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For Farmers, High Grain Prices A Welcome Surprise

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For Farmers, High Grain Prices A Welcome Surprise

Science

For Farmers, High Grain Prices A Welcome Surprise

For Farmers, High Grain Prices A Welcome Surprise

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Larry Jacobson sold most of his corn and soybean crop before he harvested it to take advantage of higher prices. Kathleen Masterson/Harvest Public Media hide caption

toggle caption Kathleen Masterson/Harvest Public Media

Go into the grocery store to pick up a turkey, and you'll find the cost is up some 30 percent from last year, according to the Food Institute. The rising cost is in large part due to soaring grain prices.

The price of meat is where we're just beginning to see the consumer impact of a recent boom in the agriculture sector. Crop prices hit record highs in 2007 and 2008, and they have spiked again this fall.

After a wet summer and fears that both yields and prices might plunge, the boom has been a welcome surprise for farmers. Many are acting now to lock in current high prices — because who knows what the volatile commodity markets will do next year.

Playing The Market

Larry Jacobson finished harvesting his 1,600 acres of corn and soybeans in central Iowa several weeks ago. On a recent warm fall evening, he hosed down his grain truck in his driveway after he finished his deliveries. He wore a red cap and a worn Carhartt work jacket, and he had both pliers and a cell phone strapped to his belt.

Like most successful grain farmers, Jacobson is savvy about the markets. He receives corn prices by text message four times a day — and he checks them, even when he's riding in the combine.

"This fall … we were combining beans, and corn jumped up 30 cents. I sold some corn for May delivery for $5.06 [a bushel]," Jacobson says. "I just did it on my cell phone, right from the combine. I called my neighbor I was working for and told him what the market was, and he called in and sold some too that day."

Jacobson sold most of his crop before he harvested it, locking in decent prices 18 months earlier. But when he can, he doesn't sell all his corn in advance so that he has some left at harvest in the case that prices go up. And because of the recent price spike, Jacobson has sold corn he hasn't even planted yet.

"When you see that big of a jump, it's not a bad idea — if you can — to take advantage of some of it… It may stay there, and if it goes higher, it goes higher. But where we were at was a good, profitable price," he says.

Jacobson has played the commodities market pretty well. After an uncertain summer, grain prices skyrocketed this fall. Corn prices in October were up about 30 percent from last year.

Reinvesting Profits

"We started off this summer with the Russian wheat drought: less wheat, more corn demand. It started to pull prices up," says Chad Hart, a professor of economics at Iowa State University. "That's when we also saw that corn yields were starting to head downwards — so lower supplies drove prices up."

And Hart says demand from the ethanol industry has helped keep prices high. It's been ideal harvest weather: A dry fall in the Midwest helped farmers avoid paying to dry their grains, which can cost anywhere from $80 to $100 an acre.

So even though this year's corn harvests are slightly below the 2009 record yields, Hart says, many have made out well.

"When we're looking at $5 corn, when we're looking at $11 soybeans — those are very strong prices," Hart says. "We're starting to see more [agricultural] machinery moving around state, so that tells you that they're taking these returns and they're reinvesting in agriculture again."

Mark See, territory manager of Van Wall, a farm equipment store in central Iowa, can attest to that.

"They've been a good market," See says, despite concern this spring that yields and prices would be low. "This is a pleasant surprise in a lot of ways, that the market is as strong as it is, but there's potential for it to go back the other way. So, I mean, (we're) optimistic, but cautious."

See opens the door to a cavernous metal storage shed full of shiny, hulking tractors and combines. He climbs up the metal steps into the 10-foot high cabin of a used 1983 John Deere combine to show it to a prospective buyer. A farmer just traded in the green giant to upgrade to a considerably newer machine. The combine didn't sit for long, though, before buyers came sniffing around.

One interested party is a farm equipment dealer who has driven here from South Dakota looking for machines to meet his demand. He already bought six pieces of machinery from Van Wall that day, and after peering under the hood of the 1983 John Deere 7720 combine he says he wants to buy that one, too.

Paying More For Meat

The rally in crop prices has brought more cash into the agriculture sector. Fertilizer and seed sales are up and farm equipment is moving. And, given the volatility of the market, some growers have already sold part of next year's grain crop to take advantage of these prices. But for livestock producers, all this means more expensive animal feed.

Animal feed is a big part of the cost of raising livestock, so the price of grain has a much bigger impact on meat prices, than say on a box of corn flakes. In fact the cost of corn is only about 5 percent of the cost of a box of the cereal; most of the expense come in the delivery and packaging.

"Typically higher crop prices do result in higher food costs after several months," agriculture economist Hart says. "It takes a while for the corn prices to hit livestock industry, for the livestock industry to adjust."

And that adjustment means consumers can expect to be paying more for hamburgers and steaks in the near future.

So far, this year, overall food inflation has hovered around 1 percent. But USDA analysts forecast that in 2011 food prices will jump at the more typical rate of 2 to 3 percent. And some meat prices have already gone up in response to grain price fluctuations earlier this year and last year, such as that turkey you'll likely have on your Thanksgiving table in a few weeks.

Kathleen Masterson reports from Iowa for Harvest Public Media, an agriculture-reporting project involving six NPR member stations in the Midwest. To read other stories about farm and food, check out harvestpublicmedia.org.

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