn and soybeans increases, which is part of the
reason we are seeing higher demand and higher prices for those products.
Nationally, we've seen higher risk as prices for inputs have gone up dramatically, and in some cases doubled, along with higher cash rent prices making risk management the most important activity that a production agriculture person has to take care of.
Regionally, we have the most outstanding plant science research companies and facilities anywhere with the Donald Danforth Plant Science Center, the National Soybean Biotech Center in Columbia, and Monsanto. There's none better in the world.
Nelson: I believe one of the most important trends is agriculture being a major
player in solving our nation's energy
policy. Biofuels have and are playing an important role in addressing less reliance on foreign oil.
Consolidation of agriculture is another trend that continues to challenge our membership. There is much concern over having enough transparency and competition in the marketplace.
Weinzierl: Agriculture is in a paradigm shift; for 70 years we have had public policy—farm bills—to essentially throttle agriculture down because supply always ran ahead of demand. Today, agriculture is still at the beginning stages of figuring out how to throttle up. It will be interesting to see what the productivity will be 10 years from now, knowing the gains we have made in the past even without much for an incentive.
Hiler: The most important trend has been the rise in global demand for fuels and the parallel sharp rise in living standards in large areas of the developing world, especially China and India. These countries' increase in living standards has caused demand for more grains and grain products as their diets change and increasingly demand more meat products in their diets. These dual demands for food and fuel have caused a significant shift in thinking in terms of national policies both here in the U.S. and abroad when it comes to food and fuel. These seismic
shifts in demand have caused a repricing
of all commodities, whether you are looking at oil, grains, ores, coal or any number
of commodities.
3. What does the increase in the costs of doing
business—especially the dramatic rise in grain
prices—mean for the region?
Ludwig: Short term, it means higher incomes for grain producers while putting profit squeezes on the livestock industry to the point of seeing contractions—it's getting smaller. The livestock industry is the largest customer for corn and soybeans. Longer term, without a healthy livestock industry, we will be challenged to maintain high
grain prices. Therefore, without a focus on rebuilding the livestock industry longer term, we will see downward pressure on prices and profits.
Nelson: It is a double-edged sword; as I said before, farmers have experienced record price levels, but at the same time everything from fertilizer to fuel and rental rates have escalated to new plateaus. Livestock producers are still trying to make the transition.
Weinzierl: The increase in grain prices is having a tremendous ripple effect in rural areas. I think it was a Creighton University study that found that many areas of the rural Midwest have been insulated to the economic woes of our nation because of the economic impact agriculture is having, much of which is due to biofuels and the dollars that are not leaving the area for imported oil.
Hiler: One of the regional trends I have seen is the dramatic increase in the costs of doing business as a commercial grain buyer. The significant rise in grain prices means a shift in thinking in terms of holding, storing and buying/selling and hedging commodities. The sharp rise in the price of corn and soybeans this past year has caused commercial elevators severe headaches in terms of having and managing available credit to make margin calls. As the price rises in Chicago on bushels that were hedged, the commercial elevators must put more and more cash up to maintain the hedges that were put on when farmers sold grain in advance of delivery. This comes on the heels of a nationwide overall credit tightening by banks in general. Bottom line, it adds additional risk costs to hedging grain that distorts the price of grain when it is sold.
Kruse: I think agriculture has gotten a bad rap, an inaccurate rap, ethanol in particular, for the escalating cost of food prices. That is just absolutely not true. Granted, using corn to produce ethanol does have an impact on the price of grain. But I would argue that the increase in food prices is more a function of energy costs. Still, people want to point the long finger and blame ethanol for the rising cost of food. People are so shortsighted—that argument is just not correct.
What's troubling to me is that we have such a dilemma in this country because we haven't had an energy policy for over 30 years. We need to promote renewable fuels, but we also need to promote all the other forms of energy, whether it be nuclear, solar, wind. We need to vigorously start recovering our own oilÑwhether in the continental U.S., offshore, AlaskaÑand conserving natural gas.
There's been very little talk, on balance, about the unbelievable rise in input costs. There's a really delicate balance—if any one part of agriculture gets out of whack, it's really not good for anybody.
4. In 2007, how much of an impact did the late-spring freeze have on the industry? This year, how will the wet spring have affected crops?
