Surging US crop prices reverse fortunes in rural Iowa

A surge to eight-year highs in U.S. corn and soybean prices is boosting farmers' incomes and their demand for land, tractors and tools. It is a turnaround for the agricultural sector after farmers struggled for years with a series of challenges: an oversupply of grain, former President Donald Trump's trade war with China and then the pandemic.

In western Iowa, where Arkfeld lives, the rise in farm income is helping to revitalize the rural economy, after a deadly flood in 2019 submerged fields and drove some growers out of business. Farm families are spending more at stores that sell clothing, grooming products and home improvement supplies, local businesses said.

Iowa's economy is particularly tied to agriculture as the state is the No. 1 U.S. producer of hogs and corn, as well as home to many seed and agricultural equipment dealerships.

"When farmers make money, they spend money, which is good for the economy all the way around," said Bret Hays, a farmer in Malvern, Iowa, in Mills County.

Hays is sowing crops this spring with his first new planter in about a dozen years, a hulking Deere & Co (DE.N) machine that costs nearly $350,000.

It is a stark contrast to 2019 when he cleared sand and debris left in his fields from floods and crop prices slumped during the U.S.-China trade war. Now, soaring grain prices make it easier to swallow the price tag of the planter he ordered last year and to pay off debt.

Iowa's economy is particularly tied to agriculture as the state is the No. 1 U.S. producer of hogs and corn, as well as home to many seed and agricultural equipment dealerships.

"When farmers make money, they spend money, which is good for the economy all the way around," said Bret Hays, a farmer in Malvern, Iowa, in Mills County.

Hays is sowing crops this spring with his first new planter in about a dozen years, a hulking Deere & Co (DE.N) machine that costs nearly $350,000.

It is a stark contrast to 2019 when he cleared sand and debris left in his fields from floods and crop prices slumped during the U.S.-China trade war. Now, soaring grain prices make it easier to swallow the price tag of the planter he ordered last year and to pay off debt.

Low interest rates, a lack of farmland for sale and record-large aid payments to farmers from the Trump administration are helping push up farmland values.

In Mills County, the average rent for farmland is $229 per acre, according to Iowa State University, about half of what Arkfeld paid. Arkfeld says he can guarantee a profit this year by booking corn and soy sales ahead of time for the autumn harvest.

"I never even looked at the farm to tell you the truth, until after I rented it," he said. "It's pretty decent."

Fellow farmers on Twitter and other online forums have said they think Arkfeld's rental payments are too high. Crop prices have continued to rise since he won the auction in February, though, making the deal look better and better.

On April 20, Arkfeld said he sold three-year-old soybeans left over in a storage bin for $15.03 a bushel, the highest price he has ever obtained for any soybeans.

LAND SALES HEAT UP

Farmers in Mills County, with about 15,000 residents, compete in land sales against investors and housing developers, locals said. Developers often buy smaller parcels to build homes that are later sold to people moving from Omaha, Nebraska, some searching for more space during the pandemic, they said.

"There's so much of the farm ground now that is housing and it's just going to keep going," said John Stortenbecker, owner of Glenwood Farm Equipment in Glenwood, Iowa, the county seat.

Local farmers who shop at Stortenbecker's store are pre-ordering grain bin augers, which transport crops into and out of storage, for the first time since he took over four years ago, he said.

Buyers are worried about availability of the augers - which cost up to $14,000 and are normally sold around harvest time - and are paying for them in advance, Stortenbecker said.

He is glad for the business after the worst flood in 50 years hit the area in March 2019 and the pandemic began one year later.

"This is the first year in three years that March didn't have something terrible happen," Stortenbecker said.

The U.S. Department of Agriculture on March 31 said farmers intended to plant fewer acres of corn and soybeans than analysts expected, sending crop prices on another rally. read more

Chicago Board of Trade corn futures on Wednesday matched an eight-year high that was up 28% from the start of the month and 138% from a year earlier. At an eight-year peak on Tuesday, soybean futures were up 12% for the month and 94% from the previous year.

The boom and bust nature of farming means grain prices could crash if farmers ultimately plant more acres or demand for grain evaporates.

In China, a government plan to change the crops used to feed livestock, and a resurgence of a deadly pig disease in the country could cut the need for corn and soybean imports and send U.S. prices lower. read more

TRACTOR DEMAND JUMPS

For now, high crop prices are lifting North America's demand for large farm machines to the highest level since 2012-13, said Eric Hansotia, chief executive of tractor maker AGCO Corp (AGCO.N). Inventories of machines are lean and farmers need to replace aging fleets, he said.

At Lindeman Tractor in Atlantic, Iowa, an hour's drive northeast from Malvern, sales of new New Holland tractors made by CNH Industrial (CNHI.MI) started rising in November 2020, salesman Lonn Schlueter said. They are now up threefold from a year ago and the strongest in about nine years, he said.

"Customers are very optimistic, very satisfied with commodity prices," Schlueter said. "So they are anxious to improve their equipment and buy new."

Prices are up 20% year-on-year for large used tractors and 50% for small tractors, while supplies in North America are at an 18-year low, according to Jefferies Equity Research.

Federal stimulus checks are helping drive business in western Iowa, local stores said.

Online sales are up 600% at Bountiful Blossoms Bee Company in Glenwood, owner Carol Fassbinder-Orth said. She plans to hire workers from outside the family for the first time to keep up with rising demand for honey, soap and beard oil.

"The stimulus this year was better than Christmas,” Fassbinder-Orth said.

At Bomgaars, a general store in Glenwood, sales are up 15% to 20% from last year amid solid demand for clothing, gardening supplies and agricultural equipment like hydraulic hoses, salesman Bill Dawson said.

"If the farmers are doing good, everybody else is in pretty decent shape," said Doug Shere, who has served on Malvern's city council for 16 years.

Reuters