One thing we know about living in the 21st century is free advice is everywhere. Typing “farming advice” into Google will land you 47 million links in less than half a second. (Try it!) That’s why we asked Farm Journal’s experts across agronomy, machinery and technology, risk management, government policy and business strategy to have the last say in 2016. We asked them, out of all the advice you could conceivably offer Farm Journal readers preparing for next season, what are your most valuable words of wisdom? We hope, as you prepare to navigate the choppy waters of 2017, you’ll take these messages with you, along with our best wishes for a successful and safe new year.
A Message from the Past: Are Better Times Just Ahead?
Usually, the bottom cycles of the agricultural industry last about three years. I think 2016 was the third year of our current slump, which means 2017 could be much better. Yes, grain carryovers are large, but demand is very good. Actually, 2016 will be a good year for many, as yields offset lower corn and soybean prices. Therefore, gross dollars per acre were actually up from what we had originally projected for our clients.
Elwynn Taylor, an Iowa State University entomologist, says drought in the Corn Belt starts in the Southeast; it certainly is dry in that part of the country. And dry weather in the Corn Belt means reduced carryover stocks. Early corn acreage estimates for 2017 are closer to 90 million, some even less, down from 95 million acres in 2016.
Other bright spots: Fertilizer and fuel prices are down. Used equipment prices are also lower. Technology continues to advance.
See the table below? A customer dug it out of his archives from a Farm Journal in the early 1980s. Written by columnist John Marten, it lays out the emotions that indicate the top and bottom of the agricultural market. The best part? Many of the bottom indicators are in place today.
Slice and Dice Your Profit Picture
With low commodity prices, many farmers are worried about controlling costs for the upcoming year. First, it’s important to have an accurate look at your own costs. This includes land, seed, chemicals, equipment, insurance, labor, etc. Don’t forget to include your needed profit with your cost-of-production numbers.
With a little help from an ag-based GIS program or a spreadsheet, you can separate cost of production on a field-by-field basis. Couple that with your average yields for each field, and you’ll get a picture of average income potential for each field. You will want to know your average profit for your whole farm, but also:
- Average profit by field.
- Average profit by landowner or manager. You might put up with less profitable farms because there are more acres in question, but you will want to know what you are sacrificing to farm those other acres.
- Average profit by soil type. As farms become available for rent or purchase it helps to know what your average profit is on various soil types. Your farming practices, seed selection, etc., might yield better than those of other farmers on certain soil types and vice versa, of course. Knowing what your cropping practices and expertise can yield on certain topographies and soil is invaluable when deciding whether to take new ground in times of low prices.
Knowing average profit by differing zones within the field can also be helpful when making decisions on whether to participate in government programs such as CRP and the Pollinator Habitat Initiative. Farmers should weigh average profit against what the program is paying. Remember because of differing costs of production, your lowest-yielding field or zone might not be the one with the lowest profit.
After assessing profit on various levels, don’t make changes that could markedly affect expected yields. If sidedressing nitrogen has consistently raised your overall yields, it can’t go on the chopping block without potentially changing your profit assumptions.
Attention to Detail Adds Up to Bushels
Never are the fundamentals of yield more important than in a year like what’s predicted for 2017. Don’t lose sight of the following details that add up to bushels:
- Good ear counts in corn. Picket fence stands start with seed placement. If you haven’t updated meters, it’s the first place to spend money to cut down on doubles. If you’re using newer meters and noticing skips, slow down. We usually plant at 3.5 to 4 mph for optimal uniformity.
Photocopy plants germinate within 48 hours of one another. Uneven germination can be caused by uneven planting depth, moisture and temperature variability, poor seed-to-soil contact and poorly adjusted planter components (down pressure, gauge wheels and closing wheels).
- Stand establishment in soybeans. Like corn, proper planting depth and uniform emergence set the stage for what’s to come. Managing plant population depends on plant type, planting date, soil characteristics and productivity of the ground.
