SEPTEMBER 2008: COVER STORY, AGRICULTURE
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THE RETURN OF KING AG
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Not any more. The wheat price was hovering at around $8 a
bushel during the harvest, and if global grain supplies remain
constricted and Australia suffers through its third consecutive
year of drought, the price is expected to bump up even higher.
Wheat hit a record $16 per bushel in February, and while prices
have dropped to earth this summer, the market remains strong.
Oregon wheat farmers have the option of selling early for twice
the price they’re used to getting, or holding out for
more.
Wheat growers aren’t the only farmers harvesting with a
renewed sense of urgency this season. Spurred by the weak
dollar and the ethanol boom, the global marketplace is starved
for wheat, hay, grass seed and other major Oregon exports.
Prices are up for the vast majority of Oregon’s 225-plus
agricultural products with the sad exception of onions. No
wonder the Oregon Department of Agriculture is forecasting
record revenues.
Agriculture and timber were the engines that powered the
Oregon economy for its first 100 years. Both engines began
sputtering in the 1980s and have been running rough for
decades. Wages in the state’s rural counties have
declined, and rural economies have stagnated. But while the
timber industry’s struggles have intensified during the
current downturn, Oregon agriculture has bounced back
powerfully. That’s good news for rural Oregon, or at
least the portions of rural Oregon not reliant on the timber
industry.
In 2007, Oregon farmers harvested nearly $5 billion in sales
and generated an estimated economic impact of $25.8 billion in
sales and 214,511 jobs. All those numbers are expected to grow
significantly this year, as high prices for everything from hay
to hops are compelling farmers to expand, upgrade and invest.
Blueberries, corn, wheat and hops are on target for record
sales. “Everything else in the economy is on a downturn,
and we’re flying high in almost every category,”
says Don Schellenberg, assistant director of government affairs
for the Oregon Farm Bureau.
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The strong market for agricultural exports helped convince a
major Japanese shipping line, K Lines, to resume service to
Portland in July after a four-year hiatus. Exports of Oregon
agricultural and processed food products in the first quarter
were worth $978 million, which Brent Searle of ODA called
“an amazing number and nearly equal to the entire annual
[agricultural] exports a couple years ago.”
Unfortunately for farmers, the costs of diesel, fertilizers
and farm chemicals are rising just as rapidly as are crop
prices. But they are getting paid well enough for what they
produce to invest and expand. Agricultural sales trickle far
and wide through the Oregon economy, from the John Deere
dealership to the grocery store to the farmland real estate
market. More money in farm sales means more money for food
processing, agricultural services, retail and wholesale trade,
transportation, and warehouse storage. Companies such as Ag
West Supply, founded in 1932 with five locations in Oregon, are
benefiting from the uptick. “We’ve built an
aggressive sales plan and we’re ahead of that right
now,” Ag West general manager Steve Danner said.
“There’s a lot of concern about expenses but
there’s a lot of optimism too. We’re expecting a
very strong fourth quarter. There’s a lot of older
equipment out there that needs to be updated.”
“I know a lot of farmers who are doing maintenance
on their equipment that they haven’t done in 20
years,” says Donald Horneck, an agronomist for the Oregon
State University Extension Service. “All you have to do
is check out the John Deere dealership. You won’t find a
single piece of big equipment available there.
Everything’s sold out.”
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Commodity prices also are reawakening demand for farm
properties. The average value of Oregon agricultural land
hardly changed between 2002 and 2005, increasing minutely from
$1,185 per acre to $1,192 per acre. From 2005 to 2008 it grew
by 51% percent to $1,800 per acre.
“The value of agricultural land has increased and
the biggest reason for that is the commodity prices,”
says Deb Sue Hamby, a Pendleton-based loan officer with the
Northwest Farm Credit Services bank. “There have been a
lot of outside investor buyers that have been coming into the
area buying up land.”
Of course, outside investors have been trying to get their
hands on Oregon agricultural properties for years. The
difference is, now the speculative goal is not to build
subdivisions or golf courses, but to keep it farmland, because
with prices soaring, farming is where the money’s at.
Imagine that.
Kevin Porter has been working the dry- land wheat country west
of Pendleton since he was 16 years old. When he began working
full time at the farm in 1994 it was 1,600 acres. Today he and
his brother-in-law Tom Sorey manage a combined 10,000 acres.
Between them they own three combines, four semi trucks, three
grain trailers and three “bank-out wagons” to
transport the wheat from the combines to the trucks. Their
harvest lasts roughly 25 15-hour days: up by 5, off to the
fields by 7 and home by 10.
Cruising down the dusty road hauling another 1,100 bushels to
the river, Porter says he loved growing wheat long before there
was money in it. His nearest neighbor is a mile and a half
away. His kids get to run around in a 650-acre back yard. He
survived the hard years by keeping his operation lean and
efficient but growing it as well, investing carefully in new
land and equipment, which he bought used with partners.