Nelson: In 2007, the biggest impact of the late-spring freeze was on wheat producers and orchard growers. These two segments had substantial losses, but have rebounded quite well in 2008.
The wet spring has had a significant impact on our state. The floods of the southeast and levee breaks on the Mississippi lost thousands of acres, while the late planting in the southern third has many producers worried about how much catch-up this crop has to do.
Weinzierl: There was not much of an impact to the late freeze on the corn industry. Time will still tell the overall impact of the late wet spring. For producers who were unable to get their crop planted it will be devastating; for those who struggle and succeeded they could have a decent although probably below average crop but they need a late freeze to give the crops time to mature. There are other parts of the Midwest where the corn has never looked better.
Hiler: In 2007, the late-spring freeze had a dramatic effect on the size of the wheat crop that really did not come into play in terms of price volatility until early 2008. This year, the wet spring and corresponding later planting would normally signal a much smaller crop due to fear of frost. In addition, flooding in the Midwest in June threatened to bring the overall corn crop down to an estimated 11 billion bushels, as compared to a record-breaking 2007 crop of 13.07 billion bushels. However, timely rains, moderating temperatures and recent estimates that the flooding did not take nearly as great a toll on crop size have increased the estimate of the corn crop size for 2008 once again. If we avoid a significant early frost, the corn crop could be bumping right up around the earlier prior flood estimates of 12 billion bushels this year, largely due to an increase in the corn bushels harvested per acre vs. last year's crop.
Kruse: It was very unusual to see that many nights with that low a temperature at that time of the year. A lot of hay crops were destroyed; anybody who had corn planted, in most cases lost that crop. The wheat crop was damaged to some extent. The fruit crop, apples and peaches, was pretty much 100-percent lost.
The wet spring this year has also had a dramatic affect. There's land in Missouri and surrounding states that still has not been planted, and won't be planted this year. Livestock producers have had difficulty putting hay up.
Ludwig: In 2007, the late freeze had a dramatic impact on forages. In many cases, hay crops were reduced by 40 to 50 percent. And if you happen to have had corn that was more than six inches tall, you had to replant it. Cattle likely had the biggest impact on an already-squeezed cow/calf segment of the industry. This year on crops, the wet spring will have soybean acres down by 250,000 acres in Missouri.
5. What challenges to agriculture do the rivers create; e.g., locks, river traffic, flood control, levee breaches?
Weinzierl: They all create challenges; without the upgrading of locks and the efficiency we gain with moving grain with the least amount of fuel, ever increasing energy prices will take only more out of the economy. The jobs for skilled labor in upgrading the locks would create another tremendous boost to the regional economy. River traffic also keeps other modes of transportation, such as rail, competitive. Whenever the river closes to commercial traffic, railroad rates go up the next day, costing us all more for the goods like fuel, grain, road salt, cement and even landscape mulch. Finally, with the occurrence of our second "500 year" flood within 15 years, we must convince our elected officials that a Comprehensive Flood Control program once and for all is needed.
Hiler: The biggest challenges to agriculture that the rivers create stem from a lack of a cohesive national policy and long-term thinking. The whole levee system is a true hodgepodge of ownership and maintenance. Until there is some overall national umbrella policy, the problems that we saw this summer will continue. The whole river system, lock system, flood control, etc., is often dealt with on a Band-Aid approachÑfix only what is broken and in dire need of repair. A more long-term view would look at how best to combine environmental stewardship with maintaining and strengthening the competitive resource that the river system provides for the U.S. in world markets. This approach would encompass not just our region for agricultural products, but provide an economical and cost-effective competitive advantage in transporting goods for our economy and into the world market.
Kruse: We've had so many levee breaches; it just brings home how powerful Mother Nature is, and how quickly things can happen. One day things are looking fine, then there's a levee breach, thousands of acres are flooded, crops wiped out, homes lost, people's lives disrupted. Then, when you talk about rivers, we have fought a battle in Missouri and continue to fight it just to try and use some common sense and say, let's use the Missouri River for navigation. People who, because of two birds and a fish, particularly the pallid sturgeon, want to completely shut down any use of the Missouri River. Also, some people think it's inappropriate to upgrade the lock and dam system on the Mississippi. At the same time we see Brazil building state-of-the-art waterways. We finally got a bill passed authorizing upgrade of our lock and dam system. We absolutely have to have a great Mississippi River structure that will allow us to move product up the river to use, and to the Gulf for export around the world. WeÕre headed in that direction, but it's been a real battle.