- Set up management zones. To manage soil variability, create management zones based on soil type, elevation, aerial photos and yield maps.
- Let soil tests guide phosphorus and potassium fertilizer needs. Remember, a bushel of corn removes 0.40 lb. of P205 and 0.29 lb. of K20. Implementing variable-rate technology is worth considering to apply exactly what’s needed where.
- Keep your pH balanced and don’t cheat on lime needs. Proper pH improves fertilizer efficiency. Not all lime is created equal; pay attention to calcium carbonate equivalence, effective neutralizing value and particle size. When it comes time to spread, make sure the pattern is uniform.
- Fine tune your nitrogen program. The environment sets the tone for nitrogen timing, timing sets the tone for nitrogen placement and placement sets the tone for picking nitrogen sources. Don’t cheat on nitrogen, but overapplication will cost you as well. Track nitrogen uptake based on growth stage and monitor nitrogen immobilization, mineralization, volatilization, denitrification and leaching.
Machinery & Technology
Look For These Opportunities in 2017
Even in the most challenging economic times, there are opportunities for those in a position to take advantage of them. Be on the lookout for these:
- The time to be a buyer is when others don’t feel like buying. It’s the theory of opposites at work. There will be a tremendous opportunity in 2017 to upgrade to late-model, used equipment at great deals; a second planter or combine, maybe a sprayer. Many dealers are offering great bargains because new equipment sales have been slow for a while now. When the market turns around, there could be a surge of farmers looking to buy. You could get a great deal if you can afford to beat the rush.
- It pays to take care of your equipment. That has never been more true than now. Have a friend or relative pull out a cellphone and video you planting and harvesting. Save those videos on your phone or computer. They will be important down the road, when it’s time to sell or trade. Personalizing what you are selling makes it worth more and video is the best way to show what the tractor or planter meant for you.
- The number of machinery auctions will likely increase during the first half of the year. Watch for sale prices to slightly soften by mid-March to early summer. This is the pattern we’ve tracked from 1990 to 2006, and I think we could return to this pattern in 2017.
- Pre-Tier 4 used tractors will likely be more sought-after in 2017. Auction companies and dealers are using this language in their tractor ads: “For sale with engines before the latest emissions standards were implemented.” When a pre-Tier 4 tractor is up for auction, buyers take more interest.
- Consider out-of-season purchases for better deals on used equipment. In the fall of 2016, we saw stronger prices on used harvest, grain-handling and tillage equipment and more search traffic to these categories at www.MachineryPete.com. It doesn’t take an economic downturn to know buying out of season can save you a few dollars.
The Threshold to a New Way of Farming
Technology will continue to improve its reliability in 2017. On-board yield monitor systems, once notorious for producing inaccurate moisture readings, now rival the accuracy of commercial moisture testers at the local co-op. Auto-steer systems that used to unexpectedly veer off course (usually in plain view of the landlord’s house) now purr along for hours, days, even weeks, with plus/minus accuracy of an inch or less.
Say what you will, money spent on precision farming technology now buys some of the most reliable performance this side of the space station. Yes, things still break. Yes, automated systems occasionally misbehave. But for all the acres covered, under incredibly dusty, bumpy, sometimes muddy conditions, automated systems are better than ever.
The year 2017 might be an important threshold: where the reliability and performance of automated precision farming systems surpasses the occasional fallibility of human operators. Autonomous tractors and combines are right around the corner.
Yield monitors and, more recently, auto-steering systems, took less than a decade to go from farm-show novelties to factory-installed “gotta have” components in combines and tractors. Autonomous tractors will have the same kind of speedy adoption rate once a technological tipping point is reached. That will happen when the non-farm public accepts self-steering cars and trucks on public roads.
