Yeager: Now as we mentioned the film was shot four years ago (2004) and was released in 2007. Farming practices are not much different but the markets have changed significantly. In 2004 the total corn harvest was about 12.7 billion bushels. 57% of that was fed to livestock, 17% was exported, 12% was used for ethanol and just under 5% was processed into fructose corn syrup. In 2007 the corn harvest had jumped by nearly 2 billion bushels to 14.3 billion.
The bulk of that still went to livestock, exports were up slightly, corn syrup still demands about the same percentage of the crop but ethanol use has demand that has gone up nearly 30% of the crop or at least it is to 30% now. Most notably the cash price of corn went from $1.56 in '04 to $3.53 in '07. Future prices for the crop that has yet to be planted are currently priced at more than $6 for December delivery.
The movie poses some questions if not assertions about the health of the American farm economy and the nation's diet. Tonight we'll ask -- how relevant is the documentary to today's American economy and diet? Since 2004 prices have not only risen dramatically but so too have land values and input costs.
So, where is Iowa agriculture headed? And will corn still be king? Joining us to help sort through these questions are: Fred Kirschenmann, a farmer and former director of the Leopold Center and Bill Northey is also a farmer and currently Iowa's Agriculture Secretary. To the two of you gentlemen, welcome. So, the first question I have -- I'll start with you Mr. Secretary -- is this movie at all misleading about Iowa agriculture in the corn industry?
Northey: I think it's kind of a caricature of Iowa agriculture even at that time. And I don't think it was really designed to tell everyone exactly what farming was like. It was designed to entertain and it did provide some insight into some things. But I think certainly in comparison to now one of the most interesting things is how much things have changed, how much things have changed price wise from then to now.
And the argument at that time was we were encouraging over production and were having so much the price was driven down so low. And now the discussion is are we going to have enough and prices are so high? Maybe we've got to find some way to quit using so much so we can go back to lower prices. Now, I think we have to see how careful we have to be because I don't think we want to go back to those prices either.
Yeager: Well, did farmers do this to themselves a little bit by creating other markets for their product? It was only going to about one or two things and then they figured out well, you know, ethanol might be a place to go. So, did they do it to themselves?
Northey: They really did. If you look at over the last 25 years and I was part of the corn growers' association and one of the things we did 25 years ago in the 1980s we had the same kind of prices we had four years ago and that was prices under the cost of production, find some way to do something different, find ethanol where you can use some of that additional, excess corn, create a situation where you have more demand and we're not depending on the government.
And in some ways maybe we did it too well because now we've created something that has very, very significant demand. But I think at the very least it tells us we have to be careful with this discussion about we should back away from any kind of fuel use.
Do we want to really send the agriculture economy back to these kinds of prices when at the same time we've seen a significant growth in our cost of production as well including fuel costs and some of the other inputs that caused this corn to cost more to grow as well as be worth more?
Yeager: That's something, Fred, that you've talked about is some of the input costs that have risen dramatically. How has that impacted what we're talking about today?
Kirschenmann: Yeah, well I agree that a lot of things have changed but when you kind of look underneath the blanket a little bit a lot of them are still the same. Our policies are basically still the same and the way in which the market system works, at least for farmers, is still pretty much the same. And so if you look at, as these prices have increased, there are some very eerie similarities to the 1970s when prices went up so fast and then the input costs went up exactly at the same rate.
And then what happened when the prices started to come down again is that the input costs didn't come down as fast and so farmers got squeezed even more. And it was my father with a 6th grade education actually that taught me that on the farm. And he said, you know, these high prices are the worst things that could ever happen to us because he anticipated that squeeze.
And I remember even equipment, which the equipment costs went up dramatically, and then when the prices started to come down the equipment companies, quite understandably, didn't want to bring their prices down so they offered rebates to get the farmers to be able to buy them. And so this is -- the thing that isn't often mentioned in the media is farmers are getting these high prices and it's just sort of assumed that now they're really doing well.
But when you look at the input costs it really isn't and, again, there is that danger as was pointed out in the Des Moines Register article yesterday, especially if farmers believe that these prices are going to stay and then go into debt to buy more land or expand in other ways then they could be in serious trouble again.
Yeager: Do you think the farmers have put it or have there been stop guards put in to prevent a repeat of the 70s or are we just going to have to let history try to be the teaching point?
Kirschenmann: Well, what I'm hearing and my colleagues at Iowa State University are telling me as they talk with farmers they see a lot more skepticism now than they did in the 70s and part of that is probably because most of the farmers are in their 60s now so they went through the 70s so they're much more cautious I think.
Yeager: What are your thoughts on some of these same issues?
Northey: I think there is a nervousness among farmers out there. We're seeing something we saw before and there is no real way to know -- I got started farming in 1981 so in some ways I benefited by not starting before that and getting too heady in all of that. But you get really sensitized to those tough times in the 1980s into trying to figure out whether you should grow right now.
And that is one of the challenges is things have changed so quickly. We've heard different times over the last 20 years how everything had changed. 1996 we had higher prices for corn. We had prices change in 1988 and in the early 90s as well. And each time seemed like it was forever, it wasn't. And so there is a nervousness that this has yet to sort itself out.
And when you get these kinds of prices you create significantly more incentive to grow more crop all around the world, you create incentive to decrease the amount of use of that crop all around the world. At the same time I think we can certainly see why we've got more growing demand for ethanol, we've got more growing demand in Asia in some of those markets where we see more middle class folks that are eating more meat products.
So, you can make a case it was different but there is certainly a nervousness on the farm yet that we want to wait and make sure that it is really different.
