Crop farmers face uncertain year in economic downturn

Walking across his farmyard near the town of Courtland in southern Minnesota, Tim Waibel has a lot of things on his mind. He and his sons care for several thousand pigs housed in nearby barns.

Beyond the buildings, stretching to the horizon is a blanket of deep snow. The snow covers corn and soybean fields that he'll plant in a few months, producing either a healthy profit or a bumper crop of IOUs.

But, even though he's surrounded by the details of an agricultural business, his mind is most focused on the financial storms coming from distant places like Wall Street and the nations that make up the world economy.

"We don't know for sure what this downtrend is going to bring us," Waibel said. "It could bring us a lot of things that nobody anticipated. These cycles are just something that we have to deal with and hopefully we've done enough things right going into these types of cycles to weather these downturns."

The main, immediate fallout from the recession for farmers is a worldwide bust in the price of corn and soybeans along with other commodities. Since last summer's peak, corn prices fell more than 60 percent. Although they've rebounded in the last month, current prices are still below what it costs most farmers to produce the grain. And those costs are rising.

Waibel heads into a storage building that holds tractors as well as a harvesting machine 12-feet tall.

"A combine like this is about $250,000," Waibel said.

Waibel said in all, he's got $1 million worth of equipment stored in the building. And it's not just high machinery costs eating away at farm profits. Sitting down in his kitchen, Waibel said he expects the raw material of spring planting -- fertilizer, seed, weed-killers -- all to cost more in 2009.

Hopefully we've done enough things right going into these types of cycles to weather these downturns.

"Seed corn this year we're going to be right at about $102 an acre, just for the seed costs," Waibel said. "Last spring we were right at about $60-some dollars an acre."

The uncertainty over spring planting is something that's felt on farms all across Minnesota. Wells Fargo Agricultural Economist Michael Swanson speaks and answers questions often at farm meetings. He said this winter, farmers are more guarded than in the past about their prospects for the upcoming year.

"They've had two or three of the best years they've ever had," Swanson said. "But they certainly see the potential here to have a tough year. And so they're kind of pulling in their horns a little bit, rethinking some of the optimism they had earlier this year."

The changing nature of agricultural economics is something farmers and bankers will discuss in detail through the winter months when they make plans for the upcoming crop year. Swanson said if a farmer is projecting a loss for next year's crop, lenders will face some tough decisions.

"A lot of bankers will find a way to cope with it," Swanson said. "They'll turn and look at their balance sheet and see if they've kept enough money in the farming operation so that they can deal with a loss for a year or two."

In addition to falling grain prices, land prices are another potential trouble spot. Many farmers borrow against their land value to finance parts of their operation. If land prices fall significantly, it could reduce their ability to get a loan.

Last summer, Minnesota farmland prices reached record highs, with some fields selling for over $7,000 an acre. Wells Fargo agricultural economist Michael Swanson says the falling grain prices have slowed the land boom. But he says there's no sign right now of a significant downturn comparable to what's happening with housing prices.

Back on the Waibel farm in southern Minnesota, one of Tim's sons is loading a semi-trailer with corn. Waibel watched and said the load is bound for an ethanol plant.

The corn is a big part of the economic lifeblood of this farm and right now the price of that commodity has fallen. Standing outside on a blustery winter day, Waibel can still find humor in what looks to be tougher days ahead on the farm.

"I'm 50 years old," Waibel said. "I always said I'd be out of debt by the time I'm 50, but I blew that out of the water a long time ago."

Like many Minnesota farmers, he's just hoping he's got the financial resources to get through this economic downturn.

Gallery

Fullscreen SlideshowPrevious Slide

1 of 1

Next Slide