High grain prices lead to big profits for farmers
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High grain prices have led to big profits for crop producers, strengthening the farm economy while other sectors continues to struggle.
Flush with money, farmers are spending on field equipment and pickup trucks.
At a farm equipment dealership in Jackson, in southwest Minnesota, tractors, combines and plowing equipment crowd the sales yard. The brisk winter wind can't chill the warm glow a healthy farm economy has brought to this business and most of the agricultural sector.
Marketing manager Nate Janssen said there's been a lot of interest in the machinery now that the harvest over.
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"Farmers have a little bit of time," Janssen said. "They've got their taxes figured out, as far what they'd like to spend to get into a lower bracket. We're kind of geared up and ready to go."
Although he doesn't have hard numbers, Janssen said the company he works for, C & B Operations, has seen a "pretty decent boost" in farm equipment sales this fall. At today's prices, that adds up to a lot of money.
Janssen points to a four wheel drive John Deere tractor with six foot high tires.
"That's a 9630," Janssen said. "That particular model could go for anywhere from $280,000 to $350,000 pretty easily."
The reason many farmers can afford such big machines goes back to the harvest. Corn and soybean crops were above average.
Even better, the prices farmers are getting for those commodities have soared. Corn alone is up more than 60 percent since last summer. Those increases mean some big profits for farmers.
"The agricultural portion of the economy is really doing well," said Ernie Goss, an economics professor at Creighton University in Omaha.
Goss said several supply and demand factors caused grain prices to move higher. The Russian drought reduced world grain supplies. At the same time, China increased its purchases. And the U.S. corn harvest was not quite as enormous as grain traders had expected.
Those events mean supplies are tighter, Goss said. That's pushed prices higher.
"Farmers are flush with cash, flush with good credit, and what they're doing is spending that," Goss said.
Some of that spending is on farm equipment.
Charlie O'Brien works for the Association of Equipment Manufacturers, a trade group that represents companies like John Deere and Caterpillar. He said nationwide the sales of combines have risen about six percent compared to last year. Sales of farm tractors are even better.
Sales of machines with 100 horsepower or more are up nearly 17 percent, said O'Brien, the trade group's vice president of agricultural services.
"Then you look at the four wheel drive tractors, they're up almost 27 percent," he said.
Spending by farmers gave a dramatic lift to the nation's largest farm machinery manufacturer. In its most recent quarterly report, John Deere noted that farm and turf equipment sales increased by a third, or $1.3 billion.
But it's not just farm equipment benefiting from the strong agricultural economy.
George Pipas, U.S. sales analyst for Ford, the nation's leading pickup truck seller, said the company's pickup sales are almost a fifth higher than last year. He said farmers are a big part of that increase.
"With prices being pretty good for grain and other commodities, the agricultural industry continues to be a strong segment for our business," Pipas said.
And there may be more buying ahead. In its latest estimate, the U.S. Agriculture Department has increased its forecast for farm income this year by six percent, or nearly $5 billion. If it proves true, U.S. farmers this year will rake in almost $82 billion, the second highest net income on record.
But even with the general prosperity, there are some trouble areas in agriculture.
"On the less positive side, would be the livestock sales," said Goss, the Creighton University professor.
He said cattle and hog producers have had several unprofitable years recently, although most are making money this year.
On the other hand, many dairy farmers have lost money this year because of low milk prices. The European financial crisis also could hurt crop farmers. If debt problems there lead to a stronger dollar, that could raise the cost of U.S. grain, hurting exports and farm profits.
