Production Costs Outstrip Revenue for Wheat Farmers

Aug. 28–KOLIN — Dark clouds loaded with rain gathered over the western horizon as Don Taylor finished the last swath of winter wheat in his field on a recent afternoon.

It’s a good crop this year in central Montana, but the price for his product won’t cover the cost of growing it.

“It’s a beautiful picture,” he said of the golden landscape, foreground for the skyline that provided backdrop for Charlie Russell paintings.

Taylor’s yield of 45-65 bushels per acre is above average. “I’m not complaining.”

But his farming business, west of Lewistown, is in trouble because the cost of production is outstripping his revenue.

“I have a bumper crop, and I’m going broke doing it,” he said. “I’m faced with questions of how to fill the fuel tanks to bring in the crop.

I could not afford the insurance to cover expenses.

“I’ve lost more money in the past five years than I made in the previous 35,” he said.

Input costs — chemicals, seed, fertilizer and fuel — are sharply above the current price for winter wheat. Spring wheat, now waiting a visit from the combine, faces a similar scenario.

Last week, ordinary hard red winter wheat with a protein level of less than 11.5 percent was getting the farmer $2.85 a bushel at the elevator at Moore. For 11.5 percent and above, it brought another 20 cents. The ag banker in Lewistown figures the input costs are in the $3.25-a-bushel range.

It doesn’t take an accountant to figure the red ink.

“We’re getting raped; it’s pathetic,” said Gary Gollehon, who farms at Brady.

“The customer cutter’s cost of fuel went up more than 40 cents a gallon in a month,” he said. “Fertilizer has tripled in five years.”

He said the fertilizer dealer won’t give him a quote for the coming planting season but he knows it will be more than $300 a ton.

Dry fertilizer cost about $250 a ton in 2004, $280 this year and is expected to run from $300-$320 for 2006 — that is, if natural gas prices, a key component of fertilizer, stop skyrocketing. A wheat farmer uses a ton of fertilizer, on average, for every 20 acres planted in fallow ground. A ton covers about 12 acres when wheat is planted into a re-cropped field.

Gollehon works the family’s homestead 45 miles north of Great Falls along the eastern front of the Rockies. He is the fourth generation.

Like Taylor — they’re both 59 — he’s spent his life raising grain, mostly wheat, but sometimes malt barley.

Last year, he harvested 50-55 bushels an acre, but that included a top application of urea fertilizer, which cost him $50,000, he said. This year’s crop is 45-50 bushels an acre, but without the urea. “It did not pencil this year,” he said.

A Canadian custom-cutter harvests Gollehon’s crops.

Todd Dorchak, of Lethbridge, started with the wheat harvest in Vernon, Texas, in May and will end in Peace River, Alberta, in mid-November. He operates seven combines with a crew of 21.

Charging $19 an acre, he figures he’ll break even this year. He doesn’t have the heart to charge more because the price of wheat is so low, he said. Off-road diesel was $1.87 a gallon on July 17, he said. This week he paid $2.28 a gallon.

Off-road diesel does not include the 45-cent state and federal highway fuel tax.

Another added cost is transportation.

The Burlington Northern Santa Fe Railroad recently reduced its shipping price at 110-car shuttle elevators, creating a 14-cent-per-bushel differential from that charged at 52-car elevators.

To keep its shuttle trains moving efficiently to Pacific Northwest ports, the BNSF prefers the 110-car units. There are 11 across Montana.

It takes about 26 hours to load a 52-cart train at an elevator, compared with 15 hours to load a 110-car train at the shuttle loaders.

“Yeah, but it costs 17 cents a bushel to truck the wheat from the field to Collins (the nearest 110-car loader),” Gollehon said.

Taylor and Gollehon, as members of the Campaign to Reclaim Rural America, have for a decade called for government investigation and action against the major grain-trading companies and the railroad.

“They have nobody to answer to,” Gollehon said. “And the consumer is not getting a deal, either.”

“We are getting 1950 prices without government supports and at 2005 costs,” Taylor said.

A recent analysis from Montana State University shows net farm income in inflation-adjusted dollars has flat-lined the past 25 years.

“I’ll drink Juan Valdez’s coffee, but I don’t want to ride his burro,” Gollehon said, referring to the peasant in the TV ad for Colombian coffee.

The United States’ farm policies “are killing rural America” he said.

Because the winter wheat yield is above average, the extra bushels can ease the sting of lower prices. Nevertheless, surging energy and fertilizer costs portend even higher costs for putting in next year’s crop this fall.

Taylor said he wants a return to federal farm programs in place 20 years ago. He thinks there should be a loan rate for wheat that covers the cost of production, a target price that represents a profit and a deficiency payment from the government to cover the difference between the loan and the target.

For example, the farm law in the mid-1980s provided a loan price of $3.80 a bushel for wheat. The target price was $4.10. The government loan price tended to set the floor price of the grain in the marketplace. The farmer was assured of at least $3.80 a bushel and could take a loan on his wheat for that price. If the market price was greater than that, but less than the target price, the farmer paid off the loan and got the difference between the market price and the target price as a deficiency payment. If the market price fell below the loan price, the farmer kept the loan money, forfeited his grain to the government and got the full deficiency payment, or 30 cents a bushel.

The program tended to build huge stocks of surplus grain owned by the government, which in turn depressed the market price for grain. And it cost the government millions to store the grain around the country.

The 1996 Farm Bill, tagged “The Freedom to Farm Bill,” sharply reduced price supports and subsidies and eliminated acreage set-asides that were meant to control total production. The current farm bill, written in 2002, is in effect through the 2007 crop year. It reduced further government payments to farmers, although there are some minimum price supports coupled with compulsory federal crop insurance to cover losses.

The intent of the 1996 and 2002 national farm policies was to wean farmers from government programs and provide incentives to plant crops on the basis of market demand.

Taylor wants a farmer-owned grain reserve for which the government would pay him for the storage rather than the large grain-trading companies.

He sees the reserve as a food security issue.

As for the current safety net in the farm program, Taylor describes it as “humorous.”

The secretary of agriculture is holding hearings around the country this summer and fall, taking comments on what should be in the 2007 farm bill. If the 2007 farm bill removes the remaining commodity programs, farmers’ net income would drop 25 percent, according to a recently released analysis from Daryll Ray, an economist at the Agricultural Policy Analysis Center at the University of Tennessee in Knoxville. For major crop producers, such as wheat, net income could drop 50 percent.

Taylor said the law should keep producers on the farm, where they belong, where they can afford to do the job. It should include group health insurance for farmers and their families and liability insurance.

The alternative is to sell the view, Taylor admits, though that runs against the grain of his heritage.

“You can see eight mountain ranges from here,” he said. “So there is value on this knob other than agriculture. If I sold it, no local producer could afford it, so it would go to an insurance company or out-of-state investors.

“It would not stay as a family farm.”

Montana’s grain farmers have been encouraged for more than a decade to diversify their operations. But geography and climate sometimes determine what alternatives will work.

Taylor has some cattle, but “not nearly enough,” he said.

Gollehon said he’s decided “to grow CRP.”

“The Conservation Reserve Program is my only salvation,” he said. He put land into the program last year on a 15-year contract. The program pays farmers to take land out of crop production, plant it to grass and not farm it for the duration of the contract. In return, the government pays a set amount an acre each year to the farmer.

Montana has 3.4 million acres in the program, which pays the state and its farmers about $110 million a year.

“My grandsons are 10 and 6,” Gollehon said. When the contract matures, they’ll have land and water to raise cattle.

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