Higher operating costs put pinch on farmers

By Seth Rosen
Media General News Service
Published: April 21, 2008

Under pressure from skyrocketing fuel and fertilizer prices, Adventure Farms in Earlysville is taking an unprecedented step: the cattle farm is getting into the soybean business.

Like farmers all across Central Virginia, Adventure’s owners have seen their profit margin shrink over the past year as the basic goods needed to run its business have more than doubled in cost. Compounding the problem is the fact that many farmers have yet to recover from the drought that afflicted the area last summer.

Running a farm has gotten precipitously more expensive over the past 12 months. Adventure Farms is paying $110 for an acre’s worth of fertilizer, compared with about $50 this time last year, said Carl Tinder, the farm’s manager. The bulk price of diesel fuel has spiked from less than $2 a gallon to nearly $4.

“Farmers are taking a beating right now,“ Tinder said. “You have fuel at an all-time high, fertilizer at an all-time high, corn is at an all-time high, so, yeah, people are a little nervous.“

To help offset these rising costs, Adventure Farms is taking a gamble and planting 75 acres of soybeans this spring. And farmers all across the state are devoting more space to the crop.

It is projected that Virginia farmers will plant 40,000 more acres of soybeans this year, said David Coleman, a grain marketing manager for the Virginia Farm Bureau Federation.

The reason is obvious to anyone who has visited a grocery store in recent weeks - the price of grains has shot up. Today a bushel of corn sells for about $6.25, up from $4.30 this time last year; the price of soybeans has jumped 72 percent in that time span, according to the Department of Agriculture.

The escalation of prices has been triggered by what Bill Shobe, an economist at the University of Virginia’s Weldon Cooper Center for Public Service, calls a “perfect storm”: increased demand, increased cost of production and reduced supply.

Rising affluence in Asia means tens of millions of people are purchasing more food, pushing up the demand for staples such as rice, wheat and corn. At the same time, U.S. and European farmers are selling their corn to biofuel manufacturers, putting pressure on supply.

Throw in a weakening dollar and the up tick in fuel prices, and market forces have brought about record-high food prices.

“When you have all these forces working together in tandem, that drives the prices up even faster,“ Shobe said.

However, just because farmers can command a lot more for their crops doesn’t mean their bank accounts are growing fatter.

“I know everyone in the non-agricultural sector sees the prices of corn and grain and think farmers are making piles of money, but it’s just not the case,“ Tinder, of Adventure Farms, said.

Jim Bowen of Culpeper County grows about 1,000 acres of both corn and soybeans. While he is receiving significantly more for each bushel of the two crops, that barely offsets the spike in fuel, fertilizer and chemical prices.

“We are making a little bit more, but not much,“ Bowen said. “The inputs have gone up almost to match it.“

The price of corn feed has risen so fast that it is no longer practical for Bowen to fatten up his cattle. Last year he sold his cattle when they reached 800 pounds. Now he is putting them on the market at 500 pounds and letting someone else feed them.

Because of the spike in fertilizer prices, growing corn has become much more expensive. Ed Scharer, who owns a livestock farm south of Monticello, is spending twice as much this year on fertilizer than he did last year - $18,000 compared with $9,000.

In response he has had to decrease his hay output and hold off on buying new equipment.

“I have to scale back,“ he said. “Otherwise, we would put more money into the ground than we would get out.“

Many farmers acknowledge that high fuel and fertilizer prices are likely here to stay, and, like Adventure Farms, they are searching for new ways to remain profitable. The greatest fear right now, farmers said, is another severe drought this summer, exacerbating those problems.

“Everybody is concerned that this summer will be the same as last year,“ said Coleman, of the Farm Bureau.