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.”