I don’t remember now whether it was corn or soybeans. Let me go back to when my father bought his first tractor: since the war had just ended, he bought rubber tires to put on the wheels. He still used his horses for some 10 years for light work. I was born in 1941 and what I have seen on the farm front over the years can and will affect our entire economy.
My father had a good crop of corn if it made 40 bushels to the acre. As I went through my high school years, he began to side dress with granular fertilizer and then my first job out of high school was applying anhydrous ammonia fertilizer. Yields of corn went to 100 bushels per acre and have increased even more since then.
Back to piles of corn or was it soybeans. I worked for a grain elevator in a small town and as the crops of corn increased and with tractors having more power, soybeans became common with more ground plowed up instead of raising livestock. One year we had such a good yield that the elevator had to store the crops outside.
Things have changed. My father would have fed almost all the grain he raised to our livestock. But as production increased, there was excess to sell. The grain elevator where I worked gradually built more elevators (to store grain) and since we were on a railroad siding, there were always railroad cars that we would load grain into and it went away to be used elsewhere. That one year that produced so much grain that we could not store it all was an exception and I think it only happened one year.
The grain stored outside spoils on the outside and makes a barrier to help keep more moisture from entering the center and spoiling the grain. At best it is only a temporary arrangement. But I look at the fact that grain is not moving to ports to be sent to China and wonder about the next season.
Today, it costs somewhere near 300 dollars an acre to plant corn. If you are a farmer working a couple of thousand acres, think of the necessary money needed just to put in a crop. Most farmers carry insurance to cover their cost. At the same time, most farmers rent their farmland and that cost may be either a set amount or a portion of the revenue. The first problem a farmer will face is how does he pay back the money he borrowed to plant the crop. If the insurance covers that cost, then he is ok, but that doesn’t leave anything to live on. With prices of grain dropping below the cost to produce, sooner or later the bank will hesitate to loan any more money.
Consider the owner of the grain elevator who buys the grain. He works on borrowed money also. He faces the fact that not only will he run out of room for next year’s crop, but where will he get the money to buy the crop anyway? And the loans he has on the crop will need to be repaid sooner or later even as interest keeps accumulating. Things were simpler when my dad farmed. He sold some of the grain but kept some to see in the spring. He would pay the elevator a few cents a bushel to store the grain for him, hoping to spread his prices around so he didn’t move it all at the lowest prices.
I am sure that some grain is still stored by the elevator owner. But is it the grain outside that is mine or is mine inside a dry elevator? I think that the elevator usually was paid storage costs when the grain was sold. But if there is no buyer, then the elevator doesn’t get any money and neither does the farmer. Of course, some of the grain was sold by the farmer on the futures markets as well as that of the elevator. Now if there is no market for grain, what kind of loses will the futures trader face. He probably works on borrowed money.
Now go to the edge of town to where the farmer buys his machinery. At this time of the year, already will be farm equipment that the farmer would normally buy to help offset profits. We are looking at machinery that costs over a quarter of a million dollars all the way up to a million. More will be arriving through the winter so that farmers can replace worn-out machinery. The equipment seller will also be operating on borrowed money. And all those little stores still left in town, nobody has any extra money to spend.
In the mid-’80s, a good many savings and loans financial institutions went broke because of loans to farmers. Today, banks have a lot more invested in the farm economy than back then. With just 3 or 4 companies controlling sales of grain worldwide, losses to them will affect even the largest bank because they operate on borrowed money. There will be farmers that go bankrupt, banks that will close or be bought out, rural businesses that will hurt and even close. Because agriculture is such a large segment of our economy, many will feel the pain.