Yeager: Well, you farm in Iowa but you also recently made a trip to China talking soybeans. You talk about that world market. How is that world market impacting what is done here in the States?
Northey: I think that has probably been under recognized as one of the drivers of this and one of the things that is hard is it doesn't come on in a way where all of a sudden the world market uses an extra billion bushels of corn.
But over the last 20 years and certainly over the last 10 years we have seen tremendous growth in China, in India, in Indonesia, in Brazil and we see a growing middle class that continues to look for more meat and to get meat you need corn and soybeans.
And we've seen a growth in that to an extent that it really makes a lot of sense to think that this will continue because you're not going to want to quit eating that and we see their income is growing. But the same token still as farmers we like to make sure it's really true.
Yeager: Making sure things are really true -- what at the Leopold Center are you involved with, Fred, trying to study the past, look at the future, look at what's going on now? Has any recent happenings in agriculture changed what has happened in the past? Looking at what's happened in the past how has that affected what you've looked at in the future in writings that your group puts out?
Kirschenmann: Well, we're doing a range of research primarily looking at alternatives for farmers, what else is available for them so that they can have more choices and more flexibility in their operations and make choices that are appropriate to themselves and their values and their operations. And one of the things that is difficult in regards to that is that I would disagree that the farmers drive this.
The farmers respond to something that has been handed to them and what has been handed to them is a particular kind of market structure and a particular kind of set of policies which give them really very few choices. The Freedom to Farm Act was designed to give farmers more choices, right? And on paper it looked like a really good design.
But what happened, of course, was that the assumption was that if you simply take away the support systems and put farmers into the free market then if the price of corn, just to use corn as an example, if the price of corn goes down to a point where it's below cost of production they'll quit raising it because it's not rational to raise it.
They'll do something else until the demand catches up with supply and then they'll come back in and raise corn again. Of course, as Dale Ray has pointed out a number of times farmers don't have that choice because the market is now so specialized. So, what happens when the price of corn goes down they'll actually try to raise more corn to make up for the low prices. And when the prices go up they'll try to raise more corn to try to capture the value of the new prices.
So, we have to really look, I think, if we want to address some of these issues that give farmers a more sustainable approach in the long-term. How do we being to change the system so that it provides more flexibility?
Yeager: But if I was to go into a banker tomorrow and try to get money to go farm, I want to take my father's 160 and farm it, I want to turn it from corn into rutabagas or rhubarb or something like that. The banker is probably going to laugh me out of the room.
Kirschenmann: Sure, and there's no way that you could do it because even -- some of the research that we have done at Iowa State University makes it very clear now that if farmers added a third crop to that corn and soybean rotation they would get a lot of benefits from that. It would reduce their disease pressure, the weed pressure.
So, there would be a lot of things that would reduce their costs. But you talk to a farmer and say, well, why don't you raise this third crop? The first question is, which one, what do I add to it? And, of course, we know that we can raise wheat in Iowa but some of the farmers that I talk to, at least in Central Iowa say, if they were to raise wheat they'd have to haul it 200 miles to find a place even that will buy it. So, that adds to the cost.
Yeager: Because their structure is set up -- we have a grain co-op in basically every town and every county across the state -- the infrastructure is there.
Kirschenmann: And then the public policies support that structure and so that's why I say, it gives farmers very little flexibility.
Yeager: Look ahead in the crystal ball what we're going to see here in the future. One, is corn still going to be here? Are we going to see -- we talk about plant fence row to fence row and that was also mentioned in the movie and other ag secretaries have had to deal with what has happened since then -- but are we going to continue to see more acres put into production? Will we see CRP maybe coming out, more farmers taking it out and planting it beans or corn this year? Is that the road we're headed? Or do we think we're going to go more diversified if the market allows?
Northey: I think we're seeing some folks looking at some of those acres that haven't been farming or the corn acres that they were switching to beans and keep them in corn acres. But there's still a lot of folks wanting to see if this is really true or not. And so that's why we have some folks that haven't chose to take their land out of CRP. There's government policies here that matter, CRP contracts, the rental rates could be up to be able to compete with regular land contracts.
I really hope that we go slow in making some of those decisions and let these prices kind of work through the system. I think these kinds of prices create a lot of production. And it's very easy to react very quickly just as we could react very quickly back to 2004 when the film was done and think we're solving a situation right now and create a situation back like we had just four years ago.
So, I think we'll probably see more production, we'll see more production certainly in South America and in Eastern Europe and in many areas around the country as well. And that affects our prices internationally and here in the country. So, I think we have a lot of things to work with.
There is some policy discussion going on right now around the use of corn for fuel and I don't want us to overreact to what many would feel like are not long-term high prices but short-term high prices.
Yeager: Fred, I want to ask you the same question. How do you see the future and where we're going here?
Kirschenmann: Well, I think that we're going to see a lot of changes in the future regardless what the market or public policies do because a couple of things that are fundamentally changing which are going to affect agriculture are that our energy costs are going to go up because whatever you believe or whichever statistics you look at in terms of peak oil, we're either there or we'll shortly be there and so there are a number of analysts now that are predicting that within the next ten years we'll see oil at $200 a barrel.
Well, you know, for farmers operating a very specialized farming system that means that all of their costs go up, their fertilizer costs go up, their pesticide costs go up, their farm equipment costs go up because it's all based on petroleum.
And then you've got probably we're going to see more unstable climates so there are going to be a lot of things that are going to put pressure on the system, as to how we manage our system. We know that more diversified systems tend to be more resilient under unstable climate conditions.
My father always said the reason he liked cattle was because they didn't get hailed out.
Yeager: Well, I appreciate that. Thank you both for coming in tonight.