Some years seem longer than others.
With roller coaster prices, rough weather and changing political tides, 2009 will not go into the history books as an easy year for agriculture, Montana’s largest industry. Things don’t look better for 2010.
The year started with grain prices spiraling downward from record highs the previous year. Dairy, pork and beef prices followed as the recession turned global and world demand for U.S. exports faded.
“The buzzword in our industry is, we have to learn how to profit and survive in an era of volatility,” said Carl Mattson, of the Montana Grain Growers Association. “If you look back, there are years when the price of grain didn’t change 25 cents in a whole year. Now look at the price.”
Coming on the heels of record high prices in 2007 and 2008, wheat profits in 2009 might have seemed flat to some. After all, there were farmers last year who made $8 a bushel or more in 2008, which was roughly double the average price. Those payments last year were strong enough to give Montana its first $1 billion wheat crop.
This year, producers harvested more wheat but collected less money. Prices peaked at $7 a bushel before retreating to $3 in some cases. Anything less than the highest price simply wasn’t enough for farmers who planted winter wheat.
Prices for seed and fertilizer were very high last fall, when the 2009 winter wheat crop was planted, making profit margins slim to nonexistent for many. Farmers who planted in the spring had more favorable prices. “Those guys who bought fertilizer and seed at the end of May were way better off than those guys that bought in September 2008,” said Mattson. “We went from $900 urea, to $300 urea.”
Whether the lower prices were enough for farmers to get by depends a lot on what their expectations were as they made their business plans at the beginning of the season, said Gary Brester, Montana State University economist. Those who expected a repeat of 2008 were sorely disappointed.
“We should be thinking about what our expectations should be,” Brester said. “We tend to set our expectations on the record price. Our expectation should be ‘Don’t expect to have above-average prices for a long period of time and don’t expect them to have below-average prices for a long period of time.’ ”
This year’s wheat prices were still higher than the 20-year average. And the last few years of above-average prices have put many farmers on better financial footing. The amount of debt farmers are carrying compared to the actual assets is about 10 percent on average, which should help when farmers go borrowing to cover operating costs.
Other producers didn’t do nearly as well as wheat farmers. The cattle industry took a hit as recession-plagued consumers began putting chicken and pork in their shopping baskets instead of more expensive beef. Worse yet, restaurant sales of beef fell as people opted to stay home in order to save money.
By midyear, U.S. Department of Agriculture prime grades of beef, previously marketed almost exclusively to hotels and high-end restaurants, began showing up in refrigerator cases at wholesale retailers like Costco. Prices for the next best grade of beef, USDA Choice, were extremely low. The Monday before Christmas at Costco Wholesale, choice loin top sirloin steaks were selling for $2.99 a pound — the same price as boneless, skinless chicken breasts.
Pork producers also faced severe business losses as the market price for swine fell below the cost of production for most of the year. Prices were low at the beginning of the year, but then the H1N1 virus was dubbed “swine flu” and pork demand slumped even further.
Dairy farmers also took a significant hit as payments for milk fell below production costs for an entire year. As a result, more than 100,000 dairy cows were killed in an attempt to make milk harder to come by.
Look for beef to face the steepest challenges in 2010, Brester said.
“The livestock industry could probably lose the most because of the current economic situation, because consumer demand for beef is so directly tied to income,” he said.
For Bob Hanson, who raises cattle near White Sulphur Springs, the market won’t pick up until the export sales of American beef improve.
“Overall, the two biggest things to me that are going to make a difference are what happens with cap and trade and what happens in the Pacific Rim,” said Hanson, who is also the current Montana Farm Bureau Federation president. “We’ve got to get more cattle exported to the Pacific Rim. That really has an effect on the prices in our market. And this cap-and-trade bill, if it goes through, it will be really difficult on agriculture. It will basically wipe all the economics out of agriculture whether you’re into farming or cattle.”
Many farmers are anxiously eyeing cap and trade. Approved by the House and awaiting action in the Senate, cap and trade sets limits on carbon dioxide pollution from smokestacks, using cash consequences for those who don’t comply. Farmers’ concerns are twofold. First, they fear energy producers and manufactures hit with pollution regulations will pass those costs on to consumers. Second, there’s concern the Senate will empower the U.S. Environmental Protection Agency to impose caps on farm emissions.
However, the EPA has also suggested it already has the ability to regulate greenhouse gas emissions under the Clean Air Act. Regulation under the existing act could be more encompassing than the current cap-and-trade proposal, according to farm lobbyists.
There were other policy changes afoot in agriculture this year. The 2008 Farm Bill is just now being rolled out, with a new Average Crop Revenue Election commodity program and the Supplemental Revenue Assistance Payments, SURE for short, program. Both are so new that farmers are still learning how they work.
The SURE program could be key to Montana sugar beet growers recovering from an October freeze that thwarted their ability to profit from sugar prices currently at a 30-year high. Numerous farmers weren’t able to harvest a third to half of their beets. Farmers qualifying for the SURE program could receive federal grant money to make up for the loss.
For malt barley growers, the biggest policy change comes from the private sector. Belgian brewer InBev SA bought Anheuser-Busch in late 2008 for $52 billion. Budweiser bought roughly 25 percent of its barley from north-central Montana farmers, and InBev appears willing to do business in Montana as well, but it isn’t committed to buying as much barley. Budweiser kept a roughly 18-month supply of barley in storage, said Carl Mattson of the Montana Grain Growers Association. InBev stores a six-month supply.
What will matter most to Montana farmers is that personal incomes around the world continue to grow, Mattson said. In the long run, that will increase demand for American food.