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Farmers can't cash in on soaring food prices

With production costs as high as an elephant's eye, some growers are even cutting back on planting crops that are in short supply.

May 13, 2008|Jerry Hirsch | Times Staff Writer

All over the world, prices for basic foods -- barley for beer, milk for cheese, corn for tortillas, and the rice that serves as a staple for more than half the world's population -- are soaring. But farmers aren't rushing to cash in on the boom by planting more of the crops.

The amount of corn planted in the U.S. is expected to dip this year. Rice acreage in California, which sells as much as half its crop overseas, is predicted to increase by only a small amount. Instead, farmers are planting cheaper-to-grow wheat and soy.

They say the reason is simple. The cost of planting some crops is rising as fast as their prices, and sometimes faster, leaving little incentive to increase production of some foods that remain in high demand around the world.

Farmers typically plant their crops once a year and not all of them cost the same to produce. Both corn and rice, for example, require more fertilizer to grow and fuel for farmers to tend than other crops. As the prices of those supplies rise faster than the prices of some commodities, farmers are shying away from some expensive crops.

The little-noticed development could keep the price of some foods at their current high levels, or send them even higher, until worldwide supply can catch up with demand, economists say.

"The price of crops drove what farmers did last year," said Chad Hart, an Iowa State University agriculture economist. Now "it's costs, and that's prompting farmers to reevaluate how they allocate their land this year."

The cost of farming an acre of corn, for example, has risen almost 47% over the last year, according to Wells Fargo & Co. estimates, outpacing the 35% increase in the price of corn in the same period.

It's the same with rice. The price on the futures market of U.S.-grown long grain rice -- the type that is in short supply worldwide -- has risen 64% this year to $22.74 per one hundred pounds. (Such a move also pushes up the price of medium grain rice, which makes up most of what is grown in California.) Still, farmers are expected to plant 549,000 acres of California rice this year, up less than 3% from last year, according to the U.S. Department of Agriculture.

Charlie Hoppin, who farms 3,200 acres scattered across Yolo and Sutter counties, is one farmer opting for a crop other than corn. He figures that safflower will be just as profitable, if not better, and a whole lot easier to farm.

"At today's prices, corn brings in roughly $1,200 an acre. Safflower will bring in $750. But fertilizer is less than half the cost, the seed is less and I won't need the same irrigation or pesticides," Hoppin said.

He planted 370 safflower acres this year, up from none last year, and he doesn't plan to put any corn in the ground after planting 500 acres a year ago.

"I will know if I made the right decision about next December, but that's the nature of farming," Hoppin said.

Imperial Valley farmer Mark Osterkamp is also paying close attention to his farming costs.

"We are chasing the tiger. There's a wild grain market, but there's also a shortage of all the inputs for agriculture," said Osterkamp, who farms about 7,000 acres of wheat, sugar beets, onions and forage crops for livestock.

One problem for all farmers: the rising cost of fertilizer, which has nearly doubled in the last year, according to the Department of Agriculture.

Prices have increased because the world demand for fertilizer is outstripping the supply, said Kathy Mathers, spokeswoman for the Fertilizer Institute, a Washington, D.C., trade group.

That's been made worse by the increased cost in shipping fertilizer around the world and the low value of the dollar, she said.

Many other farming costs are rising too.

The price of the diesel fuel that is used to run combines and tractors has jumped by half from a year ago, according to the USDA. Seed prices have risen more than 25% from last year, the USDA said.

Farmers are also dealing with higher rents, as landowners demand their slice of increased food prices.

Indeed, the rent for some of Osterkamp's land has jumped to $250 an acre this year, up from $175 a year ago.

Steve Dennis, who farms 6,000 acres of rice, wheat, almonds and walnuts in Colusa and Glenn counties, is also changing fertilizers in response to soaring prices for farm additives and chemicals.

A year ago, Dennis paid $500 a ton for the fertilizer he uses on rice. He is spending $1,300 a ton this year, prompting him to switch to an inferior compound that sells for less. The switch will save him as much as $130,000 this year.

Dennis also is hedging his bets by planting about 500 acres of wheat because it uses less water than rice.

I'm "paying a lot closer attention to the numbers," he said. "I am trying to get by with a little less of this and a little less of that."

--

jerry.hirsch@latimes.com

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