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The High Cost of Farming: North Carolina farmers are getting squeezed by high fuel prices and the long drought
Journal Photo by Bruce Chapman
Henry Church calls his Hereford cows in for feeding at the River Bottom field on the H&N Farm in Wilkes County.
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Published: August 31, 2008
Ed Blackburn has never had illusions about being a wealthy livestock farmer.
Like most small cattle farmers in Northwest North Carolina, the time he has spent working his family's farm in Tobaccoville -- more than 30 years -- has been more than a hobby, but less than a living.
"It's my golf," Blackburn said with a chuckle.
It's a realistic mind-set, considering that local and state agricultural officials say that about 90 percent of hobby farmers -- those with two to 25 head of cattle -- don't turn a profit on their herds.
But soaring costs of feed, fertilizer and fuel -- some of which have more than tripled in the past two years -- and sporadic rain teasing his dry pastures have Blackburn wondering how much longer he can maintain his cow-calf operation.
He said he lost $3,000 in 2007 and $5,000 in 2006 when all his production costs are considered.
"I really don't know what that money threshold is, but I know it's a lot closer than it used to be," Blackburn said. "If I didn't have a daytime job, I would have quit a while ago."
"It's almost worse than having a gambling ad-
diction because of the low odds of making a decent profit these days," Blackburn said, although he does get a break on his property taxes from operating a farm.
And when farmers' costs go up, inevitably it will lead to higher meat prices at restaurants and grocery stores for consumers. For example, the cost of ground beef rose 5 percent from July 2007 to July 2008, while chicken went up 4 percent in the same time, according to the Consumer Price Index.
Cattle farmers such as Blackburn are hoping to ride out the tough economy and hang onto as much of their herds as they can, but the region and the state "are clearly in an adjustment period" in how hobby farmers handle increasing production costs, said Geoff Benson, an agricultural economist at N.C. State University.
"We will work through it, though we will lose some livestock producers along the way," he said.
Cattle and chickens
Livestock farming in Northwest North Carolina is marked by pastures of grazing cattle and intensive operations producing chickens.
Farmers in Wilkes and Surry counties raise more than 117 million broilers a year. Most of the region's chicken operations are tightly managed by major companies that include Tyson and Wayne farms.
In comparison, there also were 30,500 head of cattle in Wilkes and 27,000 in Yadkin in January, according to the U.S. Agricultural Department. Every county in the region has at least 2,000 head of cattle.
Both livestock and poultry operations are being slammed by high fuel prices driving up everything from the cost of running a tractor to paying more for feed.
Agricultural officials say that cattle farmers feel more of the financial pressure because poultry companies typically provide most of the chicks and feed to contract farmers. The main cost for poultry producers is heating, which has gotten more expensive for increasingly larger chicken houses.
Statistics show the decline in the state's cattle production. According to the U.S. Agriculture Department, the cattle inventory in North Carolina was at 830,000 in January -- down 15 percent since 1999. In the same time, the number of cattle operations has declined from about 28,000 to 19,000.
"If we lose very many family farms, we'll end up importing food the way we import oil," said Steve Troxler, the state's agriculture commissioner. "America has the highest food-safety standards in the world, yet we already import food from countries with less-stringent food-safety rules."
The price of corn for livestock feed was $5.61 a bushel in July compared with $3.32 a bushel in July 2007, according to the U.S. Agriculture Department. That's a 69 percent increase.
A major factor in the increase is that more corn in the United States is being converted into ethanol for energy use.
The lingering effect of last year's drought on area pastures, not withstanding last week's rainfall, is driving up the price of hay because many fields are providing a limited second cutting, if any.
Depending on the size and style of hay, the cost of a small square bale is ranging from $3.50 to $8, according to the Hay Alert link on the Web site of the N.C. Department of Agriculture and Consumer Services.
"That same square bale was running $1.50 to $2 three years ago," said Evon Lambeth, a Davidson County farmer who is offering hay on the Hay Alert Web site. "I'm also selling round bales for $20 each now, with about 45 bales left of the 600 I got from the first cutting.
"I'll have to go to $40 for a round bale this winter because my second cutting won't yield as much hay, and I have to cover my production costs."
The price of diesel, which most of the heavy farm equipment and vehicles run on, has risen about 70 percent in the past year. Livewise, propane gas, which most poultry producers used to heat their chicken houses even during the summertime for the chicks, has gone up 47 percent in the past year.
The extra costs add up quickly considering that feeder farms prefer that calves weigh between 400 and 850 pounds before buying them. Most cows weigh between 700 and 1,900 pounds at time of slaughter, and bulls weigh between 900 and 2,200 pounds.
Blackburn said he annually sells about half -- 12 to 15 calves -- of his herd to feeder farms that fatten the calves for market. The typical price one of his calves fetches is about $1 a pound, which once meant he could make upward of $200 if the calf reached at least 500 pounds.
