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A Solid Footing for 2010

December 11, 2009
By: Charles Johnson, Farm Journal Editor
 
 


 

If you ever encounter an average year, be sure to let us know. Just about every U.S. ag producer this year had too much rain or not enough, along with more market instability than they care to recall.

Harvesttime wet weather made getting quality Corn Belt crops in the bin a challenge and devastated cotton and soybean producers in the mid-South. At the same time, severe drought in South Texas meant some farmers harvested no crops at all. In California's San Joaquin Valley, farmers lost an estimated $703 million because of the state's ongoing water difficulties.

These problems make it critical for farmers and ranchers to get on solid footing in 2010. That could be tricky. Most economists predict another year of volatility is ahead.

The weak dollar should help agricultural exports but could push prices of inputs, such as fuel and fertilizer, higher. If the economy turns around, the livestock sector could benefit, but the latest jobless figures indicate that may not be in the cards anytime soon.

One thing is certain. 2010 is not the year to be an average farmer. Purdue University figures indicate that an average 1,000-acre corn and soybean farmer will lose $80 an acre next year; an average 3,000-acre farmer will see a $50 per acre negative return. That means it pays to be better than average.

To get there, push production and try to reduce indirect costs, such as land rent, labor and machinery, recommends Mike Boehlje, Purdue University ag economist.

"From 2007 up to parts of 2009 was an aberration. But we're not back in the tank. It's not as though the average producer can't cover cash costs. Maybe they're not able to cover depreciation allowances or labor charges paying for their time. But 2003 through 2005 were not flush times, and we didn't see many farmers go out of business. If you can get another 5 bu. or 10 bu. of corn or lower your fertilizer cost, it doesn't take much to offset the negative margin. Good farmers can still do well,” Boehlje says.

"You didn't have to have the best management skills in 2008 to make a reasonable amount of income. With margins like the ones we're facing, management skills are going to make the difference,” Boehlje says.

The theme for 2010 is to take a profit when the market offers one and trim costs however you can without hurting production.

"I've already sold half my 2010 corn at $5 per bushel. I have tanks full of $175 liquid nitrogen, a third or fourth of what it was at its peak. I renego-tiated some of my leases. And I have multi-peril crop insurance. So I feel really good about next year,” says Lon Frahm, who farms in Colby, Kan.

As he combined late high-moisture soybeans, Ray Gaesser of Corning, Iowa, said he's been taking proactive steps toward 2010 for several months.

"I locked in $400 anhydrous in July,” he says. "That seemed reasonable, so I booked it for 2010. I'm getting a lot of my phosphorus and potassium needs from a local egg-laying facility and a cattle feedlot, so that saves a substantial amount of money.

"I hedged or forward sold 25% of my 2010 corn for $4. We have to lock in a profit when we can take it. I'm not going to change my crop mix, though. I'm 50/50 corn and soybeans through good times and bad,” Gaesser says.

Managing input risk is more important than ever, explains John McKissick, University of Georgia ag economist.

"There are a range of alternatives you have to manage risk on the output side. But you can also use commodity and options markets on the input side for everything from interest rates to petroleum. We see larger producers using those tools, but a lot of producers don't appreciate how they can use risk management on the input side,” McKissick says.

That fits how Dave Iverson, who grows soybeans and corn in Astoria, S.D., thinks right now. "I locked in herbicides and fertilizer early,” he says. "I'm going to use variable-rate fertilizer, trying to get more bang for the buck. Higher-producing parts of fields are going to get what they need and lower-producing parts will get less. In the long run, that will pay dividends.”

If you can figure out how to add value to your product that can be a big boost, as well. Seven years ago at a time of low milk prices, Leroy Shatto thought about selling the cows at his Osborn, Mo., dairy. Instead, he started marketing milk direct to consumers in the Kansas City area. He separated from the pack by selling a range of uniquely flavored milks in glass bottles at a time when the "buy local” movement was getting started.

Now he's also making cheese that is marketed through Whole Foods Market, a local brewery and local wineries. This year, 40,000 people visited his farm, creating another profit center.

"We hit everything at the right time. I feel good about 2010. I'm having fun. I'm excited every day,” Shatto says.

Try something new. A positive economic move can be as simple as growing improved varieties. Texas cotton producers have switched to varieties with better-quality fiber characteristics, enhancing market opportunities.

"Our cotton quality is as good as anybody's in the world now. It has made us much more competitive,” says Barry Evans of Kress, Texas, president of Plains Cotton Growers Inc.

With reducing world stocks, cotton farmers throughout the nation may have better economic opportunities in 2010. "We're seeing strength in the cotton market. Next year, cotton acres will stay strong here and maybe even increase a little bit. For our climate in the High Plains, it's the best crop we can grow,” Evans says.

In parched South Texas, cotton, grain and livestock producer Matt Huie harvested very little crop this year on his farm near Beeville due to drought. If winter brings moisture, even he is upbeat about 2010's prospects.

"Our input costs on the big-ticket items except seed and technology have trickled down. The issue with cotton is that India and China are so heavily subsidizing their growers, it's not easy for us to compete. I look forward to growing cotton again. The forecast is for a wet winter,” Huie says.

Be ready to adjust. Tracy Kester, who grows alfalfa and barley and raises cattle in Blanca, Colo., says he always tries to be positive.

"Bankers seem negative because nobody's cash flow is working out, but I feel good about things,” Kester says.

"The dairy situation hit us hard because we sell alfalfa to dairies and four large ones in Colorado closed. The ones in New Mexico are hurting. It killed the hay market and the feed barley market,” he says.

"Because we're not able to move second-quality hay, we've changed from a cow–calf operation to cow–yearling. We'll feed the calves the hay. We're not going to change much because we're limited on what we can grow. I want to expand. The banker says don't do it too fast, but I don't know what too fast is,” Kester says.

Delbert Christensen of Audubon, Iowa, president of the Iowa Soybean Association, thinks 2010 could turn out to be a good year.

"I'm positive going into next season. We're adjusting genetics to do a better job of growing things. We're getting a lot more tools to use, such as variable-rate fertilizer rigs. Trade contingents from several countries came through this fall and they seem committed to our corn and soybeans,” he says.

"Here in this area, we are always optimistic we're going to grow abundant crops, help feed the world and be profitable, too,” Christensen says.




You can e-mail Charles Johnson at cjohnson@farmjournal.com.

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FEATURED IN: Farm Journal - December 2009

 
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