ADVERTISEMENT

ADVERTISEMENT

Strong commodity prices bode well for farmers and the North Dakota economy, but uncertainty clouds picture

Prices have risen sharply, but so have the inputs farmers need to grow crops. They still should make a profit, if yields are good.

4000003+wheat.jpg
Frayne Olson, an agricultural economist at North Dakota State University, expects the high grain prices to remain at least through summer. Even with higher input costs, the higher commodity prices should allow farmers to earn a profit on their crops — if the weather cooperates with adequate precipitation
Forum News Service file photo
We are part of The Trust Project.

FARGO — Prices for farm and energy commodities — the twin pillars of North Dakota’s economy — are soaring at their highest levels in years, but fluctuating wildly because of geopolitical turbulence.

The price of wheat last week shot to a 14-year high, with a futures price on the Chicago Board of Trade reaching $12.94 per bushel, but since has retreated to around $11.54 as of Tuesday, March 14 — levels well above the $7 or $8 as recently as February.

But farmers are quick to point out that the costs of their inputs, including fuel, fertilizer and pesticides, also have spiked, complicating the picture.

Frayne Olson, an agricultural economist at North Dakota State University, expects the high grain prices to remain at least through summer. Even with higher input costs, the higher commodity prices should allow farmers to earn a profit on their crops — if the weather cooperates with adequate precipitation, he said.

“If we can get average yields, profit margins should be pretty strong this year,” Olson said. “There is optimism there. This could be a very good year, but we’ve got some caveats.”

ADVERTISEMENT

At the same time, because of high input costs and the drought last year, “There’s a lot of anxiety out there right now.” Farmers in eastern North Dakota, which got replenishing fall rains and lots of winter snow, are much more optimistic than those in central and western North Dakota, which missed out on the fall rains and heavy winter snow amid lingering drought, he said.

Because North Dakota’s economy is so closely tied to commodity prices, the state’s business activity should be fairly robust this year — “as long as we get some rain and get some good yields,” Olson said.

Both oil and farm commodity markets have been roiled by Russia’s invasion of Ukraine. Both countries are major grain producers.

In Ukraine, disruptions from the war could prevent farmers from being able to ship their crops and could decrease the acres planted this spring, Olson said. “They have quantity to sell, but of course it’s a delivery issue given the war,” he said.

Russian farmers, meanwhile, are hampered by a credit crunch caused by economic sanctions, although the Russian government is trying to open credit lines for farmers, Olson said.

The higher prices are likely to suppress demand on global markets, which eventually will restrain prices, he said.

Prices for wheat, corn, soybeans and other farm commodities started going up last year, said Alan Hoefling, a market analyst at the Money Farm, a firm based in Fargo that gives grain marketing advice to farmers.

“The Ukraine-Russia thing just kind of put the icing on the cake, I would say, especially for wheat prices,” he said. Both Russia and Ukraine are major grain exporters, but analysts predict between 40% and 80% of the Ukrainian crop won’t be planted because of the war, Hoefling said.

ADVERTISEMENT

“That’s what’s driving the wheat market up,” he said. Besides the war in Ukraine, grain markets are keeping a close eye on China, where a resurgent COVID-19 wave caused a major port to close.

“A lot of world events are happening that have got people nervous about everything,” he said. “It’s unsettled times and the markets are aware of that.”

Still, Hoefling added, “I do see prices staying above a 10-year average for the foreseeable future.”

Given the higher prices, Hoefling agreed with Olson that farmers should be able to earn a profit on their crops. “We’re going to need timely rains,” Hoefling said.

Tom Bernhardt, a farmer in Emmons County and chairman of the North Dakota Grain Growers Association, said farmers who bought their inputs last fall are in a more secure position, given rising costs this year.

“These are very, very good prices, but moving forward everything seems to be relative,” he said. Even with input costs “quite spendy this fall,” Bernhardt believes there is opportunity for farmers.

“I would say there’s still room to make a profit,” he said. “There’s so many variables.”

Farmers must factor in what the basis price is for their crops, a subtraction from the market price allowing for shipping and storage costs as well as the level of demand at their local grain elevator, Bernhardt said.

ADVERTISEMENT

“All the commodities are up,” he said. “We need to get to grow it now, then we’ll be OK,” assuming adequate rains.

Very high grain prices usually don’t last long, said Neal Fisher, administrator of the North Dakota Wheat Commission. “Usually these things are kind of a blip on the screen for a while,” he said. “These prices very likely will come down. They’re already on the way down, it seems,” he added, noting the drop in the price of wheat over the last week.

Agricultural production generates about $10 billion a year in North Dakota, a figure that grows to something more like $30 billion to $35 billion when economic ripple effects are factored in, Fisher said.

“We have a lot at stake here,” he said, noting North Dakota’s reliance on farm and energy commodities. Given current crop prices, “It very well could be a good year” for the state’s economy, Fisher said.

The rebound in oil prices has been good for North Dakota’s budget. Through February, oil revenues are running about $300 above predicted levels. Actual oil revenues totaled $1.4 billion, compared to the $1.1 billion forecast, according to figures from the North Dakota Office of Management and Budget.

Patrick Springer first joined The Forum in 1985. He covers a wide range of subjects including health care, energy and population trends. Email address: pspringer@forumcomm.com
Phone: 701-367-5294
What to read next
It has always been one of the biggest questions looming in business. The North Dakota Small Business Development Centers has released a new exit and succession planning guide to help business owners prepare for a step that is sometimes uncomfortable to think about.
The Standing Rock and Fort Berthold reservations received the federal funds to repair and upgrade roadways.
The ambitious $10.4 billion plan was approved by the regional transmission organization that serves Minnesota and much of North Dakota, but will require regulatory approval.
The spill occurred due to a hole in the oil tank, according to department records. The Killdeer-based company is still working to clean up about 1,700 gallons of oil that were not immediately recovered.