These days, with the cost of maintain a cow about $400 compared with $275 three years ago, and feeder farms wanting heavier calves to reduce their costs, Blackburn said he's fortunate to make money.
"You have to be a very savvy business person, and have a good amount of lady luck on your side, to make it work," Blackburn said.
Farmers also are competing for the use of chicken manure as a low-cost fertilizer with energy companies such as Fibrowatt, which plans to build a $140 million power plant near Elkin. The company generates electricity by burning chicken litter. It is expected to bring 80 or more jobs and annual wages and benefits of $1.7 million.
Beef for restaurants
Apple Brandy Beef LLC is the public face of H&N Inc., one of the larger family-owned cattle operations in the region, with 150 female cows on its 300-acre farm in North Wilkesboro.
The Church family chose in April 2007 to focus on the high-end beef marketplace, supplying customers who are willing to pay more for what they consider as healthier options.
Apple Brandy sells its Hereford and Angus beef to restaurants such as Sixth & Vine in Winston-Salem, specialty grocery-store chains such as Earth Fare of Asheville, which has stores in Boone and Greensboro, and farmers markets. It also sells through its Web site, www.applebrandybeef.com.
Seth Church, who represents the third generation of cattle farmers in his family, said that the main advantage of Apple Brandy is that it can trace the genetic makeup of its herd back at least 20 years.
"In this age of more consumer awareness of what they're eating, people like the way that we handle our business from birth to the dinner plate," said Seth's father, Henry. "The cows are free of hormones and antibiotics and they are feed all-natural products. "For the older consumer, our beef reminds them of the beef and steak they ate as they grew up."
Church said that the farm is "definitely feeling the pinch of the higher fuel and corn costs." For example, he said, a typical diesel fill-up for the farm's tractors is about $2,600 these days.
"We've seen very little, if any, increase from the higher costs come back to us," Church said.
Switching to a value-added business "is allowing us to stay more competitive, but the lack of clarity on future material costs is concerning," Church said.
"We've had to learn to become more efficient in how we do business, and we've done without some things, like we haven't bought a new truck for the farm since 1997.
"Some of the trucks have more than 200,000 miles on them, but they are still running."
Poultry producers stuck
Many cattle farmers will simply sell off livestock to cut costs, but poultry producers have to maintain their livestock numbers to make their economics work.
"Our loan payments are based on the flock we're growing," said Neil Triplett, a chicken producer in Champion, in western Wilkes.
"It's getting to the point where you can't sell a chicken farm these days. You can give it away, but selling doesn't make a lot of sense given the loans the typical chicken farmer has."
"I'm sure you're going to see some farmers put as many chickens into as few houses as possible as one way to reduce their fuel costs," said Chris Martin, who runs a chicken operation in Wilkes. "We need some kind of subsidy for these high fuel costs, and help with better insulating the chicken houses.
"The people in Washington are no help. We're asking for tax credits on the gas prices, and they're offering us more loans to pile on top of the loans we're already trying to pay off."
The price that livestock and poultry farmers receive has been going up, but the Economic Research Service of the U.S. Agriculture Department reported that livestock farmers are paying about 40 percent more in production costs than they are receiving for their goods.
The toll also is reflected in the financial reports of major agricultural corporations, especially in poultry.
Tyson Foods, which operates two huge chicken plants in Wilkesboro, reported on July 28 that its third-quarter profits dropped about 90 percent -- mainly because of the rising costs of grain used in chicken feed. It made $9 million compared with $111 million even though revenue rose slightly to $6.8 billion.
Pilgrim's Pride, another major poultry company, reported on July 28 a loss of $52.8 million because of higher feed costs.
Lawrence Baer, a senior broker at commodity-broker Zaner Group LLC in Chicago, said that consumers will have to pay higher prices "and they'll have to get used to it. Eventually, (food producing companies) are going to make a profit or they're going to be out of business."
For the past two years, the marketing unit of the N.C. Department of Agriculture and Consumer Services has offered help to livestock farmers needing to sell part or all their herds because production costs have risen higher than they can bear.
Bruce Shankle II, a livestock marketing supervisor for the state agency, said that most of those calves end up being sold to cattle farms in the Midwest, where pasture foraging is more plentiful and getting calves to preferred weight is less expensive.
Last December, the state established an emergency hay program through which it purchased and transported hay to North Carolina to sell to farmers "at the lowest cost possible" to help them feed their livestock through the winter. The program wound up spending about $478,000 and brought more than 2,400 tons of hay from several states and Canada.
The state agriculture department has no plans to use the program this year, primarily because the fuel costs to transport the hay to North Carolina are so high.
Shankle said he is concerned that as more cattle farmers decide that they have had enough with higher expenses, beef will go the route of hog and poultry production and end up being controlled by large corporations.
"When you lose the small cattle farmer, the supply of meat will go down," Shankle said. "The big producers will reduce the supply until they can charge enough to make it more profitable for them."
■ Richard Craver can be reached at 727-7376 or at rcraver@wsjournal.com.
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