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Helmut Schmidt, Published November 09 2013

Low sugar beet, corn prices forcing area farmers to 'ride out the storm'

AMENIA, N.D. – Bill Hejl has farmed sugar beets since the 1980s – if you don’t count his time in middle school, high school and vacations while in the Air Force.

The Amenia man farmed with his father – now deceased – and his brother.

His son has been part of the operation the past six years. His wife even learned how to run a defoliator.

The 58-year-old has weathered the ups and downs of sugar beets, wheat, corn and soybeans.

But “sugar beets made my farm,” he said, because the prices are generally stable and good.

But getting back into the fields in the coming year will be tougher for beet farmers, and for those growing corn.

American Crystal Sugar last week announced that its payout will drop to $38 a ton, down from $68.41 in 2012. Minn-Dak Farmers Cooperative is expecting a payout closer to $40 a ton, much lower than the $75 a ton paid last year.

Those dips are tied to a massive flood of sugar imported from Mexico, industry experts say.

Similarly, corn prices have gone from highs in the $7.60 a bushel range 12 months ago to dipping into the $4.20 a bushel range late last week, thanks to the nation’s biggest-ever crop.

Hejl, who finished harvesting beets two weeks ago and put the last of his corn in bins Thursday, said his family’s farm will survive the latest market gyrations.

“You kind of grit your teeth and get through it,” he said.

For other farmers, it may depend on the amount of debt they have. Do they own their shares in their beet cooperative, or are they still paying for them? Do they own their land, or are they still paying for it?

And savings from the good years will be tapped.

“If you have some liquidity, if you have some capital built up, you probably start going into that,” Hejl said.

The past few years have been good years for farmers in and around the Fargo-Moorhead Metropolitan Statistical Area.

Total net farm proprietors’ income averaged $341,412 in 2011, $290,818 in 2010, $169,370 in 2009 and $$317,292 in 2008, the Bureau of Economic Analysis reports.

A look back to 1969 shows lean years, too. In 1993, the BEA reported total net farm proprietors’ income was $17,090. In 1980, the payday at the end of harvest was more like a kick in the pants, with an average loss of $22,071.

Dwight Aakre is an Extension farm management specialist at North Dakota State University.

“To have high prices year after year doesn’t happen very often,” he said. “The last three- or four-year period is unique in history.”

This year’s prices are more the norm than an aberration, he said.

“Forty dollars to $50 a ton was a common range for sugar beet prices for a number of years,” Aakre said. “Sixty-eight dollars a ton is like $7 (per bushel) corn —you can’t sustain it.”

Aakre said eventually the low crop prices will have an effect on Main Street, as farmers rein in spending on “new steel” in the form of tractors, trucks and other equipment, or lay off help.

“It does become a problem for those selling that machinery, but that’s the cyclical nature of the business. It isn’t new to them. It isn’t the first time that it’s happened,” Aakre said.

The safety net is federal crop insurance, he said. The funding for that program is separate from the farm bill, which is still being negotiated.

“That’s what will keep most producers out of trouble,” Aakre said.

Brian Erickson, who farms around East Grand Forks, Minn., said it’s time “to operate with the sharpest knife that we can.

“When we have good prices, we can use a duller knife when cutting expenses,” Erickson said.

He has farmed sugar beets, wheat and soybeans for 30 years. The 65-year-old is now preparing to turn the operation over to his son, though he wishes the timing could be better.

“We’ve got unusual circumstances now,” Erickson said. “Mexico is shipping an ungodly amount of sugar into the United States and that has caused the market to plummet.”

He said the good operators will have saved cash when times were good, and will be able to draw on those resources.

Instead of buying a piece of equipment, farmers will also repair or make do.

“We just have to endure the storm,” Erickson said.

Lynn Paulson, senior vice president and director of agribusiness development for Bell State Bank and Trust, said most lenders take the long view when they work with their agribusiness customers.

“I think the good news is most farmers are going into this downturn in pretty good shape financially,” Paulson said.

But back-to-back lean years could be challenging for those who are carrying lots of debt, he said.

A one-year downturn shouldn’t have a big impact, and it may even force more conservative decision-making and more crop diversification, he said.

Spending also might not change much for this year. In fact, there might be tax advantages for buying some equipment yet this year, Paulson said. But 2014 could be when spending is “dialed back” on Main Street if lower crop prices continue.

“As my dad used to say, ‘There’s some storm clouds building in the west,’ ” he said, adding, “I’m still relatively optimistic about the long term of agriculture.”

Paul Rutherford is optimistic, too, if only because the 55-year-old’s long been a conservative operator.

“I was born a Scotsman, and I guess I still am,” the 55-year-old Euclid, Minn., farmer said. “I’ve never been one that needs to go out and buy a brand new tractor. It’s just always the way I’ve farmed.”

Rutherford, who is also president of the Red River Valley Sugarbeet Growers Association, said the biggest challenge for farmers is that while commodity prices have dipped, their input costs are not following as quickly.

Fertilizer and fuel costs are down a bit but not nearly as far as crop prices. Land prices are also still strong, and may remain so unless low crop prices persist for a couple years, he said.

A key is for farmers to build a solid relationship with their bankers and keep that relationship healthy, he said.

Then, “hang on and ride the storm out,” Rutherford said.

Aakre said that if prices stay low for several years, it will be a test for farm operations and for farmers themselves.

Some might even hang up their seed caps, he said.

“You have to have a high tolerance for accepting that risk and knowing that it’s there,” Aakre said. “If you want a risk-less career, farming is not the place to be.”

Readers can reach Forum reporter Helmut Schmidt at (701) 241-5583