Pain From The Grain: Corn Belt Towns Languish As Prices Drop
On a recent snowy afternoon on a farm in central Illinois, Dan Byers parked his pickup at the end of a dirt road and looked over some of his fertile land. A few years ago, high grain prices earned farmers here about $400 per acre for their corn and soybean crops. This year, it's possible that every acre Byers farms will cost him $50.
"It just takes a certain amount of fixed money to put a crop in and raise it," says Byers. "At today's prices, not much of anything works right now until there's a rebound."
Across the country, a number of farmers are likely to take a big pay cut this year. Nationwide, the U.S. Department of Agriculture expects farmers will earn a third less than they did last year.
That blow to the bottom line is rippling through farm towns.
Record corn production with no increase in demand – as well as a leveling off market for ethanol – have led to the lowest prices in six years: $3.80 a bushel, down from an all time high of $8.49 a bushel in August 2012.
Some farmers won't break even this planting season, which could force them to tap into their savings. That's bad news for Corn Belt towns whose prosperity depends largely on farmers and businesses linked to farming.
Frank Hofreiter owns the New Holland farm equipment dealership and employs 17 people in East Havana, Ill.
When corn prices peaked, Hofreiter sold close to $11 million worth of shiny blue tractors in a single year. He says he doesn't expect to crack $3 million in 2015.
"Everybody's just trimming back and not doing much buying on new equipment," says Hofreiter. "Especially big, large equipment — anything over $20,000."
Hofreiter hasn't let anyone go yet. So far the company's machine shop — attached to the back of the dealership — is keeping employees busy. But if repair work falls off, Hofreiter said he'll have to cut employees' hours.
The industry leader John Deere reports that its sales are down by 40 percent from this time last year. That prompted the company to lay off nearly 2,000 workers in recent months – and more cuts could come.
"And you'll see more when the economy's like this, guy's will spend more on repairs," he says. "Instead of maybe guys, that tractor's got a bad engine, we'll trade it off today, well, no, we'll see if we can patch it together and fix it back up."
Todd Schaeffwer owns a bar down the road from the dealership. He estimates that three-quarters of his customers work in the farm sector.
"People will probably get laid off," Schaeffwer says. "We'll have to get back behind the charbroiler, behind the bar. Rather than just managing it, we'll have to work and manage it."
Even as grain prices plummet, grain farming isn't getting any cheaper. The fixed costs of seed, fertilizer and chemicals are about the same as when corn was selling for twice as much.
Land is one of the biggest expenses. Sky-high prices put it out of reach for many farmers, so they rent acreage instead. The rising price of grain pushed rents to unprecedented levels. And even though prices have fallen, many landowners are refusing to lower the rent.
Scott Irwin is a professor of agriculture and consumer economics at the University of Illinois. He says high rents are forcing some renter farmers to breach their contracts.
"We're seeing stories of farmers who had signed multiple-year, cash-rent leases at those high rates actually just walking away from the leases this winter," Irwin says.
If corn prices stay low, rents will eventually have to follow. But in the meantime, many farmers are struggling to pay for their rented land.
Dan Byers rents some of the land he farms. While his budget's tight, he says he's paying up and staying put.
"In our situation, we've got some very long term relationships," Byers says. "You don't want to screw those up."
He'll continue to farm even though it's not likely to be profitable. With corn production expected to remain high, the USDA is predicting that prices will continue to fall well into next year.
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