This year will have challenges. But farmers should key their eye on opportunities and double down on farm management, says Neil Bentley, BASF’s director of marketing for U.S. crop.
“The good news is we’ve had record harvests for three years, global food demand grows 1.5% annually and ending stocks still nowhere near 1980 levels,” he says. As a result farmers will have the opportunity to not only breakeven in 2017—but see profit opportunities.
“It will be the little things that matter,” Bentley told attendees during BASF’s The Science Behind Higher Profitability event ahead of the 2017 Commodity Classic. “The real step is, how do we move forward and perform better than average?”
Michael Swanson, Wells Fargo chief agricultural economist, expects 2017 to be more of a continuation from 2016 in terms of the ag economy. As a result, he says, farmers will make tough decisions and change business models. He suggests farmer consider these strategies for 2017 and beyond.
Think creatively about cash rent situations.
Swanson encourages all farmers to watch their local cash rent market. “Land is always overpriced because you can’t do without it,” he says. “But you typically see poor ground priced as high as good ground.”
He provides this example. If cash rent in Missouri is $150 an acre on great ground, mediocre ground may go for $120 per acre. But the same seed, fertilizer, chemical and equipment on the mediocre ground brings 30 or 40 bushels less in corn production.
“So it’s have to be almost $150 cheaper to get the same breakeven,” Swanson says. “No landlord is going to allow you to do that. It comes on the farmer to have the discipline to say, “Thanks but no thanks.’”
What if you have a package deal for renting farms and two are high quality and one is poor? Swanson suggests renting all three, but getting an agreement with the landlord that you can re-rent the terrible farm.
“Pick the neighbor you like least,” he says. “Even if you rent it $40 cheaper to that neighbor, you’re avoiding a $300 per acre loss on that farm. There are solutions that require you to be flexible and have a small ego.”
Prepare for multiple interest rate increases.
Even though experts have been predicting interest rate hikes that haven’t occurred, Swanson says the writing is on the wall. He predicts three interest rate increases in 2017.
“Borrowing money will have a cost and it hasn’t had that for a long time,” he says.
His advice is for farmers to analyze every decision to make sure it still pencils out with a more normal interest rate. “Really start thinking about the cost to carry the corn and beans and does the basis really pay you for that? We have to get back to that mentality that money costs money,” he says.
Differentiate your operation to gain a competitive edge.
“The big gap between the strong and weak is about the performance of the operator not the environment,” Swanson says.
Farmers can separate themselves by how the use technology, how disciplined they are about asset use and how they manage supply chain difficulties. “There are a lot of different levers you can pull,” he says.