Squeezed Dry

Cattle, crops suffer in drought’s grip;
co-ops fear even bigger impact next year

By Nancy Jorgenson

Editor’s Note: Nancy Jorgensen worked for CoBank in Denver
for 13 years before establishing her own communications and marketing
consulting business in Pomerene, Ariz., which specializes in

ob Kelly insists that the farmers he works with are a hardy bunch. But when the drought of 2002 and its trademark dust clouds rolled across the plains this summer, neither he nor the 1,600 members of the cooperative he manages in Sidney, Neb., had ever seen anything like it.

Crossroads Cooperative rests in the epicenter of the drought that is plaguing much of the nation this year, and has been especially acute in many Great Plains and Rocky Mountain states.

“Sunflowers that people planted this spring looked like they’d been sprayed with herbicide,” Kelly reports. “Wheat production was half to a third below the normal crop. And with little or no pasture we’ve seen a lot of cattle herd movement and reduction.”

What does the drought mean for the co-op?
Kelly expects to handle a lower volume of grain this fall, which will lead to lower co-op income unless he’s able to make up for it through other sources. And, like other co-op managers across the drought belt, he’s concerned that accounts receivable may grow over the coming year.

“But my staff watches them closely to keep them to a minimum,” he’s careful to add. Kelly’s concern is shared by grain marketing and farm supply cooperative leaders across the drought belt (see map, page 5). Randall Randall Torgerson, deputy administrator for cooperative services at USDA’s Rural Business-Cooperative Service, says the drought has contributed to the financial woes s of several of the nation’s major farm supply co-ops by taking acreage out of production and cutting into supply sales.

Crossroads at a crossroads
Crossroads Cooperative members grow sunflowers, wheat, corn and millet. The fortunate ones rely on center pivot irrigation although most irrigation canals dried up this summer. It didn’t rain from about February until August in the co-op’s territory, and still hadn’t rained much by mid-October. Production of winter wheat, harvested in July, was down by up to 50 percent. The new wheat crop sprang up after the August rains, but as of this writing in October, needed more moisture soon to survive.

“Our farming practices are going to change for a time,” Kelly says. “I’ve seen more wheat put in this year, since it requires less water.” Normally, ranchers here place cattle on corn stalks for fall grazing. But with few stalks available, many ranchers may have to relocate cattle. Weeks ago, local cattle feedlots began trucking in corn from 150 to 200 miles away.

“Water is our source of life,” Kelly says. “But the innovative nature of the American farmer is really stepping out.” The dry spell won’t continue forever, but it may mean that the cooperative will have to look into other revenue-producing activity, such as supplementing its grain business with farm supply sales and services.

This fall, Crossroads Cooperative added one new source of income when it began processing livestock feed for a U.S. Department of Agriculture disaster relief program. Last year, the co-op’s 30 employees worked hard to generate sales of $35 million at 14 locations. They will have to work even harder to match that in the coming year.

Hoping for a miracle
Taking a break from harvesting millet, a grain used for bird feeds, Crossroads Cooperative President Gale Raddatz says his wheat harvest in July was only about two-thirds of a normal crop. His millet, which he finished harvesting in late October, came in at one-third of normal. “It puts stress on a person,” he says. “You just try not to let it affect your family.”

The drought of 2002 comes as a triple whammy for Raddatz and other Crossroads members, after two previous years of poor production in the area. But “the majority of farmers here will be covered by crop insurance, since most were required to purchase it when they accepted government disaster relief programs in previous years,” Raddatz says.

His local Farm Credit Services office offered seminars on assistance programs available to cattlemen, and plans a future session for crop producers if more programs become available. “We’re tired of relying on government programs,” Raddatz admits, but says under current conditions he has little choice. “I’m keeping my eyes and ears open for one.”

Weather experts predict another below-normal year for moisture, which worries dryland farmers such as Raddatz. “We have no subsoil moisture,” he says. “Nothing to fall back on.”

MFA grain volume drops 20 percent
Bill Streeter, senior vice president of retail services for MFA Inc., says that cooperatives are just beginning to feel the drought’s pinch. MFA Inc., a Missouri-based farm supply and grain marketing cooperative with sales of almost $1 billion, completed its fiscal year in August with more good than bad on its balance sheet. But Streeter expects to feel the drought’s effect more strongly in the coming year.

“As a cooperative, we’ll handle 20 percent less grain than we’ve averaged over the past 3 years,” he says. “For farmers who were able to raise some grain, the effect will be partially offset by higher grain prices.”

The drought affected farmers on a hit-and-miss basis throughout MFA’s territory, which includes Missouri and surrounding states where producers raise cattle, corn and soybeans.

“We’re most concerned about the livestock sector,” Streeter says, adding that feed prices grew by 20 percent in recent months. While MFA might benefit initially from higher prices for the feed it sells to farmers, if farmers don’t make money, it may be difficult to collect credit payments. Streeter estimates a feed bill might increase by $120 per dairy cow annually for an average producer.

As time goes on, he predicts, farmers will have less money to purchase fertilizer and chemicals. “They’ll usually skimp on next year’s inputs,” Streeter says, expressing concern for MFA’s system of 130 local elevators and retail stores. “It’s a pretty good hit when grain volume declines by 20 percent,” he says. “The elevators still have to pay workers. That makes for hard times.”

