The Road Ahead

December 5, 2015 02:50 AM
The Road Ahead

American agriculture isn’t for the faint of heart. Many farmers are bracing for headwinds from the field, the trading floor, the banker’s office and the halls of government—preparing for a 2016 more challenging than any season in the recent past. But where there is challenge, there is also opportunity—the chance to achieve despite the obstacles. On the following pages, Farm Journal experts offer actionable tips to survive and thrive on the road ahead.

Ken Ferrie 
Farm Journal 
Field Agronomist

Do You Know Where Your Nutrients Go? 

It’s time for all farmers to learn more about nutrient reduction strategies. The attitude of “this isn’t happening in my backyard, so I don’t need to worry about it” isn’t going to cut it anymore. If it’s not in your backyard yet, it will be. Just give it time. 

In the coming year, we all need to make it a priority to read our state’s Nutrient Reduction Strategies. Learn about the lawsuits happening across the country—from the Lake Erie Watershed in Ohio to the Iowa Watershed to the Gulf of Mexico. You’ll quickly learn the atmosphere is changing regarding who is responsible for nutrients in groundwater. We’re in an era of finger pointing, and we can no longer put our head in the sand. Take the Iowa Watershed lawsuit for instance: The municipalities are pointing fingers at farmers, while farmers blame the municipalities for storm drainage issues, golf course problems and more. 

When I talk with Iowa farmers, it’s apparent how important it is for them to win the lawsuit to avoid further problems. However, you can’t expect the issue to just go away. I anticipate more and more lawsuits on the horizon. This is why it’s essential to be armed with information to defend yourself in court or in public. Be able to respond to questions such as, “How do you keep nutrients out of my water supply or fishing hole?” Be ready with an educated answer, just as you expect the same from the municipalities.

So where do you begin? Start with your nutrient testing program. Pull soil samples on a regular basis to monitor nutrient levels in the soil. This ensures you apply the exact amount of fertilizer without the risk of overapplying or underapplying. Use variable-rate fertilizer to apply different rates in different areas of the field on an as-needed basis. Use soil tests and soil maps to identify the soil zones or soil types with the highest risk of nutrient loss. Be sure to manage erosion by respecting soil’s loss potential. Do what is necessary to keep the soil in the field. 

Go online and search for your state’s Nutrient Reduction Strategy. For more information on implementing voluntary programs, go to your state’s soil and water website.

Whatever you do, make 2016 the year you learn more about nutrient reduction strategies.

Dan Anderson 
Farm Mechanic

Work Your Machines In Good and Not-So-Good Times

Attitudes toward planting have dramatically shifted in the past 20 years from “Just get the seeds in the ground and they’ll grow” to “My goal is 99% singulation for all my acres.” Advances in seed monitor technology allow farmers to literally see and correct every skip or double as they occur. Do you have lots of skips showing on the display? Reduce ground speed, or change the height of row cleaners to smooth row units’ ride. Too many doubles checkering the real-time field map? Adjust knockout mechanisms to better match seed size or tinker with vacuum settings. 

High commodity prices in the past decade encouraged farmers to turn to their local mechanic when something breaks or is due for maintenance. That will soon change, if it hasn’t already. Farmers will rediscover the money they can save by tackling basic repairs themselves. With dealership shop rates around $100 or more per hour, a morning spent doing oil and filter changes along with basic machinery maintenance keeps $400 to $500 in the farm checking account. 

But farmers who attempt in-depth diagnostics of electrical systems might be disappointed by computerized systems and high-tech electronics on farm machinery. Those systems often require diagnosis available only from authorized machinery dealers. 

Missy Bauer 
Farm Journal Associate
Field Agronomist

Weatherproof Your Nitrogen Programs

We all know we can’t control the weather, but we can control nitrogen. Weatherproofing your nitrogen program is critical to keeping corn plants happy all season long. Remember, we gain 5 bu. for every kernel in length. For example, if 10 kernels in length abort, that’s 50 bu. lost. If you miss the target on your nitrogen program, don’t be surprised if you forfeit as much as 50 bu. in yield. 

Approach your nitrogen program as a complete system from the previous fall to black layer. Focus on the entire nitrogen cycle to manage your carbon penalty and keep the crop fed. 

Let’s take a look back at key lessons learned in 2015 so we can better prepare for next spring. 

Due to excessive rainfall early in the season, nitrogen was lost. However, sidedressing was a big help in these scenarios. In the Farm Journal Test Plots, the treatments that were sidedressed yielded higher compared with the treatments that received only early season nitrogen applications. Split-applying nitrogen allows you to minimize the amount exposed on your field at any one time. 

