In Iowa, big corn crop presents a problem

Dan Weissmann Sep 18, 2014
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In Iowa, big corn crop presents a problem

Dan Weissmann Sep 18, 2014
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This year’s corn crop is expected to break records, thanks in part to near-perfect weather. Paradoxically, that means bad news for corn farmers. The United States Department of Agriculture says the average price per bushel will probably drop by more than 30 percent. I went to Iowa, the nation’s top corn-producing state, to see how that is playing out.

But because this is a story about how markets work, I stopped first at the Chicago Board of Trade, where Scott Shellady trades for TJM Investments. He described a farmer’s ideal scenario: “If you want high prices as a farmer, you want there to be a drought on everybody else’s farm except yours.”

In theory, a big crop should have an upside. Sure, he said, prices are low, “but you, technically speaking, are making more of it, so lower prices but more of it should help make up for that.”

So, does it? “Not really,” he said with a rueful laugh. “Not all the time. No.”

That’s because once the market has more than it wants, prices drop precipitously.

That’s a new experience for Alex Edgington. He’s 27, four years into his career as a farmer.

The day we met, on his farm about 10 miles south of the Minnesota border, corn prices at the Chicago Board of Trade had just gone below $3.45 a bushel.

“I sold my first 5,000 bushels of corn for $4.86, and it did nothing but go up after that,” Edgington said. “So for me, this is definitely my first down year, and it’s nerve-wracking. It’s very scary for me.”  

Most of his acres are in corn, with some soybeans—which are also in oversupply. He’s also got 53 goats, and gets paid by another farmer to keep 175 head of cattle on his land.

“Having the animals, that’ll keep me afloat this year,” he said. “I don’t know how I would do with a five-year deal of this.”

I ask him about Scott Shellady’s colleagues at the Board of Trade. Couldn’t Edgington have sold his crop on the futures market there earlier this year? Prices were above $5 at one point.

“The opportunity is always there to sell,” he said. “And sometimes you do risk it, waiting for a higher price. Other times, especially last year, you don’t know if you’re gonna have a crop. We planted one third of our acres last year.”

Spring rains made it impossible to plant more. If they had tried pre-selling super early, hoping to grab higher prices, he said, that would have been trouble.

“It’s a risk,” he says. “Everything’s a risk, in farming.”

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