For Porter and other Oregon wheat farmers, the payback for a
decade of stagnation came last fall, when prices doubled and
kept rising from there. In 2006 the Umatilla County wheat crop
earned growers $66 million. In 2007 that figure jumped to $109
million, and it could have risen higher still if more farmers
had ridden the price wave upward. “Last year was a very
good year,” Porter says. “No doubt about it.
Unfortunately a lot of that $16 wheat that you heard about sold
for $6. That’s because most people had never seen $6
wheat, so as soon as the price hit $6 they sold.”
Growers are unlikely to repeat that mistake this year. John
Sperl, grain division manager for Pendleton Grain Growers, a
2,500-member cooperative that operates the 3 million-bushel
capacity McNary elevator in Umatilla, said, “most of the
growers are holding and waiting. A lot of people kicked
themselves for selling early last year.”
Other growers failed to capitalize on the price hike because
they were locked into long-term contracts with the federal
government to conserve the soil by not planting. Nearly 160,000
acres in Umatilla County and 565,000 acres statewide are in the
Conservation Reserve Program, which pays farmers for not
farming.
For growers who kept their land in production and timed their
sales well, 2007 was a banner year. Oregon wheat sales rose
from $198 million in 2006 to more than $360 million in 2007.
Farmers planted an additional 150,000 acres of wheat to
capitalize on the price bump. Debts were paid off, long-overdue
maintenance was performed and sales at farm equipment outlets
were brisk. “We began to see a glimmer of hope, and
people started upgrading,” says Tammy Dennee, executive
director of the Oregon Wheat Growers League. “If we can
hold into this and build on it, we will see wealth and
prosperity in the countryside that we haven’t seen for
decades.”
But Porter and Dennee emphasize that it will take more than
one banner year to compensate for a decade of drought and low
prices, especially with diesel selling for nearly $5 a gallon
and fertilizer costing twice what it did a year ago.
“There was a lot of euphoria last year when that price
kept going up,” Porter says. “Now there’s a
lot of fear about what might be the downside.”
Mike Krueger, president of Wilsonville-based MK Commodities,
has been tracking the price of wheat since the 1960s. He says a
lot depends on the weather in Australia, Oregon’s biggest
competitor for supplying soft white wheat to Asia. Until
Australia recovers from its persistent drought problem, Krueger
says, Oregon’s position will remain strong.
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“The farmers are in a very good position for the first
time in at least 10 years,” Krueger says. “A lot of
them had one hell of a time getting through the hard times but
if they’re still standing they are looking at some real
opportunities now that the market’s going the other
way.”
About 230 miles west of Umatilla County’s arid wheat
country, the green fields of the Willamette Valley are lush
with growth. Cruising past healthy rows of nursery trees, corn,
blackberries, hazelnut trees, wheat and green beans, berry
farmer Doug Krahmer has nothing but praise for the climate,
soil quality and crop diversity of the Willamette Valley.
Krahmer is glad he invested in farmland here when he did. He
figures that valley land prices have doubled if not tripled
since he bought most of his properties in 1999 and 2000.
Krahmer got into blueberries in 1996 with one leased
eight-acre field. From that modest beginning he has built Blue
Horizon Farms, an 800-acre, five-county network of berry fields
from Clatskanie to Albany that yields about 2 million pounds of
blueberries per year. He also runs BHS Ag. Services, a
year-round operation specializing in pruning, harvest and
planting. Between the two operations he employs 35 people
year-round and 150 seasonal workers.
“The price has been really good for the past five
years,” he says. “That has allowed us to
expand.”
Krahmer and his peers are riding a wave of demand that
stretches from Oregon’s popular U-Pick farms and
farmer’s markets to the frozen food aisles of domestic
grocery stores, to fresh and processed foreign markets in
Japan, Mexico and France. Oregon’s blueberry crop nearly
doubled in value over three years, from $33 million in 2005 to
$65 million in 2007.
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Other specialty crops in the valley such as hazelnuts and hops
are also doing extremely well, and the bump in commodity prices
has encouraged a massive shift back into Willamette Valley
wheat. Valley farmers who followed the money years ago from
wheat to grass seed followed it right back to wheat in 2008,
building makeshift wheat storage areas and securing last-minute
freight rail contracts to get their crops to the grain
terminals of Portland for export. Unlike dry-land farmers east
of the Cascades, the farmers of the valley have many crop
options, so they are accustomed to following markets and
planting accordingly. They did not benefit significantly from
the commodity price increases last year, but they are expected
to capitalize in 2008 and 2009.