During the next year, farmer-members may find it difficult to pay their bills, says Gerald Wheeler, manager of an MFA store in Maysville, Mo. “Our feed grinding business is down by 15 to 20 percent,” he says. “It’s probably the slowest grinding season I’ve seen.”

And farmers picked corn three weeks earlier than normal due to dry conditions. Soybean production just started, but farmers are talking about production levels of 18 to 25 bushels per acre, compared to 35 to 40 in a normal year.

Annual rainfall dropped by 10 to 12 inches, Wheeler estimates. “There are cracks all over the ground,” he says. “Cattle pond levels are real low and some people have to haul water to pastures.” But, he admits, his area is a garden spot compared to places further west.

MFA member sees drop in production
“It’s about as dry as I ever saw it,” says John Redman, a grain farmer and cattleman who belongs to MFA and trades at Wheeler’s store and elevator. His corn harvest dropped to half of normal production, and he projects his soybean harvest at just 18 to 20 bushels an acre.

Redman received some help when USDA allowed him to harvest hay on his Conservation Reserve Program land, producing feed for his feeder cattle. He ran out of grass and began feeding cattle hay and other nutrients in August, a month earlier than usual.

“The biggest effect on me is that feed costs have increased by about 50 percent,” Redman says. “At the same time, my silage, corn and hay crop yield is 60 percent of what it was a year ago.

“The drought’s had a sobering effect on my operation,” Redman adds. “It’s not much fun when you don’t make much money. I’m looking at a tough 10-to-12 months.”

In an effort to increase profits, Redman is backgrounding calves instead of raising cow-calf pairs, which makes for more work feeding, but produces more income. “Raising cattle has turned into a volume deal, and I think I need to get even bigger,” he says. Currently, Redman keeps an inventory of 650 calves, and he and an employee spend three hours a day feeding, not including time spent grinding and preparing feed.

Mixed picture for Aurora Co-op
Although his co-op’s fiscal year also ended profitably in August, with sales of $180 million, Todd Gerdes has serious concerns about the coming year. Gerdes is specialty grains manager at Aurora Cooperative Elevator Co., in south-central Nebraska.

Some of the 3,500 farmer-members of the co-op raise dryland corn, while others depend on irrigation. While many irrigators use electricity to power pumps, others use natural gas, propane or diesel.

“Our propane and diesel fuel sales are up tremendously with the drought,” Gerdes says. “But we won’t see much grain drying income this year. The drought’s affected us negatively in some areas, and positively in others.”

Gerdes expects a 10-to 15-percent drop in crops handled, as corn yields dropped from 220 bushels an acre last year to 170 bushels in some areas. Lower production leads to increased prices, so farmers might get a better price for the corn they were able to raise. However, price volatility hurt most farmers who signed contracts this spring to sell their fall crop.

“A lot of guys contracted for $2 per bushel that looked pretty good this spring,” Gerdes says.

Then farmers faced lower production and higher irrigation costs when the drought hit this summer. If they forward contracted with the co-op to sell corn for $2 per bushel, they may end up buying out of the contract at a loss, since corn has been selling for more than $2.50.

Grower burned by forward contracts
Victoria Lipovsky farms with her husband and family near Fairfield, Neb., and belongs to Aurora Cooperative. She raises alfalfa, corn, soybeans and a few cattle, on both dryland and irrigated acreage.

“Forward contracting is usually a good way to market corn,” she says. “Not this year.”

Last spring she estimated her production of dryland corn at 25,000 bushels for 2002, but the dryland acreage actually produced just 1,000 bushels. She’s caught with less corn from dryland acres than she contracted to deliver, and since she agreed to sell it at $2.10 a bushel, she’ll lose out if forced to buy corn at a higher price to fulfill the agreement.

Lipovsky explains how she and her husband share duties: “I drive the desk and he drives the tractor,” she says. “We work with the elevator in Aurora to do a lot of contracting. When my husband told me in July that he suspected we would be severely impacted by the drought, we stopped forward contracting.”

In times like these, she appreciates Aurora Cooperative’s willingness to work with her. “With their help, we’ve increased the value of contracts in the past by as much as 10 cents per bushel,” she says. “They go the extra step, and I assured them that we intend to honor our price-to-arrive contracts.”

Fortunately, the Lipovskys’ irrigated crops and crop revenue insurance should cover much of their losses even losses from forward contracts but she won’t know for sure until late October.

Beginning this summer, dust clouds rolled across Lipovsky’s farm for the first time since the 1930s. With lower production, higher feed and irrigation fuel costs and unfavorable grain contracts, the drought has taken an emotional toll on area families.

Lipovsky belongs to a local group of female grain marketers. “We’re as much of a support group for each other as anything,” she says. “Men are more competitive and women are more cooperative. We realize you don’t have to be superman. We can all be stronger together.”

Many of her women friends already have a job in town to help support the farm operation, and are looking for a second job. For her part, Lipovsky runs a special-interest tour company she started with another farm woman, offering trips featuring local color, history and wildlife.

Co-ops wait for other shoe to drop
Farmers and ranchers already feel the drought’s effect. Their cooperatives, including Farmers Cooperative of Aurora, MFA and Crossroads Cooperative expect to feel the bite more in coming months.

Through it all, co-op members can be grateful that their cooperatives express hope for the future, and a strong commitment to continuing service to members, through good times and bad.

“As we sit around the board room, we understand that our co-op depends on the well-being of our members,” explains Bob Kelly of Crossroads Cooperative. “We need to do everything we can to get them through this situation.”

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