If you’ve driven through central Kentucky regularly in recent years, you may have noticed a gradual change in the landscape. Pastures that once grew horses have lately sprouted soybean plants. Fields that previously were dotted with cows have been filled with corn.
Those shifts are a reflection of Kentucky’s part in the national trends in agriculture, and experts say they’re cyclical. The supply and demand curve that may have haunted you in college economics class is indeed at play here, although the factors shaping it are a bit multi-dimensional.
In 2011, national average prices for corn shot up from $3.83 per bushel to $6.01 and remained strong for three years. Soybean prices also saw a jump, from $9.97 per bushel in 2010 to $12.52 in 2011, and up to $14.07 last year. That increase was good news for grain farmers, who began looking for more land to plant. Many of the fields that shift between pasture or hay and grain crops are actually excess space that’s leased out to grain farmers by horse and cattle operations, according to Steve Isaacs, extension professor of agricultural economics at the University of Kentucky. Cost of entry to the grain market is considerable due to the farm equipment, so animal operations can lease the space to deflect the risk. At the same time that grain crops were going strong, cattle prices softened, while the Thoroughbred industry struggled to find its feet at public auctions following the recent economic downturn. Lease agreements made more sense for animal producers.
“It’s all over the board — some of them are multi-year leases, and some of them are year-to-year,” said Isaacs. “In a cash lease, pretty much all of the risk is on the tenant. They’re taking a chance on the yield; they’re taking a chance on the price. A crop-share lease does share the risk [between the owner and tenant].”
For the past few years, that guaranteed income from a lease was a better deal than increasing herd sizes, and it kept grain farmers up to their ears in corn and soybeans. Now, however, that trend may be turning around. Despite the use of corn and soybeans for alternative fuel production, animal feed and human consumption, the supply tipped higher than the demand this year.
“We got to the point where I think 40 percent of the corn crop was going into ethanol,” said Isaacs. “Lots of folks responded to that by planting more corn. We had good prices that were driven by feed uses, by exports, by energy uses; we planted lots more acres. We had perfect weather in the Corn Belt this year, so now we’re getting prices we haven’t seen in a number of years.”
A report delivered by UK economists at the Kentucky Farm Bureau convention cited corn prices down 50 percent in 2014, with crops overall down 30 percent. In related news, Kentucky saw a record-high number of acres of soybeans harvested in 2014. In the meantime, Isaacs said, a couple of exceptionally dry years in the West put the cattle population at its lowest level in 50 years. In contrast to crops, the price of cattle is predicted to be up 30 percent in 2015, and the price of calves has almost doubled from last year. Cattle receipts are expected to top $1 billion in Kentucky this year and are forecasted to go as high as $1.2 billion by the end of 2015.
On the equine side of the market, both yearling and breeding stock auctions showed increases from previous years in 2013 and 2014, leading many Thoroughbred industry experts to conclude that the long, unsettling drought in that marketplace might be at its end.
“In the next few seasons, you will more than likely see the acres convert back to pasture,” said Matt Livesay, east Kentucky district sales manager for ASGROW/DEKALB seed producers. “Grower conversations this fall have been significantly different than recent years. The conversation is all over profitability for their farming operations.
“Unlike the Midwest, our Kentucky farmers have been diverse in their farming operations to handle different commodity swings to maintain profitability for their families and their livelihood,” Livesay said.
That doesn’t mean that making the switch back will be easy for everyone, though. “It’s not as big a deal in central Kentucky, but in some areas where land went into crop production, they also took out the fences,” said Isaacs. “And if you don’t have fences, it’s hard to get back into cattle or horse production. That ground is not going to go back to cattle easily, because even wire fencing is a pretty significant investment.”
Even for those with the fencing in place, filling up those fields with horses and cattle is going to take longer than when they were planted with corn. With gestation periods of eleven and a half months for horses and roughly nine months for cows, meaningful changes in those populations takes time. Isaacs said this is the time of year when grain farmers are making those big decisions about next year’s planting acreage based on economists’ forecasts. With all the uncertainty of national supply and demand, planting expense, and constant weather concerns, it begs the question — why would anyone volunteer for such a risky profession?
“Like a lot of things, it can get big price swings,” said Isaacs. “There are really good potential profits there. Our Kentucky Farm Business Management Program has a lot of grain farmers in it, and over the past three or four years, their average returns have been in the neighborhood of $500,000 [after expenses].” And although the next few years may be leaner ones for them, the grain farmers know it’s likely to be temporary. If and when the cattle populations catch up or exceed demand and crop supplies adjust, the cycle will likely make beans and corn king again.
It’s just a matter of time.