As chairman of the Oregon Blueberry Commission and a member of
the Oregon Board of Agriculture, Krahmer is acutely aware of
the risks and opportunities stemming from the current
volatility of world markets. He sees great potential in
exporting to the burgeoning middle classes of India and China,
but like most farmers he identifies the recent price bumps as a
double-edged sword. Yes, farmers are making more money (Krahmer
rotates wheat on his fields to prepare the soil for berries and
was happy to earn income from that crop for a change last
year); but at the same time fuel and fertilizer costs are
“eating us alive,” he says.
Krahmer invested early in technology to cut labor costs and
improve efficiency. He can monitor soil moisture at all his
fields from any computer with an Internet connection, and his
tractors steer automatically while planting rows using global
positioning satellite technology.
He owns five mechanical harvesting machines. About 90% of his
berries are machine-picked for the frozen market, with the
remaining 10% hand-picked to sell fresh. It costs him more to
pick by hand, but the cost difference is more than covered by
the $1.30-$1.50 he is receiving for fresh berries. His margin
is actually slightly better for hand-picked fruit.
But Krahmer has no intention or desire to go small scale. He
has built his company on volume and efficiency, and like
large-scale farmers throughout the state, the best he can do
for now is hope that crop prices remain healthy enough to
offset the ominous rise in prices for diesel, nitrogen and
everything else.
Other risks also loom for farmers: the possibility of stricter
immigration laws creating a labor shortage, a regulatory
crackdown on commodity speculation that could lower prices for
export goods, a global race to plant and harvest more food that
could lead to oversupply. The more farmers invest during times
of plenty the more they risk falling prey to the bursting of
yet another bubble in an unstable global economy.
“The greatest fear everyone in farming has is that
prices will collapse and we’ll be stuck with high costs
for fuel and fertilizer,” Horneck says. “Farming
has never been cheap. But it has gotten vastly more expensive.
Fortunately the prices are saving a lot of people, and
it’s high time that happened. We’ve had plenty of
experience being on the bottom. I’ve been in this
business since 1980 and there’s never been a time when
farmers have been able to call the shots like this.”
On the other side of the Willamette River, surrounded by
healthy fields of trellised vines, Mount Angel hop grower John
Annen is hoping that once he has fulfilled his contracts with
the Hops Union and Anheuser Busch, he will have a nice supply
left over for the open market. Because the open market for
Oregon hops is stronger than ever.
A decade ago hop farmers were oversupplying the market. New
processing technologies were enabling a longer shelf life for
their product, while new brewing techniques were allowing
brewers to use hops more efficiently. “We had hops
processed and waiting in storage at room temperature that we
couldn’t sell,” says Michelle Palacios,
administrator of the Oregon Hop Commission. “We had to
drop annual production under demand to move hops out of storage
and boost the price. By 1998-99 we had taken out one-third of
our hops acreage.”
The price bottomed out at $1.20 per pound. Hop growers
subsidized their crops by delving into more profitable products
such as nursery trees and hazelnuts. But with time the cut in
production whittled away their oversupply problem, and
eventually reversed it. Then came the hops warehouse fire of
2006 in Yakima, Wash., when 10 million pounds of hops went up
in smoke. Suddenly the balance was tipped the other way. The
price recovered to $3.50 last fall and then shot up to $10 and
even $20 per pound when supplies became scarce. Oregon hop
farmers pounced on the opportunity by planting an additional
522 acres, repairing picking machines and purchasing new
tractors, irrigation systems and sprayers. For the first time
in years there was a market for new 22-foot treated-timber hop
poles.
Annen’s great-grandfather started growing hops in Mount
Angel in 1896. His family invested in its first mechanical
picker in 1952 and dried the hops in a wood-fired furnace.
Today Annen Brothers has 270 trellised acres of hops, a modern
picker, kilns fired with natural gas, a four-floor drying
facility, an automated drip irrigation system to keep the soil
saturated to 65% at eight inches and a pest management strategy
that far outperforms the “scorched earth”
techniques Annen remembers from his youth.
Annen also has entrepreneurial plans to develop a new product
to serve Oregon’s healthy brew-pub and home-brewer
market: 15-pound bales of specialty aroma hops, direct from the
farm, packaged in zip-top baggies, distributed through Hops 2
You, a company he established with his partner Jeff DeSantis,
the owner of Seven Brides Brewing in Silverton.
Annen doesn’t trust the prices to last. He says he is
fortunate to have contracts in place “to isolate us from
the crash when it comes.” But he is also more than happy
to make the most of the price while it lasts.
“Every grower is happy when the price is up,” says
Annen. “For years it was so down that everyone was
driving around on ancient equipment and barely getting by. It
was high time that everybody got a nice boost so they can get
some new toys and get some innovations going and give our
employees a bump. When the economy is good, it’s good for
all of us.”
PHOTOS BY FRANK MILLER
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Current Issue | DEC 08 |
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