Slow economy ripples through farm fields

After several years of drought conditions, the weather has been generally good for farmers in central Virginia this year. State agriculture officials are predicting good yields on corn and most other crops.

The economic recession, however, has not spared the Virginia agricultural industry, which contributes about $55 billion a year to the state's economy. More than 350,000 jobs are linked to agriculture.

In central Virginia, farmers are preparing for the harvest of corn and closely watching agricultural commodity prices, which have already dropped substantially from last year's record highs.

It may be too early to give any realistic long-term economic forecasts for farmers.

Farmers, like commuters, have seen some relief this year in fuel prices, which hit them hard in 2008 in the cost of running tractors and irrigation systems. Yet the costs of many inputs -- the fertilizer, seed and chemicals it takes to produce crops -- remain high.

"Even with the high [commodity] prices we had last year, our producers here in Virginia, and the nation, were not making the associated profits we would assume because costs of production were also increasing," said Jonah Bowles, a market analyst for the Virginia Farm Bureau Federation.

Input costs have been one of their biggest concerns this year for Tom and Vicki Farmer, who have a farm in Hanover County.

"This year, the fertilizer [prices] took a while to back down," Tom Farmer said. "Fertilizer prices are down but not back down to where they need to be."

The Farmers grow more than 150 acres of grain crops such as soybeans, and 17 acres of "staple" vegetables such as tomatoes, squash, and potatoes on rented land and farmland that has been in his family for nine generations.

The USDA reported that overall input costs this spring were down about 3 percent for U.S. farmers, compared with 2008. Fuel led the decline, dropping about 46 percent, and fertilizer was down about 8 percent overall, but prices for seed and such chemicals as fungicides and herbicides were up 11 percent and 14 percent, respectively.

Some fertilizer costs have continued to rise, according to the USDA. In Virginia, prices for potash, for example, more than doubled from 2007 to 2009, rising above $900 a ton this year, according to one survey.

Farmer normally grows corn, but this year he calculated that the cost for him to grow corn versus the likely income wasn't a good bet. So he planted more soybeans instead. "I made a personal decision that there would be a greater chance of profitability on beans than corn, because the input cost is less," he said.

Commodity prices, which determine what farmers receive for such crops as corn, wheat and soybeans, dropped off with the economy and the stock market. Corn, which had risen to about $7 a bushel, is now back down to about $3.25. Soybeans were up to $16 a bushel last year but are more recently down to about $10 a bushel.

Deflating prices for agricultural products have affected many types of farms in Virginia. Dairy farms, for example, have been particularly hard hit, because prices for milk have declined to about $11 to $13 per hundredweight, below the cost of production, said Gordon E. Groover, a professor of agricultural economics at Virginia Tech.

High input costs mean farmers have to look for ways to cut back on expenses. Tom Farmer, for example, is using more natural fertilizer rather than artificial fertilizer, which he says has helped him cut fertilizer costs about 30 percent. A pile of natural fertilizer -- a mixture of chicken litter and composted leaves -- sits at the edge of one of his vegetable fields.

"We do it for two reasons," he said. "One is for our customers," many of whom prefer to buy vegetables grown with natural fertilizer, he said. "The other reason is the economics, to offset the cost of fertilizer."

Experts say it is difficult to predict how well the farm economy will perform for the rest of 2009 and 2010. Weather conditions for the rest of the summer and fall will be a key factor.

"We just hope for the corn and soybean crops will avoid any major hurricane to play havoc with them," said Philip Hickman, program director for the Virginia Small Grains Board.

Commodity prices seem unlikely to improve much anytime soon.

"With a volatile stock market, we have a volatile agricultural market, and we are seeing that now," Bowles said. "It is generated by the economy, and the speculative activity in the market."

Consumer spending is also key -- not just whether people are willing to spend more at grocery stores and restaurants, but also whether they are willing to buy such products as cotton clothes, Bowles said.

"To improve the agricultural economy, we have to improve our overall economy," he said. "That is not going to happen until consumers regain confidence in our economy."

Global markets are also a major factor. For example, production of soybeans is expected to grow about 4 percent in Virginia this year. Virginia farmers produce soybeans largely as feed for livestock, and global demand for U.S. soybeans has been high this year. Other producers, such as several South American nations, have had shorter supplies.

Some farmers have been turning their attention more toward local markets. Tom and Vicki Farmer are diversifying their vegetable and fruit production to supplement their income. Last week, they were picking tomatoes for sale to local restaurants and at local fresh markets, where they set up booths several days a week to sell their produce.

The growth of fresh markets, "has been a blessing to us, because it gives us another avenue to sell our products," Tom said. But, he added, sales of his fresh produce to restaurants and at farmers markets slowed when consumers pulled back on spending.

In Dinwiddie County, farmer Billy Bain has seen the impact of a slower economy, too. He grows corn, soybeans, wheat and peanuts.

"Overall, the crops are in better shape in this area than they have been in a couple of years," he said. "We have been in a real drought for three or four years. This year, we are anticipating a respectable crop."

Just eight years ago, Bain produced more than 600 acres of peanuts, but this year he is growing only 50 acres, reflecting a trend that has affected many farms in southeastern Virginia since 2002, when Congress eliminated a quota program and lowered price supports for the crop. The state's peanut crop is estimated to be down about 50 percent this year to 12,000 acres.

Farmers have planted fewer peanuts because of an oversupply of the crop, and as prices have dropped from about $600 a ton to about $450 a ton, said Thomas Cotton, executive director of the Virginia Peanut Growers Association.

"We hope this is a one-year thing," he said. "We hope we will get the majority of those acres back next year." But Virginia may never get back to the 75,000 acres of peanuts it produced in 2001.

In addition to the drop in prices for grains, Bain has also seen declining demand for other products. For example, he said, demand for hay to feed horses has fallen substantially.

Bain usually sells straw from his wheat crop to developers who use it for soil cover at construction projects, but he is not seeing the same demand this year.

"That tells you what is going on in the economy, how slow construction is, when straw sales come to a halt," he said.

Contact John Reid Blackwell at (804) 775-8123 or .