Drought, Ukraine invasion, interest rates pressure farms

May 11—Editor's Note: The following story was originally written for our annual progress edition. The story was completed in February.

Ryan Stark recently acquired hundreds of acres to add to his farm north of Solomon. He's buying the land from Gary Mitchell, former Dickinson County Farm Bureau Board member. Not only is the price per acre about five times what Mitchell paid for it, but Stark is relying on a profitable crop this year despite the Kansas' drought lingering. Last year Stark had to turn to his crop insurance to make up for his crop's low profits. If markets continue to suffer, however, interest rates for purchases will rise.

"It's a variable interest rate. It (can) jump up to 11%, 12%. It's crazy how quick interest can kill you," Stark said.

Rising interest rates are only one of the problems Dickinson County farmers are dealing with in 2023. The drought and the Ukraine invasion that began early last year are still affecting crops, prices and interest rates. What happens in those three areas will largely determine whether 2023 is a rebound year or a continuation of 2022.

"Last year was one tough year," said Stark, who is a farm bureau board member.

Drought

Dickinson County experienced moderate and abnormally dry droughts throughout 2022, according to U.S. Drought Monitor records. While the county's drought could have been much worse, Stark said precipitation was, "untimely."

"Right when we were planting (soybeans and milo), the busiest time we can be in the beginning of June, we got 12 inches of rain in three or four storms," Stark said. "They just pounded us right when our crops were just getting out the ground. So they were already at a bad start."

Despite the dry conditions, some of the rain ran off into waterways. Nearly no rain came for the rest of June. Then, a storm in early July saved their crop, Stark said. That was followed by a windstorm in August, which crippled the growth of milo by forcing the stalks to lay parallel with the ground.

"The only thing we can say is, thank God for crop insurance," Mitchell said.

Stark ended 2022 with subpar double wheat and milo crops.

The amount of precipitation this winter has been normal, Stark said. Mitchell said surrounding farms may not have as much subsoil moisture though because of how localized rain storms in Kansas are.

"We did some dirt work (in February)," Stark said, "and we thought it would be pretty dry. If you dig under the soil, there's plenty of subsoil moisture."

A storm every seven days that drops a half an inch of rain soaking into the ground would be ideal, Stark said. That type of rain would produce, "a bumper crop year," he said.

Winter wheat has two crucial periods when rain needs to fall, Stark and Mitchell said. The first is during October when the wheat is first planted. The second is in May.

Fully grown corn needs about a quarter inch of moisture per day. An inch of rain per week would suffice.

The end of July and beginning of August needs to not be extremely hot at night. Sometimes during that time, temperatures at night may be in the 90s and humid.

One positive is that crop prices currently are, "pretty good," Mitchell said. What those prices will be for the rest of this year and next largely depends on what the consequences and possibly results of the Ukraine invasion will be.

Ukraine Invasion

"The normal risk of farming is weather, and that's why we have crop insurance to remove that weather out of the picture a little bit, but now we have Ukraine and all these other things that makes farming more of a challenge," Mitchell said.

After the war began, prices shot up to as high as $12.30 a bushel in 2022, Stark said. Ukraine is one of the major wheat producing countries in the world. According to the World Economic Forum's website, Ukraine has produced 3.1% of the world's wheat from 2000 to 2020. While wheat prices shot up, so did fertilizer costs, as Ukraine and Russia both export fertilizer.

"In volatility, there is opportunity. Think about that, because blind squirrel and all, I sold some wheat for $11.30 this fall," Mitchell said. "In those years where we had volatility, we made good money just on the volatility alone because I had some options, some puts, after harvest."

While prices have readjusted back to normal somewhat, the war could influence prices again. Several national news outlets published stories suggesting Russia is considering increasing their war efforts. The prices could go back up to $12 per bushel, but they also could possibly drop to as low as $4, Stark said. As of now, most Ukraine farmers have been able to produce and sell wheat, Mitchell said.

Purchases

Outside of Kansas and other states experiencing drought, farmers had a successful year. As a result, machinery prices have become, "horrendously expensive," Mitchell said. As such, Stark isn't buying any machinery this year.

"We had a 2006 or 2007 John Deere," Mitchell said. "I paid $115,000 for it in 2007. We put 3,000 on it and sold it for $115,000. That was over a 15 year period just about, and we think now that we sold it too cheap."

The high prices and uncertain times makes paying off interest rates on machinery, a credit line for starting a farm and land increasingly more difficult and expensive. While older farmers nearing retirement, like Mitchell, aren't affected as much if they have their debts completely or nearly paid off, the opposite is true for new farmers, like Stark. If two more bad years follow 2022, Stark said farmers will start selling.

"(Crop insurance) keeps you going until the next year," Stark said. "It comes down to financial decisions. If you've made a bad purchase, it could really flush you down."

The uncertainty of interest rates did make Stark's decision to purchase Mitchell's land more difficult to make. If not for the lower interest rate loan he received from the U.S. Department of Agriculture's Beginning Farmers and Ranchers Loans program, Stark said he would not have purchased the land this year.