The first autonomous truck delivery has already occurred: driverless startup OTTO delivered beer from Fort Collins, through Denver, to Colorado Springs, monitored by a human “passenger.” By the time engineers and lawyers figure out the legalities involved with putting driverless vehicles on our highways, releasing tractors and combines into the wide open spaces of our fields will seem like child’s play. And once that happens, the ripple effect will impact the number of people needed to farm and the amount of land one man can farm, eventually triggering the biggest social upset in rural society since tractors replaced horses.
Supply Is Strong, So Timing Is Critical
More than ever, as we look toward 2017, the best advice I can give is to prepare for whatever unexpected events will push up volatility and market risk. Price is set by supply and demand. A big crop has been produced and world stocks are abundant. Global production prospects appear solid and, barring the unforeseen, supplies of corn, soybeans and wheat will stay burdensome.
The markets will likely remain bearish until mid-February. I recommend no new pricing during this period. However, take steps to buy fall calls to manage the risk of a summer weather event. Feed buyers should have all spring and summer feed needs bought before the February USDA supply-demand reports.
The March-to-May period will have a slight upward bias, driven primarily by Chinese buying of South American crops and the planting season. I believe soybean acres will be up significantly in 2017, keeping pressure on the November 2017 contract. Any hedges should be in deferred and short futures rather than options. I also expect corn acres will be down, which, if met with some spring weather delays, could help corn prices bounce up next spring.
Further in 2017, variables that affect supply and demand will become less predictable. I’m forecasting corn yields will exceed 168 bu. per acre and soybean yields will be more than 47 bu. This implies a corn carryover potential above 2.4 billion and a soybean carryover higher than 480 million. The May-to-July weather scare has to drop yields enough to lose 1 billion bushels of corn and 280 million bushels of soybeans before supply gets tight.
Producers have to be early sellers of December 2017 corn at $3.95 to $4.20 and November 2017 soybeans at $10 to $10.40. Have a plan to deal with a July-to-August weather event.
Combine Crop Insurance With Marketing Tools
Excess supply seems likely this year, let’s just start there. So, assuming spring prices are unattractive, it might be difficult to lock in a profit with crop insurance. If profit is possible, it will most likely be due to producers buying the highest levels. Wait! There’s good news! It’s called the futures and options market. With a few other favored strategies, this market can help you make the decisions required in order to have a good year.
Combining crop insurance and other marketing tools is often helpful. Crop insurance creates a foundation that can be integrated with other marketing tools, resulting in those two gorgeous words: risk management.
Why are both necessary? Marketing tools help fill the risk-management gap crop insurance will likely struggle to fill alone in 2017. Crop insurance helps curb the amount of marketing exposure to a level with which, hopefully, most people are comfortable. Without integrating both components, it can make for a bumpy road next year, or any year for that matter.
What can people do this winter to help prepare for whatever happens in 2017 and beyond?
- Learn about private insurance and ensure your agent has access. A client recently told me he missed out on almost $200,000 during the past three years by not following our advice to use certain private insurance products. To make it worse, his agent had given him bad information.
- Understand how to incorporate crop insurance and other marketing strategies in your risk management program. Don’t let anyone tell you crop insurance doesn’t have an impact on how much money is spent using other marketing tools.
- Get comfortable with futures and options. They are necessary navigators, especially when retaining ownership is key.
- Technicals are a prime part of price movements and cannot be ignored. Spend time each week looking at a chart until it speaks to you. Sometimes a picture (or a price-chart) is worth a thousand words.
Friendlier Regulations Maybe, But Watch Trade
In the agriculture industry’s legal and policy sphere, 2017 is going to be all about the Trump Administration and the changes it will bring. Farmers were part of the broad rural coalition that brought about Trump’s victory in the Electoral College; farmers should expect and demand to have their voices heard when the Trump Administration takes office.
One area that will please producers is the regulatory environment. Farmers should expect to see few new regulations implemented during the Trump Administration. President-elect Trump spoke harshly against the Waters of the U.S. (WOTUS) rule during the campaign and we can expect to see it withdrawn very early.
