Bloomberg News

Indiana Farmer Puts Purchases on Hold as Drought Breeds Doubt

August 06, 2012

Indiana Farmer Delays Grain Bin Purchases in Historic Drought

Terry Hayhurst, who had record revenues last year, is scrambling to prevent a full-on disaster with this year's drought. Photographer: Victor J. Blue/Bloomberg

For the three decades he’s been farming on the western edge of Indiana, Terry Hayhurst put most of his energy into drying out his clay soil so his corn and soybeans could thrive.

This year things are different. Hayhurst is farming right in the heart of the 2.5 percent of the country that is in “exceptional drought” -- the worst rating. A combination of little rain and record heat has roasted corn crops, dried up ponds and streams and caused farmers like Hayhurst to postpone purchases of everything from grain bins to smartphones.

“I’ve never seen it this dry,” Hayhurst, 51, said as he pushed through a stunted stand of corn and pulled back the husks on ears with a smattering of isolated and desiccated kernels. Some plants are “firing,” or drying out from the ground up from the excessive heat; others are being attacked by fungus. Those may not produce a thing.

Hayhurst’s story illustrates the ripples that the drought - - the worst in more than a half century -- is causing through the American economy. Farmers who had enjoyed record incomes last year now are delaying purchases, and food and feed prices are rising. Southwestern Indiana, a state in which crop and animal production totaled $10.5 billion in 2010, and areas of Illinois and Kentucky are facing the worst of the drought. The U.S. Department of Agriculture has declared more than half the counties in the country natural-disaster areas.

Little Rain

In Terre Haute, 11 miles north of Hayhurst Farms, daily high temperatures were above average every day but one in July, and topped 100 Fahrenheit (38 Celsius) on 11 days, compared with an average high in the mid-80s, according to the National Weather Service. Rainfall this year has been 13 inches (33 centimeters), less than half the norm as of Aug. 2.

Hayhurst, who had record profits on revenue of about $900,000 last year, is scrambling to prevent a disaster. The 1,200-acre (486 hectare) farm he has run in partnership with his parents and sister since he graduated from Purdue University in 1984 sold off its hog business in 2010, and now is largely dependent on what can be teased from the soil.

The Hayhurst farmstead is a metal-sided collection of barns, empty hog sheds and corn-storage bins, surrounded by pancake-flat fields set off by stands of trees acting as wind breaks. In recent years, the couple added a new screened-in porch to their home, and rebuilt a massive machinery shed that was destroyed by fire.

Sorghum-Sudangrass

In July, Hayhurst made a last-second substitution, deciding to sow a heat-resistant sorghum-sudangrass instead of soybeans on 20 acres, so that he’ll have more feed for his 35 head of Hereford cattle, part of the farm that is largely a labor of love. On the soybeans he did sow, he applied extra herbicide as the plants weren’t growing fast enough to cover the soil and prevent weeds from popping up.

And every few days he refills a 2,500-gallon tank on the back of a 1976 International Loadstar to haul water out to his cattle. The ponds and pastures they have used for 25 years are drying up.

“We never had the ponds down to where we even had to think about water,” he said in a daylong interview at the farm, which has been in his family since 1942. The calves born in March are going to be weaned early, and put on corn feed in the barn to save on water and hay demands, he said.

Hayhurst wants to keep the cows thriving, as rising feed costs have caused ranchers to begin selling off their cattle, depressing beef prices. Next year, he figures, prices for meat will bounce back up, as smaller herds mean less supply.

‘Trickle Down’

The family is cutting back on expenses. Hayhurst planned to buy a $20,000 wet-storage grain bin and a $22,000 grain cart, which is pulled behind a tractor to help expedite the harvest. Neither purchase is going to happen -- now.

“Farmers are putting plans on hold until they see what happens,” Greg Strohm, a salesman at Bane Equipment in Terre Haute, said in an interview. Bane sells Case IH combines and tractors, which are made by a subsidiary of Fiat SpA. (FIAT) “It will trickle down and we won’t see the full effect for six months to a year.”

