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ARCHIVED  October 8, 1999

Ag prices dip but still avert disaster

As crop prices plunge to their lowest levels in decades, many farmers are wondering how much worse it can get. Yet even in these trying economic times, a glimmer of a silver lining is evident – at least for some Northern Colorado producers.

Many are thanking Mother Nature for ideal weather conditions that contributed to above-average yields, helping to boost returns. And while the cycle of grain prices is at a low, many in the livestock industry are increasing herds to take advantage of low feed prices.

Some farmers are adding livestock to their mix, because profit from fed livestock has potential to be greater than profit from grain alone. Others point to Northern Colorado’s crop diversity as key to the area’s avoidance of the total agriculture disaster happening in other parts of the nation.

The numbers, however, are still bleak. John Green, an economist with the U.S. Department of Agriculture in Fort Collins, said that low crop prices are contributing to a $100 million loss in Northern Colorado’s economy – a 33 percent reduction from 1993 levels, some of the highest in recent history.

If a multiplier of 3 or 3.5 is included in the equation, to represent the slump’s effect on ag-related industry and general consumer spending, what you’re really looking at is a $350 million reduction in economic activity, Green said. “It’s extremely sizable.”

“When you lose $100 million, no matter the source, it does affect your local economy,´ said Lyle Butler, president of the Greeley/Weld Chamber of Commerce. “The good news is that everything else is very, very strong.”

This has helped the ripple effect from such a loss to not be as devastating, such as when the Monfort meatpacking plant closed briefly in 1980.

“That had a huge impact on the community,” Butler said, adding that since then, the community has become more diversified, softening the effects of a downturn in one sector.

Duane Wallin, general manager and owner of Bi-State Machinery, a John Deere dealership in Greeley, said that sales are down 14 percent from last year. Some dealers in other regions of the United States are experiencing sales slumps of up to 100 percent, he said. “I belong to a group of 20 dealers, and the ones in Iowa, Kansas and the Dakotas are the ones really hurting,” he said. “The diversity here with vegetable crops and sugar beets helps.”

Crop diversity may have softened the blow to Colorado farmers’ bottom line, but crop prices have still taken a hit. Both wheat and corn prices are hovering at the $2-per-bushel mark.

“It’s the lowest since 1977, when the average was $1.93 for wheat,´ said Darrell Hanavan, executive director of the Colorado Wheat Administrative Committee and Colorado Association of Wheat Growers. (Wheat prices last year averaged $2.60 per bushel.)

“Right now, the U.S. Department of Agriculture is predicting that prices during this marketing year will be slightly higher than last marketing year,” Hanavan said. “However, I anticipate Colorado wheat producers will reduce their plantings of winter wheat this fall.”

Low prices can in part be attributed to the high number of ending stocks from last season. As of May 31, there were 945 million bushels, compared to 597 the year before.

“The big key to increasing prices is to reduce the large carryover of stocks,” Hanavan said. The best way to accomplish that, he said, is to increase consumption through exports.

“The USDA is projecting that exports will be up this marketing year we’re in, but we’re still projecting only reducing the carryover to 834 million bushels. It’s not substantial enough,” he said.

Hanavan said that plantings have already been reduced to the lowest levels since 1973. Though fewer acres were planted, average yield was up.

“We were a victim of the weather last year, not only here but worldwide,” he said. “We had above-average worldwide wheat production. When that happens, there’s more competition in the export market, and it makes it more difficult to increase exports.”

Signs that the dollar is weakening will help wheat exports. “It will make wheat more competitive and cheaper to export,” Hanavan said.

U.S. wheat is exported to 60 countries, the largest market being Egypt, followed by Japan, Mexico, Philippines, Korea, Nigeria, Taiwan, Pakistan, Israel and Peru.

“We’re still sanctioned out of 15 percent of the world wheat market,” Hanavan added.

Corn growers, for the most part, sit in the same boat. The United States produced more than 9 billion bushels of corn last year. Colorado, however, remains a corn import state, meaning that it consumes more corn than it grows.

“We’re not anticipating an exodus of producers any greater than in the past,´ said Jim Geist, executive director of the Colorado Corn Growers. However, he has heard from many farmers concerned about being “at the bottom of the pile.”

“They would like to reap greater economic benefit,” he said.

Along the Front Range, Geist said farmers are seeing greater economic benefit by selling their land for development.

“More guys will leave (farming) because of lack of profitability than because a financial institution is saying their time is up,” he said.

Time is up for many independent hog producers who are leaving the business because of Amendment 14, which imposes strict regulations on the industry, and because prices have hit rock bottom.

The loss in grain sales to hog producers, however, could be softened by the addition of a new poultry facility near New Raymer in northern Weld County. Owned by Moark Eggs out of Missouri, the facility will eventually have capacity for 1.2 million birds. This is good news for corn growers, because each hen consumes one bushel of corn a year.

Bruce McDaniel, chairman of the economics department at the University of Northern Colorado grew up in the poultry industry in Indiana. He believes that the economic impact of such a facility will have a substantial bearing on Northern Colorado’s economy in years to come. A facility of that size, he said, will need a sizable work force, perhaps employing 100 or so people. The eggs will be sold in Colorado as well as in California. In addition, the facility plans to package and sell dried chicken waste as fertilizer.

Another positive – for now – is the livestock industry. Low grain prices mean a better return for growers. Economist Green said many farmers are choosing to market their grain through increased livestock numbers and large livestock feeders are taking advantage of low feed prices as well.

Dan Webster, who oversees Webster Feed Lots Inc. outside of Greeley and who serves as an at-large member on the Colorado Agriculture Commission, said he expects to see $70 fat cattle by the end of the year, thanks in part to lower tonnage and higher demand. “We’re working with better bottom lines on these cattle because of lower commodity prices,” he said. “It’s been a beneficial seven or eight months. We have seen black figures, not as much as we’d like, but it’s better than red.”

The export market for U.S. beef, which Webster described as “fairly quiet,” might pick up as Japan opens up its market more.

“It’s not where it’s been in the past,” he said. “The way the world’s economy has been, it’s been a tough time to do any type of trading with the international world. It will take a while to get back to where it was.”

As crop prices plunge to their lowest levels in decades, many farmers are wondering how much worse it can get. Yet even in these trying economic times, a glimmer of a silver lining is evident – at least for some Northern Colorado producers.

Many are thanking Mother Nature for ideal weather conditions that contributed to above-average yields, helping to boost returns. And while the cycle of grain prices is at a low, many in the livestock industry are increasing herds to take advantage of low feed prices.

Some farmers are adding livestock to their mix, because profit from fed livestock has potential…

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