The Renewable Fuel Standard should be safe. This is good for corn farmers because it accounts for 40% of corn demand; less so for livestock producers that compete with ethanol for corn.
Trump campaigned on the promise of revisiting our trade pacts to boost domestic manufacturing jobs. This could negatively impact agriculture, which is one of the few sectors that consistently generates a positive trade balance. Any renegotiation that results in higher tariffs on imported manufactured goods would prompt our trading partners to raise tariffs on U.S. ag exports.
Reducing export opportunities is the last thing we need while we sit on piles of corn, soybeans and wheat.
Trump has promised to simplify the tax code and reduce corporate tax rates. He and GOP congressional leaders have also indicated they will do away with the “death tax.”
The increased spending on infrastructure Trump is promising could increase interest rates, but the farm economy, as a whole, is not overleveraged and should be able to withstand higher interest rates.
Work Already Underway on New Farm Bill
Most provisions of the Agricultural Act of 2014 expire on Oct. 1, 2018, less than a year away.
For now, the congressional role consists largely of informal discussions between Senate and House Agriculture Committee staffers and representatives of farm and commodity groups, as well as others with an interest in the farm bill process. Many groups are also holding conversations with their members, trying to get a sense of how the programs from the 2014 farm bill are working, in particular any major shortcomings that need to be addressed. Many of the groups have a formal process for making farm bill recommendations, which might have already been initiated.
The first public steps in drafting the new farm bill are expected to occur early in 2017, with the House and Senate Agriculture committees each holding hearings in the states of their respective key committee members.
The House Agriculture Committee is likely to begin first, as early as March or April, both because its Senate counterpart will be holding confirmation hearings for President-elect Trump’s USDA nominees, and because their committee membership is larger. These field hearings will focus on the commodity and crop insurance programs that are of chief concern to farmers, and most of the witnesses will be farmers who are prominent members of key farm and commodity groups in the state.
It is primarily the House and Senate leadership, not the committees, who will determine how long this upcoming farm bill process will take because the leaders decide which legislation gets considered by the full House and Senate and on what schedule. A renewed effort to split the nutrition title away from the farm bill would likely slow the process, as it did for the last farm bill.
If you have concerns about any provision of the 2014 farm bill or ideas about how to fix problems, now is the time to step up. Call your member of Congress and ask for the agricultural staffer.
Cash Is Still King, But Communication Does Wonders
With 2016 in the bin, it’s time to think about some best practices for 2017. While I don’t foresee the gravy train returning next year, I firmly believe there will be opportunities to succeed and, for those with cash, opportunities to thrive. Here are my best tips for 2017, in no particular order:
Preserve cash. Whether for operating cash flow or to support growth initiatives, cash continues to be king. Focus on the four levers that impact cash flow in a business:
- Profitability (funds you create)
- Leverage (funds you borrow)
- Asset efficiency (funds to buy assets)
- Profit retention (funds you distribute)
A good cash-flow projection that captures the impact of each of these will help you avoid cash-flow surprises that can sink a business. This should also allow you to run various pricing and yield scenarios. Create best-case, worst-case and most-likely-case scenarios to fully evaluate your possibilities.
Get your advisers talking to one another. A discussion between your lender, accountant and risk-management advisers can be a powerful interaction. Knowing your marketing plan helps your banker and accountant better assist you. Knowing your numbers will help your risk-management team make better recommendations. You’re paying them to help you succeed, so get them talking and the results will be impressive.
Leverage your team. The best farmers I know have one thing in common: They get more from their team than anyone else does. Spending time making sure everyone understands their role in “the mission” and how they can personally contribute to team success can be a game-changing exercise. Those who contribute will be more committed employees. Those who don’t, should be fired.
Consider incentivizing your team to change. If you want to drive down your repairs and maintenance expenses, make it a priority for the team and offer a cash bonus for reducing them. If done right, savings will more than pay for the bonus.
