The recent decline in the value of grain corn futures has left many New York farmers in a pensive “wait and see” mode for the remainder of the corn-growing season.

New York Corn Growers Association President Steve VanVoorhis said these are strange days for grain corn growers.

“We’ve probably still got another six weeks of growing season before we’ll really know what’s out there. The Midwest is running two to three weeks behind. Usually by the end of August, we would know where we were at, but this year it’ll probably be mid- to late September before we’ll know where we’re going to be at,” VanVoorhis said.

In June, major flooding in the Midwest reduced corn crop acreage, sending corn futures above $7 a bushel. Since then, the U.S. Department of Agriculture’s National Agricultural Statistics Service re-interviewed 1,150 farmers from the flood-affected areas of Illinois, Indiana, Iowa, Minnesota, Missouri and Wisconsin and issued a favorable preliminary crop report.

“What we are seeing is that the ratio of acres intended for harvest, compared to acres originally planted, is off about 2 percent from what we would have expected prior [to] the floods,” stated Carol House, chair of NASS’ Agricultural Statistics Board, in a late June report.

Facing uncertainty

The better-than-expected news crashed corn futures prices, with grain corn for September delivery fluctuating between $5 and $6 per bushel over the past few weeks.

Fort Plain grain corn farmer Leonard Logan doubts the NASS report. During the last major flood in the Midwest, he recalls yields taking a much larger hit.

“It doesn’t make sense, but to the market [the NASS report] drops the prices three to four dollars a bushel and with our costs going up by two to three dollars a bushel, we’re worse off than when we were getting $2 [for a bushel of] corn,” Logan said. “As the price goes down and revenues go down, the cost of production is going through the roof.”

Rick Zimmerman, the executive director for the New York Corn Growers Association, said corn farms face great uncertainty this year and next because the cost of fertilizer and seed has risen dramatically and the price of grain corn is volatile.

“They are dealing with financial issues they haven’t had to deal with in the past; they are also attempting to use many risk-management tools there are available in the sense of mitigating costs and hedging prices to [help them get] a profitable return,” Zimmerman said.

“This is an industry that is going to continue to evolve rapidly. I think that prices we see today are probably higher than they will be, but nevertheless we’ve got some new norms within a system that growers are going to have to get used to. The new norms are the fact that $2 corn [bushels] probably won’t exist anymore.”

Logan said that over the last year, his production costs have risen from $2.60 per bushel of corn to $4.39. He said it costs him about $700 per acre to plant his 1,500 acres of corn. He said the projected cost per bushel next year could reach $5.50.

“Your net profit, maybe, right now, would be break even. So your at-risk money is horrendous for the amount of return you’re going to have, . . . and if you lose money one time, you’re out of business,” he said.

“That’s not going to work and nobody is going to give you the money to finance you to do it anymore. You aren’t going to go to a bank and get money to finance it, and you’re not going to go to a seed company because the dollars involved now are three times what they were two years ago.”

Dangerous game

VanVoorhis said he estimates about 7 percent of the nearly 300 members of the New York Corn Growers Association are now attempting to mitigate their risks by entering into futures contracts.

He said in New York, that’s a dangerous game because the local prices for grain corn, called the basis price, tends to be at least 20 to 15 cents less than futures prices on the Chicago Board of Trade.

“Even though the futures prices have gone, down the basis price [for New York state’s corn markets] may or may not have gone with them. It’s really hard to say. We’ve never had a market that is so kind of confused as the one that we’ve had for the last six months to a year,” VanVoorhis said.

Grain corn farmers who enter into futures contracts are required to put up cash within 24 hours equal to the increase in price above the contract they enter into; this is called a margin call. If the futures price drops, investors likewise must deposit funds the farmer could later collect if the price remains low.

Although, theoretically, the farmer can pay for his lost margin money later when he sells his corn, that is of little help to farmers in New York, where the basis price tends to trail the futures market. The required margin calls can also be too large.

Logan said he considered entering into a futures contract before prices spiked in June and is thankful he did not.

“I would have faced a $900,000 margin call if I had done that. That would have put me right out of business,” he said.

VanVoorhis said some farmers have used “margin loans” to finance the value of margin calls, but the risk is great.

“I think the general public may have a misconstrued opinion that the farmer is getting these futures prices for their grain and they’re not,” he said.

In the Capital Region, the local market for grain corn is mostly set by dairy, pig and chicken farmers who buy the grain to feed their animals.

Ethanol factor

In March, Troy-based commodity trading company Interstate Commodities announced that it has entered into a deal with Northeast Biofuels, owner of the new ethanol plant in Fulton, Oswego County, to be the exclusive supplier of its corn.

Ethanol is an alcohol fuel, which in the U.S. is made mostly from corn.

Interstate Commodities officials estimate the new plant will consume about 40 million bushels of corn per year. That new demand coupled with the Western New York Energy LLC ethanol plant in Shelby, Orleans County, which consumes about 20 million bushels of corn annually, could eat up much of the corn produced in New York state and help maintain prices.

Logan said the ethanol plants may keep local grain corn prices high enough to sustain his operations but they could also push the price of corn so high that his local farmer customers may not be able to pay for it, causing dramatic spikes in the cost of milk, chicken and pork.

“No farmer stands alone. You have to have other farmers, that you sell your products to, making a living also, otherwise you won’t get paid,” he said.

Marty Hanehan, owner of a farm in the town of Saratoga named Turning Point Dairy, said he plants about 800 acres of corn and feeds the 10,00 to 12,000 tons of corn he harvests from it to his 700 cows. He also buys about 30 tons of grain corn per week to feed his herd. He forecasts a strong corn yield for this season.

“So far, the corn [we grow] is looking excellent. It was dry so we could get corn in early and from there we’ve had frequent rain to make it grow. So I think unless we have a weather disaster we should have a very good corn year in our area,” he said. “Our corn-growing expenses are up considerably, so I don’t think you’re going see anybody making a huge profit because of the spike in corn prices. When people go to harvest this fall, the costs are going to be tremendous because of fuel prices.”

The waiting game

Until then, farmers will wait for more news about national yield levels. NASS will put out its next crop production report Aug. 12, which will contain the first 2008 estimates of corn and soybean yields. According to NASS officials, the report will include information taken from re-interviewing approximately 9,000 farmers in the flood-affected areas. These re-interviews have been conducted over the past few weeks, allowing time for flooded fields to dry and for farmers to fully assess their options.

Logan said unless input costs drop dramatically, the long-term outlook for corn farmers is bad no matter what happens to prices this year.

“It ain’t going to turn out good. There’s nothing that could happen that’s any good,” he said.