How six farmers are dealing with inflation and supply chain issues

I asked several grain farmers how this year's inflation and supply chain shortages have affected their operations and what they've done (and intend to do) in response to the challenges.

Here is what they had to say.

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Wendell (Bud) Klockenga, Dix, Illinois

Klockenga, who raises corn and soybeans, expects yields and crop prices to be good this year but the bottom line to be lower because of input costs.

"If we can raise a decent crop, we should come out OK, but not as good as last year," he says.

Fertilizer costs in his area are up 50% to 75% versus last year, he reports, and close to double for some farmers. What has he done differently? Storing diesel for one thing.

"We've had an easier spring because we filled every tank and storage container we could find with diesel fuel in December 2021," Klockenga says. (Smart.)

Another thing he's done is plant cereal rye as a cover crop. According to Klockenga, it has done a good job at slowing erosion and suppressing weeds, which saves on herbicides. He also expects the dead foliage to conserve moisture in his soybean crop this summer.

Klockenga considered increasing his percentage of soybean acres to save on fertilizer but then decided against it. He says when he's tried that strategy in the past, everyone else does it and crushes the price of soybeans.

Klockenga says some farmers made contracts during 2021 to sell wheat in 2022 for $5 a bushel. Now, they are seeing $10 a bushel and, unfortunately, can't cash in on the higher price.

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Barry McMillan, Caseyville, Illinois

On his farm McMillan grows horseradish in addition to corn and soybeans. The first concern he expressed was the cost of fuel. He has not had any trouble getting fertilizer, but it's been expensive.

"A lot of people locked in herbicide and pesticide costs last fall, but I am worried about the future cost and availability of herbicide," McMillan says. "We're heavily dependent on China because it makes everything, especially chemicals."

McMillan is also concerned about the cost to dry corn this fall. He expects natural gas and propane prices to be sky high.

"The cost to generate electricity is going to be higher than we've ever experienced," he says.

When contemplating the future, McMillan says he expects fewer farmers, saying corporate farms are the thing of the future. He also believes, "Farmers are going to be more educated," adding that the fast-advancing field management and GPS technologies will require more formal education.

To sum it up, McMillan says, "I'm just nervous and hoping it will all work out, and there will be a correction in input costs."

Bobby Rittgers, Eads, Colorado

"The fertilizer and fuel costs are going to take a big toll on us," Rittgers says.

He likes to use anhydrous ammonia, but that has gone from $800 a ton up to $1,500 a ton in his area. The wheat crop in Kiowa County has suffered from an extreme lack of rain, he says, fearing the yield will be very low this season, while the $10-plus per bushel price is in play.

Rittgers also notes, "Trying to get parts has been hard."

He relates a short story about trying to replace a lost hydraulic cap for his tractor. None of the dealers he tried had one, so he wound up searching for the lost one on the side of a highway with his daughter. They eventually found it!

Adam Rodgers, Montgomery City, Missouri

Rodgers and his brother raise cattle in addition to grain. At the start of our interview, Rodgers asked me, "Have you heard about land prices around here? Land prices have really gone crazy."

He says a nearby farm recently sold for more than $10,000 per acre. That price is double what land prices were in the area five years ago, and cash rents peak at about $175 an acre. That means someone is willing to make less than 1.75% on his money, excluding the unknown future land appreciation.

With a bank loan, the cash flows would pencil out even worse, probably negative.

Rodgers says the most abnormal input price he has seen has been fertilizer. However, like many farmers, he was fortunate that he prepaid for a lot of his 2022 fertilizer he applies across his farm. To combat higher input costs, Rogers is trying to limit trips across the field.

Demand for farmland remains high, as he says farmers in his area want as many acres as they can farm.

Rob Smith, Walnut Hill, Illinois

According to Smith, "It seems like our fertilizer prices have gone up two and a half to three times what they were last year." He adds, "Ammonium sulfate has gotten so expensive that some people around here have stopped using it."

He also notes that nitrogen has shot up in price and fuel has been really expensive. Asked about the supply of pesticides or herbicides, Smith says one herbicide he uses has been hard to find because of a shortage of a certain chemical from China.

Regarding the competitive agricultural environment in his area, Smith says, "We have a couple of farmers nearby that are farming nearly 40,000 acres each and own the grain elevators, and one even owns a bank."

Talk about vertical integration. It does make sense for some farmers to simultaneously run related businesses: transportation, farm equipment sales, chemical sales, tractor repairs, grain storage, etc. Smith says inflation and supply chain issues have not caused his farm operation to change plans.

Glen Mueller, Columbia, Illinois

Mueller says he's having trouble finding labor this year. Historically, he's had a full-time farmhand, but lately he's been struggling to get even part-timers. He's not the first farmer to mention the labor problem to me. Those with labor-intensive operations are suffering from a labor shortage.

The widespread belief is that potential agricultural workers can make the same hourly rate at easier jobs now. The current Illinois minimum wage is $12 an hour and set to gradually rise to $15 an hour by January 1, 2025.

Mueller reports he has no concerns about the availability of inputs. "So far so good on availability," he says. "I bought most of my chemicals, fertilizer, and seed in December 2021."

He says he has changed his marketing strategy. "I'm doing more EMM contracts this year," Mueller says, locking in a minimum and maximum grain price during a specified contract period. This type of contract he hopes will allow him to catch some of the grain price increases and also minimize the downside risk.