Companies like Bane have a nice cushion to help them weather the downturn: “The last couple of years have been good years” as farmers thrived, he said.

A week ago, Susan Hayhurst, Terry’s wife of 23 years, sat down with the couple’s two teenage daughters and let them know “it’s going to be a lean year.”

Lillian, Hayley

“You have to be prepared that when you have dollars in your pocket, they have to go a long way,” Susan said she told Lillian, 19, and Hayley, 16. “There will be food on the table, but do not expect all the bells and whistles.”

Added Terry, “Thank goodness Lily has a full-ride” scholarship at the local two-year campus of Ivy Tech, where she studies agriculture.

Terry and Susan are looking at replacing their prehistoric flip mobile phones with new smartphones, which could deliver corn prices directly to Terry’s hands while he is driving the tractor. For now that upgrade is on hold, as well.

Some things are necessities: the family’s annual trip to the Junior National Hereford Expo in Grand Island, Nebraska, went on as planned last month, where their cow Butterscotch was Reserve Grand Champion. This week they are showing their prize Herefords at the Indiana State Fair in Indianapolis.

No Insurance

Many of Hayhurst’s neighbors buy government-subsidized crop insurance, which already is paying out as some sandier, drier fields are declared a total loss and the crop is cut down.

For Hayhurst, whose fields have been so consistently productive that he shuns insurance, plowing the crop under isn’t an option. He’s invested as much as $700 an acre of seeds, fertilizer, chemicals and rent on some land, and he needs to pull whatever he can out of that field now.

“We need to live off that revenue,” he said.

Rising prices also provide some opportunities. Hayhurst is still holding on to 5,000 bushels of corn from last year, and monitoring the local markets for the right moment to sell. He thinks prices may hit $10 a bushel.

The grain touched a record $8.205 a bushel on July 31 on the Chicago Board of Trade, surging 27 percent for the month, as the drought tightened its grip on the Corn Belt. Soybeans gained 15 percent and wheat 17 percent.

“Everybody thinks corn will keep going up,” Hayhurst said. Hayhurst is still hoping that his fields will yield 100 bushels an acre of corn, about half what he got last year and budgeted for at planting time. Matched with rising prices, that would mean 2012 is not a total disaster. Getting that yield, though, requires some good rains this month.

“It depends on the rainfall from here on out,” he said.

Market Watching

Hayhurst, in fact, spends much of his time monitoring markets. He begins each morning with a coffee and check of the Chicago Board of Trade prices in the converted chicken coop that serves as his office. And while he describes himself as “conservative,” in one way or another every day he is making a bet about those markets.

At the beginning of the year he contracted 40 bushels per acre of corn to the local grain elevator in nearby Shelburn, which is owned by Gavilon Group LLC. He wanted to lock in prices of $5 to $6 a bushel, in case a record corn crop materialized and prices fell. He’s got 20 bushels of soybeans per acre sold off, too.

Soybean Worry

It’s that soybean pledge that has him most worried now. If no rain falls in the coming weeks, the flowering plants won’t produce pods, or the pods may be empty. He’s never had to buy out of a future position before, and he’s not sure what it would cost him to do it now.

Justin Monger, the grain-elevator manager for Gavilon in Shelburn, said most farmers in the area will be lucky to pull even those yields from their fields. In a banner year the elevator can hold and ship 10 million bushels of grain out to chicken farmers for feed and ethanol producers.

“If we get a third of that this year, I’d be surprised,” Monger said in an interview. “I’m trying to get as many bushels as I can.”

For Hayhurst, how many bushels there will be is still very much an unknown. While the corn in his fields won’t grow any more kernels, the ears that are there could plump up with some strong rain showers. What’s left for him to do now is hope and pray.

“We can do the tillage, the planting and the harvesting,” he said. “The rest is for God to take care of.”

To contact the reporter on this story: Mark Drajem in Washington at mdrajem@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net;


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