December 19, 2007 / 12:09 AM / 10 years ago

With prices high, farming is bright spot

<p>Iowa farmer Gordon Wassenaar is pictured on his land in Prairie City December 4, 2007. Wassenaar has his eye on a $300,000 combine harvester to replace the 1990 model he repairs each winter in the workshop on his farm. And he just bought more land to add to his 1,600-acre spread. REUTERS/Carey Gillam</p>

PRAIRIE CITY, Iowa (Reuters) - Gordon Wassenaar has his eye on a $300,000 combine harvester to replace the 1990 model he repairs each winter in the workshop on his farm. And he just bought more land to add to his 1,600-acre spread.

Sky-high prices for corn, soybeans and wheat, and a jump in the value of farmland across the U.S. heartland, have boosted the fortunes of farmers this year and breathed fresh life into rural communities.

“These are the best couple of years I’ve probably ever had,” said Wassenaar, who has lived in the same weathered white farmhouse and raised corn and soybeans in the surrounding Iowa fields for 52 years.

Good times in rural America are in stark contrast to the rest of the country, where homeowners fret over foreclosure on subprime loans, corporations wrestle with a credit squeeze and retailers suffer from a slowdown in consumer spending.

And the success on the farm comes at a time when Congress is writing a $286 billion farm bill that includes a first-ever crop revenue guarantee program.

On Friday, the Senate passed its version of a farm program that would guarantee revenue for grain, cotton and soybean growers starting in 2010. The House passed a similar bill in July and a final House-Senate version of the bill could be sent to the White House by the end of January.

While some farm groups applauded Congress for laying down a “stable and predictable safety net,” critics say the time is right to roll back subsidies, which they say distorts markets and siphons off taxpayer money in favor of big agribusinesses.

“The farm bill we have before us does not provide meaningful reform,” said Sen. Richard Lugar, an Indiana Republican, who sponsored a subsidy-cutting amendment that was defeated by the Senate on December 11.

The Bush administration has threatened to veto the bill.

GLOBAL DEMAND

Rising prices for grain are expected to push income from the country’s two million farms to a record $87.5 billion this year, up about 48 percent from 2006, according to a U.S. Agriculture Department forecast.

And the average household income -- from farm and off-farm sources -- of principal farm operators was forecast to be up 7.7 percent in 2007 to $83,622.

A key factor is global demand for corn, a major human and animal food source and a raw material for ethanol. Corn, at $4 a bushel or more, up more than 50 percent from two years ago.

Soybeans, another key food and feed crop, are commanding more than $11 a bushel, levels last seen in 1973. And wheat prices pushed past $10 a bushel this year for the first time in history, double levels of a year ago.

Still, U.S. farmers say they need the government support, which also provides for land conservation, rural development programs and affordable food.

Some wheat farmers in parts of Kansas, Oklahoma and elsewhere saw their crops die off due to a late spring freeze followed by summer drought this year. The high prices mean little to them, except chances lost.

They and others say a strong federal safety net is key to their continued ability to farm.

As well, many farmers are quick to point out that alongside the rising grain prices, the costs of growing the grain -- fertilizer, fuel and seed costs -- also have risen sharply.

Indeed, USDA forecast total 2007 farm production expenses at a record $254.2 billion, up $21.7 billion from 2006.

“We had respectable yields and the price did come up,” said Larry Jernas, a farmer in central Indiana. “But our inputs are escalating at a faster pace so 2008 is going to have to be a year where we are going to have good prices again.”

SEED COSTS

Crude oil futures, for example, are currently hovering around $88 per barrel, up more than 40 percent over the past year, after hitting a record high of $99.29 per barrel in late November.

Fertilizer costs also have been on the rise as U.S. farmers compete with overseas growers for limited supplies.

And seed costs are climbing, as many providers find a market willing and able to accept double-digit price increases for 2008.

Farmers may grumble but still they are snapping up the pricey seed as they, like everyone else, expect prices to stay high next year.

Across rural America, farmers are using their higher incomes to pay off existing loans, invest in new equipment, and buy more land, according to economists, giving a boost to their communities.

Climbing land values are also part of the picture, with both farmland and ranchland seeing gains of more than 13 percent over a year ago.

And with crop shortfalls continuing to pinch supplies abroad, along with surging demand for ethanol as an alternative fuel, farm price prospects look strong for next season.

“I think that agriculture is definitely the bright spot in the economy,” said Bill Niebur, global vice president for Pioneer Hi-Bred International Inc., the agricultural products unit of DuPont Co. “Everywhere I go, agriculture is on fire.”

Reporting by Carey Gillam; Additional reporting by Mark Weinraub in Chicago; Editing by K.T. Arasu and Eddie Evans

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