Economic Snapshot from Mid-America
To help prepare for the 2016 production season, Farm Credit Mid-America has arranged a snapshot of the economic landscape in Indiana, Ohio, Kentucky and Tennessee, trends that are likely to affect your operation, and recommendations to assist you in making the most informed decisions possible.
We’re seeing the grain segment pay close attention to working capital and expenses for this production year. As for livestock, particularly hogs and poultry, our customers saw tremendous growth in the fourth quarter. Land values have remained strong, with only a slight decrease in prices.
Indiana farmers are approaching 2016 by taking an in-depth look at all input costs. As in 2015, current assets and liabilities will need to be reviewed and closely monitored. Grain farmers are prepared to remain in a lower grain market for the next few years and are making critical evaluations of input needs such as equipment and seed traits.
As in any year, we recommend farmers sit down with their financial partner and bring their 2015 balance sheet so they both understand their cash build/burn rate and how to prepare for the next production season. It’s extremely crucial in these conversations to bring the farm’s long-term plan of what the next two to three years could look like.
With low commodity prices and declining fertilizer costs at the end of 2015, grain farmers saw little incentive to pull the trigger on many typical year-end purchases. We continue to see producers store grain in anticipation of selling for higher prices at a later time.
Overall, continued high costs of inputs continue to be a challenge for producers as prices remain low. We’re seeing some loan requests for reimbursement of funds for items where cash was originally used, as producers are looking to replenish some cash back into their operations while delaying capital expenditures.
As we approach the 2016 production season, we recommend farmers look at their past production history over a period of at least five years and identify agronomic needs to maximize their yields. Additionally, farmers may consider looking at the potential of their acres for added value and for planting and producing corn for ethanol use.
The landscape in Kentucky is healthy, thanks to record corn and soybean yields in much of the western part of the state. The cattle market has seen some slowdown over the past two months, but overall prices are still profitable. For 2016, we see many farmers in our state approaching agriculture cautiously optimistic.
Trends in Kentucky are consistent with other states in our area. Equipment sales are slowing, grain farmers are storing grain in hopes of selling for higher prices, and high costs of inputs will continue to be a challenge. The diminishing capital position is reflective of farmers working through a year with lower grain prices.
We recommend farmers look at areas where they can hold on to cash in their operations and where costs can be cut, including cash rent prices. A key part of cutting costs is examining rate structure with a lender. Rates will continue to increase in 2016, so it’s a good time to fix rates, especially on long-term obligations such as farm real-estate loans. Payment changes as a result of rate changes can have a serious impact on operations.
The agricultural landscape remains positive for Tennessee. Generally, farmers ended 2015 better than anticipated. Above-average crop yields across the state helped offset the effects of lower grain prices, resulting in a decent year for most. Livestock producers continue to benefit from lower grain prices.
Overall, farmers have become much more conservative with their spending. Debt reduction, building working capital and cutting expenses have become the emphasis versus buying capital items or real estate. We have seen some reduction in land rents and expect to see further reductions.
Going forward, we recommend farmers be knowledgeable about their cost of production, and obtain assistance with their grain marketing and forward contracting if needed. Operations should be scrutinized for expenses that can be reduced or eliminated. Additionally, on balance sheets, debt structure should match the purpose of the loan or the asset securing the debt. As always, farmers should consider building working capital and fixing the interest rate on any borrowed funds with terms longer than a year.
To find out more about how Farm Credit Mid-America can help you with reliable capital this production season, visit farmcredit.com/insightsreport