Answer: Farmers are price takers and we are doing our best to mitigate higher prices and control our costs.
“For the farmer is the only man in our economy who has to buy everything he buys at retail, sell everything he sells at wholesale, and pays the freight both ways.” – Senator John F. Kennedy, Jr.
Farming has not been immune to the trend that the rest of the economy has suffered from. High prices have not only graced the farm products we grow and raise but have made a pernicious impact on the things we buy. From tractors and implements, to fertilizers and chemicals, the cost of doing business has gone up dramatically.
In the short-term farmers can delay purchasing some things like new equipment, bins, buildings, and machinery.
However, some farmers are in a position where they have to replace a piece of worn out or broken equipment.
On the other hand, the things we buy every year we cannot do without. These things we use to grow our crops we typically refer to as “inputs” like seed, fertilizer, and pesticides. Input prices have been soaring and there are concerns about availability.
The culture of agriculture is one of trust and stability. Over the years I have farmed I have developed strong working relationships with different suppliers. There are 3-4 retailers of agricultural inputs in most all farm communities and inevitably sooner or later some sort of relationship will be forged with all of them. I value every relationship I have in agriculture. Recently, speaking with one our sales professionals about the tightening of supplies, he said, “You’ve taken care of us and we will take care of you.”
While supplies are tight and prices are high, I am confident we will weather this storm together. However, at the end of the day farmers are essentially price takers. Not only for the prices we receive, but for the inputs we purchase.
One of the hardest problems for farmers to solve is taking physical delivery of products. We work in a high-volume industry. It is impractical to think that we could physically store on our farm all of the inputs we would need for a given year.
During spring and fall there is a robust and impressive system at work to transport, warehouse, distribute, spread, and spray our inputs in order to grow our crops. Barges moving up the Mississippi River and trains moving in from all directions bring in essential nutrients for our crops. They unload into terminals which have a constant supply of trucks bringing products to our farm.
The issue is that it can be difficult to set a price for our inputs, when you really want to, when prices are low. For farmers without immense storage and application equipment they usually have to buy things a few months before they need to use them. In this instance prices for these inputs have been soaring since last summer.
While there are opportunities to sell conventional crops for modest premiums, nearly all commercial crops are sold at a set price. This set price by the Chicago Mercantile Exchange fluctuates sometimes violently. Basis and carry are mechanisms farmers are subject to, yet when the final price is done, these only usually influence the price by three to ten percent. We work hard to squeeze every cent out of every bushel our farm produces.
Looking at Farm Business Farm Management data, farmers that can produce the most bushels while controlling costs end up being the most successful. This year will be a challenge with record high inputs. We simply cannot grow a crop without most every input but we will do our best to mitigate these high prices. We will work with our trusted suppliers. And we will push through these once again tumultuous times to an era of sustained stability.