I suggest applying nitrogen up to four times a year: to pay the carbon penalty, at preplant or pre-emergence, with starter fertilizer and/or sidedressing.

Later in the 2015 growing season, the rain let up and temperatures remained moderate, allowing timely fieldwork, including applying fall anhydrous for 2016. 

If you apply anhydrous, be sure to monitor nitrogen loss this spring. Depending on your total precipitation and temperatures this winter and early spring, arm yourself with the right tools to respond quickly  to nitrogen loss. Be ready to pull soil nitrate and plant tissue samples in season to determine if your crop needs to be rescued. Take a proactive approach to start 2016 off right.

Machinery Pete 
Used Machinery Expert

Act on Good Machinery Deals

This coming year, keep your eyes wide open. The number of used-machinery auctions is rapidly climbing. After seven years of historically few auctions—fewer than I’ve ever seen—the dynamics in equipment have started to change, and they’re happening all over. Be ready because 2016 will present buying opportunities. 

This past year, manufacturers started offering attractive leases that appeal to farmers who have spent the past several years buying new iron and trading soon after. The ability to operate under manufacturer’s warranty, offload the risk of ownership and declining values is enticing. Manufacturers could pull in the reigns on leasing programs at any time, so talk to your local dealer soon to explore leasing options. Be ready to act if you decide to give leasing a try.

Yes, after several years, the amount of equipment for sale on dealership lots is still high. Beware, this won’t always be the case, though. Dealers are doing what they can to work down inventory levels. The time to be a buyer is now. 

Peter Martin 
Finance & Growth Expert

Reassess, Dump Loser Assets

Smart farmers will survive the challenges that arise in 2016. Just as they’ve done in the past, they’ll reassess their spending and recognize cash is king. I also recommend the following: 

Understand true cost of production. Account for every dollar. It’s how you’ll quantify whether you’re headed for profit, loss or breakeven. Don’t overlook your true living expenses, including what you set aside for college and retirement. ‘Tis the year for living frugally.

Scrutinize every line item in your budget. It’s the only way you can stop hemorrhaging cash and become leaner. Is there a way to cut your overall costs? I challenge you to cut all expenses by 1%. It might seem small, but I’ve witnessed this exercise lead to six-figure savings. Question input costs and negotiate with suppliers.

Be sure to liquidate all non-productive assets. You can generate thousands of dollars by selling losers. 

Stay in contact with your lender. They realize down cycles occur. The last thing you want to do in tough times is cut them off.

Polly Dobbs 
Succession Planning 

Gather Important Documents

Keep your legal house in order in 2016 by organizing a “not dead yet” portfolio of documents. This is paperwork that would suddenly become critical in an emergency situation.

For example, signing a power of attorney document means you give someone else the authority to act on your behalf in the event you become incapacitated, or you can choose to give someone authority to act on your behalf the moment you sign the document for convenience purposes. 

It’s also important to sign a document setting the order of priority among the family members you would want to make your health care decisions if you become unable to speak to your doctor or make your own decisions. 

A living will declaration states your intent that under certain circumstances, you wish for medical procedures to be withheld or withdrawn, and you wish to be permitted to die naturally with only medication and procedures necessary for comfort. A living will can help take the burden off of your family members if they have to make a difficult end-of-life decision. 

Attending to these matters isn’t always fun, but getting your house in order will give your loved ones peace of mind during a difficult time.

Jamie Wasemiller
Crop Insurance Expert

Don’t Let Tight Margins Turn You Off of Crop Insurance

It’s possible spring prices for many crops in 2016 could be lower than they were in 2015, which also means the guaranteed revenue per acre will also suffer. This can make crop insurance look less attractive. Some farmers might lower their coverage levels or go without. Before making a decision, do some homework during the winter months on crop insurance. 

Take a good look at Whole-Farm Revenue Protection (WFRP). This might be an alternative to the normal Revenue Protection and Yield Protection policies. WFRP covers all crops and animals under one policy and insures the revenue on your schedule. With a government subsidy as high as 80%, the price point is attractive. It also factors in basis, which is appealing depending on where the farmer is located. 

Consider all private products. Don’t just look at private products provided through your insurance agency. Look at numerous companies and products to see if any fit your operation and then determine how to use them in 2016.

Use the Actual Production History (APH) Yield Exclusion and Trend Adjusted Yield. With lower spring prices, it’s imperative to have the highest possible APHs on our farms. The Yield Exclusion opportunity might be more prevalent in the eastern Corn Belt this coming year, but the Trend Adjusted Yield should help farmers across the country.

Learn how to incorporate crop insurance in your risk management plan. If you look at your operation’s risk with and without crop insurance factored in, you will notice a difference. 

