Start Thinking About 2018

March 9, 2017 06:38 AM

Long-term planning will help set up long-term success

Farmers are busy planning for the 2017 growing season. But those who are also thinking about 2018—and beyond—will be doing themselves a tremendous favor, says Terry Barr, CoBank senior director.

“I think 2018 will be the more challenging year,” he admitted recently to a standing-room-only crowd at the Agricultural Retailers Association annual meeting.

That’s partly due to the fact corn prices are more likely to fluctuate between $3 and $4, rather than $3 and $8. Excess inventory means even an average crop will weigh heavily on commodity prices this year.

“We’ll get to a pressure point where even a short crop won’t give us much price opportunity, and then people will say, ‘I have to adjust my cash rents and land values accordingly,’” he warns.

If lower commodity prices continue for multiple years, lenders can “patch up” some farmers for 2017, but that’s not a viable long-term strategy, adds Curt Covington, senior vice president with Farmer Mac.

The good news? Farmers have taken several positive steps so far to protect their bottom lines, Covington says.

“Farmers have done a nice job of reducing input costs and taking advantage of this winter’s weather rally,” he says. “That puts a lot of them in better shape. Crop insurance and solid yields helped, too.” 

What else can farmers do to protect themselves long term? Covington’s advice boils down to this: “Look again.” Take another look at input costs, capital expenditures, cash flow and even lifestyle changes that could ease a financial burden.

Revisit risks, too. How susceptible is your farm to higher interest rates? Speculation is high right now over how many interest rate hikes the Federal Reserve will enact in 2017. Some expect as many as three. Not Barr. 

“I don’t think interest rates will take off unless this economy surges all of a sudden, and I don’t know what the basis of that would be,” he says.

Barr says stronger export markets is one factor that would leave him feeling more bullish about 2018. 

“If world demand would just grow, we’d be OK, but we need more populations moving into the middle class,” he says. “And that would have to include China and opening up India.”

Will continued suppression of commodity prices continue to erode farmland values? Covington says while farmland prices are down somewhat, they’ve held together better than he would have anticipated. “It’s been a softer landing than I thought we were going to have,” he says.

Even so, Covington expects more rent renegotiations this year. Barr wonders if landowners will still be reluctant to lower rates. Some don’t think they did as well as they should have when prices were high, he says.

Barr admits mapping out a strategy for 2018 can be difficult—especially after seeing high volatility in the first days of the new presidential administration. His tip: Keep an eye on potential changes to the tax code. 

“In Washington right now, there are more lobbyists per square foot to address tax reform than anything else,” he says. “Some people think it’s more important than the farm bill. We’re entering a transition time economically and politically, and there’s a lot on everyone’s plate for the future.” 

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Spell Check

bad axe, MI
3/10/2017 06:10 AM

  The problem I see is a lot of farmers ready to retire are still in a lot of debt. There looking for the next generation to give them big money rent to pay it off for there children and I have a hard time believing that's going to work out. The second problem is all this farm machinery loading up on these lots around the country. These independent dealers are buying it up to keep the price up , but anybody farming has what they need. The bottom on this farm machinery in a few years is going to fall out big time. This 68 trillion of credit market debt has the rural community 14 times deeper in debt than it had it in 1980 when the credit market debt was 4.7 trillion. Sure this credit market debt is also in deposits in the bank and stock market but ag has to give it a return on investment to stay in ag and it's not going to be there until the next cycle in 20 years.

Memphis, TN
3/15/2017 08:29 AM

  The 20-25 year cycle (with the last 5-6 years of that cycle being pretty decent) is closing on better economics in ag. We will be in this low commodity overhang now for another 15-20 years until yields increase again and other technologies improve margins. Current technologies have outlived their expected use and the economics of the rural life aren't there anymore. Rising real estate taxes and low density populations are going to further damage the rural sector until we figure out that sustainability is the key; not bigger operations and more debt.


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