Farms are likely to pocket more profits this year than in the past, but input costs have continued to increase. Farm Credit Services of America (FCSAmerica) estimates the capital requirements for a typical Midwest corn producer to be nearly four times more than in 2005.
"Landlords are demanding more for cash rent, while seed, fertilizer and fuel also have increased notably. This has driven a considerable increase in the need for capital to operate these farms," says Doug Stark, president and CEO of FCSAmerica. Stark provided testimony to a House Agriculture Committee subcommittee on behalf of FCSAmerica about credit conditions in rural America.
"In many situations, grain producers are finding that they need to capitalize and fund portions of three years of production," Stark says. First, they must finance their investment in the carryover of last year’s crop while it’s being marketed. Next, they have the ongoing investment in the present crop being planted and grown. Finally, and even before this year’s crop has been harvested, they are expected to make commitments and prepay things such as seed, fertilizer and chemicals for the coming year.
"Because of this, to effectively market their crops, many farmers also set up marketing loans to fund their marketing program positions," Stark adds.
Weather Insurance for Winter Wheat
As the 2011 crop year exemplifies, poor weather accounts for the largest portion of crop losses—up to 90%, according to USDA.
"Even with the best management practices, weather is what makes or breaks winter wheat yields," says Mark Hodges, executive director of Plains Grains Inc. and former executive director of the Oklahoma Wheat Commission. "Coming off a year when we’ve seen drought and heat decimate the crop in Oklahoma, Texas and parts of Kansas, growers may want to look at solutions that reduce their exposure to financial losses caused by poor weather."
Winter wheat producers now have a tool available that will protect them against profit loss related to poor weather. WeatherBill, a national provider of weather insurance, has expanded its Total Weather Insurance (TWI) program beyond corn and soybeans to include 2012 winter wheat. TWI provides growers with the ability to lock in profits by covering against weather-induced production shortfalls before federal crop insurance coverage kicks in.
Unlike traditional crop insurance, which requires verification of crop yield, planting volume and inspections prior to payment for damages, WeatherBill automatically sends payment when the weather conditions the grower specifies occur, as measured by independent sources, such as the National Weather Service.
To find an authorized WeatherBill agent in your area, go to www.weatherbill.com. Full season weather coverage for the 2012 winter wheat crop is available to growers who sign up by Sept. 30.
Bill Gates Invests in Farm Machinery
Billionaire and Microsoft Corporation co-founder Bill Gates’ investment vehicle—Cascade Investment LLC—is now the largest shareholder in farm machinery manufacturer Deere & Company, according to a recent regulatory filing.
Cascade, which is known for long-term investments in value stocks, owns a 5% stake, almost 21 million Deere shares, according to the filing with the U.S. Securities and Exchange Commission. Net income attributable to Deere was $1.69 per share for the third quarter ending July 31.
Deere income jumped 15% in the third quarter, marking the fifth consecutive quarter-over-quarter record, according to the Deere quarterly earnings report released on Aug. 17. Ag and turf equipment sales increased 22% for the quarter and 23% for a nine-month period, largely due to higher shipment volumes. Worldwide sales of the company’s agriculture and turf division are forecast to increase by 21% for full-year 2011, according to a Deere Company spokesman.
Fertilizer Giant Acquires Agrotain
|Agrotain is the world’s largest producer of stabilized urea fertilizer.
Agrotain International signed a definitive agreement to sell its assets to Koch Agronomic Services LLC, a subsidiary of Koch Fertilizer LLC. Koch Fertilizer owns nitrogen fertilizer plants in the U.S., Canada, Trinidad and Tobago and has the capability to manufacture, market and distribute more than 13 million tons of fertilizer products annually.
"There has been a tremendous demand for nitrogen efficiency from farmers for both economic and environmental reasons," says Jeff Whetstine, vice president, Global Marketing for Agrotain. "Koch Agronomic Service’s purchase of Agrotain will mean that we can continue to significantly increase our production of stabilized nitrogen fertilizer products."
Revenue Insurance Hub of Farm Bill
Producers would be better served in the next farm bill by replacing current revenue enhancement programs with revenue insurance. That means scrapping direct payments and other programs that protect revenue, in the view of Bob Thompson, professor emeritus of economics at the University of Illinois and present visiting scholar at Johns Hopkins University. "We should roll all programs into one."
In Thompson’s opinion, only two things can do a farmer in: loss of yield and a crash in crop prices. Revenue insurance would give farmers the protection to keep them in business.
Revenue insurance should be size neutral—that is, available to all producers—but a program would particularly protect young farmers who need it most, he says.
"I’m willing to concede that the public sector will subsidize agriculture," Thompson says. "A subsidy should include both yield and income." One program of revenue insurance would do both.
Thompson believes that such a program would pass the test of the General Agreements on Tariffs and Trade.
Tractors, Rent Lead Farm Expenses Increases
It’s no surprise that farm expenditures are on the rise, with equipment and land rent showing the largest increases compared with 2009, according to a recent report from USDA’s National Agricultural Statistics Service. Expenses for tractors and self-propelled machinery were up 17.2%; rent was up 14.6%; other farm machinery rose 6.4%; seeds and plants increased 5.2 %; and fertilizer, lime and soil conditioners, up 4.5%. On average, rent saw the biggest rise in dollar expenditures as compared with other average per farm expenditures. Rent, on average, was up $1,500. The largest expenditures for crop farms was rent, making up 13.7% of farm expenses on average.