Generating revenue solves a lot of problems. While it’s important to focus on many of the administrative things that I and a lot of others preach, don’t lose sight of driving revenue. A relentless focus on capturing prices above your breakeven and growing a big crop will pay in spades—in 2017 and every other year.
Four Meetings that Need to Occur
As another year of your business draws to a close, it’s essential to set aside some intentional time to focus on and plan for the coming year. This means meeting with your leadership team away from the hectic daily operation to make sure systems and procedures are in place to help you deal with the unexpected or unplanned events of the coming year. The success of any operation is directly related to how well planning is done. Without input from your key managers, effective planning cannot be accomplished. That means sitting down with your team and listening. It takes time and effort, but the results far exceed the investment. There are four essential meetings that need to occur as you prepare for the new year:
1. Operational evaluation of 2016:
- What worked well?
- What did not work well?
- What needs to be changed for 2017?
2. Establish business goals for 2017:
- Fixed assets (increase/decrease/maintain)
- Personnel (increase/decrease/train)
- Products (increase/decrease/create)
3. Performance evaluation:
- Position descriptions complete for all key personnel?
- Evaluation process clarified with completion dates?
- Evaluation tool reviewed and refined?
- Training/development schedule?
4. Calendar preparation:
- Establish quarterly planning meeting dates
- Set regular (monthly) operational review meeting dates
- Plan pre/post seasonal event evaluations (planting/harvest/irrigating)
- Establish conferences/training dates
- Set vacations for all key personnel
Tax Preparation Lasts All Year Long
As a farmer, you have to be an expert in a lot of different areas; however, recognize your limitations and engage a team of experts to guide you through those areas you can’t have the expertise to command on your own.
Engage a tax professional who works for you, not the IRS. Meet with and challenge him or her outside of tax season to help you get the biggest bang for your buck. When finances are tight, you can’t afford to leave money on the table in the form of tax inefficiencies. Challenge your tax professional each year to come up with one strategy that would help you put your money back into the operation rather than pay more than your fair share of the federal budget.
As a conversation starter, you might inquire about the following:
- Spousal employment and a medical reimbursement arrangement
- Child employment agreements
- Retirement plans
- Capital investments
- Year-end deferred sales contracts
- Timing of sales of land or other capital assets
Most all industries go through cyclical periods, and for the near term, it appears agriculture will continue a period of lower commodity prices. Remember the old saying that cash is king. A strong balance
sheet starts with adequate liquidity. This is not the time to be struggling to meet your operation’s basic obligations.
The Affordable Care Act placed a significant restriction on medical reimbursement plans, which provided many farmers and self-employed business owners with substantial tax savings. If the Affordable Care Act is challenged in a midyear legislative change, it will be essential for you to consider all of your options in regard to providing your family with the most advantageous health care solutions on a pre-tax basis. Work with your tax professional and insurance provider to ensure you implement the best strategy for your family and
As of today, it appears tax laws will change in 2017. Keep an open line of communication with your tax professional, so you are able to best plan for and execute those changes as they become available.
Get Ready to Adapt to a New Era
Your mission this year will be to refine your work habits to a significantly different economic, political and cultural environment. The objectives you strove for in 2016 will not necessarily suffice to keep your operation viable, so adaptation will be paramount. Some values have changed, such as lower environmental concerns and higher competitive pressures. Above all, the arena of economic conflict is much wider and varied. Accumulate data and act on it as rapidly as possible, and above all, evaluate every relationship for usefulness and relevance—historical analogies might prove deceptive.
This is a year where experimentation can yield disproportionate reward as well as devastating risk. Avoiding the choice will be difficult for all but a lucky few. It will not be a year that will pass routinely or without trial, and at the end, your achievements will be bought at a high price. The coming year could also be an accurate sample of the decade to come.
The morning after the election, John Phipps shared on “U.S. Farm Report” how the unrelenting challenge to stay in business hasn’t really changed.
Back to news
No comments have been posted to this News Article
Market Data provided by QTInfo.com