Nelson: The river system in our state
is vital to our infrastructure to move commodities. We have put a high priority as an organization to upgrade and modernize our locks and dams. This last year we were successful in passing the Water Resources Development Act but now need to secure the funding to make this happen. We also have a Floodplain Study Group working on this issue to address the problems we just encountered this spring.
Ludwig: There's no question the river creates some challenges, especially when you have floods or whenever you have to rebuild levees. Although the Missouri and Mississippi rivers are the greatest resources we have because of river transportation, also without rivers you don't have fertile river bottom land. We are able to deliver crops to world markets at lower cost than virtually anyone else in the world. With that said, it certainly would be nice to upgrade our lock and dam system on the Mississippi River.
6. Is the regional ag business meeting workforce demands? Why or why not?
Ludwig: Agribusiness demands that
high-quality people are available because they are competitive in compensation with all other industries. Production agriculture has been and continues to be challenged as a result of an inability to pay competitive wages, and the seasonal nature of
farming. However, in production agriculture we have long hours with, for the most part, improved working conditions compared to 20 years ago.
Nelson: This last year we were influential in putting the Vision for Illinois Agriculture into play. We had a cross section of agriculture at the table and one of the issues raised in this project was having a productive and competent workforce. We are engaging with our universities and agribusinesses to collaborate to make this issue a high priority.
We are also challenged by the livestock industry and specialty growers in not having the ag jobs portion addressed as a part of the Immigration Bill.
Weinzierl: No, there is currently a shortage of workers in the ag industry. Many of these positions are in highly skilled or trained professions. Corn breeders and scientists is just one area that just does not have the students entering the curriculum to produce the numbers of graduates that our industry will need. Many of ag universities have stepped up their recruitment efforts.
7. In what ways is our region contributing to meeting global food and fuel demands?
Ludwig: Missouri and Illinois are large livestock producing states. Let's face it; when was the last time you sat down to a bowl of No. 2 yellow corn or a bowl of soybeans? Most of the soybeans get converted into value-added food via the livestock industry. We do play a key role in delivering food, especially meat to this country as well
as export. We are also playing a key
role in exporting corn and soybeans. Somewhere between 40 and 50 percent of all soybeans grown in Missouri are
exported. We have a rapidly growing
segment of the market that goes into
soyfoods, primarily tofu and soy milk, and primarily exported to Asia. Both Missouri
and Illinois are producers of ethanol
and biodiesel. Missouri currently is the
second-largest biodiesel-producing state in the country.
Nelson: Our state is a major player in biofuels as well as a major player in the livestock industry. We have worked both with grain farmers and livestock producers trying to grow both industries and also provide an abundant supply of food. One thing I never imagined would happen would be the press that this issue has raised and gained. Illinois Farm Bureau has taken a proactive approach in getting out the facts about food prices and biofuels.
Weinzierl: Some of the most productive farm ground is in the region. We have farmers who are both innovative and, as we found out this spring, resolute in their desire to produce crops to feed and fuel
the world. Lastly, the technology, and the science behind it, will cause the agriculture industry to increase capacity at the
same time.
Hiler: Our region is contributing to meeting global food and fuel demands by providing the raw grain and grain products to meet both increasing biofuel and food demands worldwide. In addition, we have the unique competitive ability and advantage of being able to provide an additional means of transporting those goods to market via the confluence of our river systems. The combination makes the St. Louis area uniquely poised to meet the increasing demands of food and fuel in the global marketplace well into the 21st century.
Kruse: If you use St. Louis as the center, go 600 miles out and draw a circle, it could accurately be said that this is not only the breadbasket of this country, it's the breadbasket of the world. We depend on countries that don't like us for our oil—just think what it would be like if we had to depend on others for our food supply? We have a huge capacity to produce food and fiber for export, which creates jobs, which supports the economic base of this region. But when it comes to meeting fuel demand, we're really behind a big 8-ball. For whatever
reason, we've allowed people to prevent us from recovering oil and natural gas in a
sensible, safe way. We're now focused on the price of gasoline, but by winter the focus will be on the price of natural gas
and people trying to pay their home
heating bills. We're the Saudi Arabia of the world when it comes to coal, and we
need to focus on clean coal technology to generate electricity.
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