Understanding on how your crop insurance ties in with your other marketing tools on a daily basis will help dictate when to add or remove futures and options, at what price levels and how many to use. It’s also a big help to determine when to make a cash sale that’s beneficial to your operation. 

Bob Utterback 
Marketing Expert

Prepare for Higher Interest Rates

Some powerful macroeconomic forces have been building for years. The bond market has been bearish since the early 1980s. This is a direct result of the U.S. Federal Reserve and worldwide central bankers pumping up the money supply while reducing interest rates. An easy money policy eventually leads to aggressive asset accumulation in the form of debt. Federal, state, local, business and personal debt is at historical highs. Future challenges will include how to stimulate pro-growth economic conditions domestically and internationally. It’s not a matter of if we will have higher interest rates, higher taxes and higher inflation—the issue is when they will start and how hard they will hit.

In the meantime, get as much short-term debt as possible transferred to long-term at a fixed rate. With interest rates this low, it’s easy to convince yourself it’s time to go deep into debt to gain economy of size. But it can cut both ways when revenue goes below costs. 

If you have significant stocks and bonds, consider how higher interest rates and inflation will affect those holdings.

If there are investment dollars to allocate, focus first on building enough grain bins to hold all expected production; i.e., storing might be done as an inflationary hedge as much as to assist future harvest. 

Make the land work better rather than simply try to farm more acres to get economy of size. This year, many farmers in wet regions saw exceptional returns for their tillage efforts. I expect the same can be said of installing irrigation in areas with limited rainfall. Make the most of what you have. 

Stephanie Mercier 
Policy Adviser

Keep an Eye on Trade, Interest Rates and the Farm Bill

Washington, D.C., is sure to be buzzing in the coming year. While the election will headline the news, farmers should keep an eye on trade, interest rates and federal budget pressures. 

Congressional ratification of the Trans-Pacific Partnership Agreement (TPP) with 11 Pacific Rim countries and the completion of the Trans-Atlantic Trade and Investment Partnership (TTIP) negotiations could occur in 2016. Improved access for many key agricultural products will likely be phased in over time. 

The Federal Reserve will likely begin to raise interest rates at its December 2015 meeting, which is the first time since December 2008. Rates aren’t likely to move up quickly. However, even modestly higher interest rates will put additional downward pressure on farmland value.

While farm-state members of Congress were able to get a leadership commitment to reverse the cut to payments for crop insurance companies in the Bipartisan Budget Act of 2015, that change has been enacted in law until reversed by an offsetting provision. In addition, there will likely be renewed efforts to reduce farm bill spending for the next few years. Those efforts will focus on nutrition programs, crop insurance, farm programs and conservation programs—the four biggest targets in terms of projected spending levels. Even though the annual federal budget deficit was reduced by more than three-quarters between 2009 and 2015, congressional rules still require offsets for any new spending, so farm program funding will continue to be targeted.

When the new house speaker, Rep. Paul Ryan (R-Wis.), chaired the House Budget Committee, his budget proposals included significant cuts to farm program spending, so he could be sympathetic to such efforts. None of the other members of the House and Senate leadership of either party except Sen. Dick Durbin (D-Ill.) are from farm states, which means there might not be defenders of farm programs in the room the next time such budget cuts are discussed in 2016 and beyond.

John Dillard 
Ag & Environmental Attorney

Watch Out for Obama’s Final Few Months

We will continue to see movement on the various legal challenges against the Waters of the U.S. (WOTUS) Rule in 2016. Congress might also restrict funding for implementation of the rule. Regardless, WOTUS will be a part of our vocabulary for some time.

We are seeing an increase in the number of lawsuits brought against farmers or affecting farmers that go beyond the traditional “unpermitted discharge” Clean Water Act lawsuits. The Resource Conservation and Recovery Act and Safe Drinking Water Act are being used to target large west coast dairies. The Des Moines Water Works case is also a novel use of the Clean Water Act to target farmers. Farmers will need to adapt and protect their rights.

President Barack Obama’s last year in office will loom over policy decisions in the White House and Congress. I expect the President will use his last year to implement the more controversial things on his wish list. 

Past presidents have made major decisions on Endangered Species Act listings and public lands access during the waning moments of their presidencies, and these decisions have had major long-term impacts on some farmers and ranchers. 

I expect the Republican-controlled Congress will hold back on passing any substantial legislation in 2016 in order to wait out the Obama Administration and deal with a Republican president in 2017.

Randy Eikermann
Farm Accountant

Start Saving on Taxes Now

Creating capital and operating budgets is always beneficial; however, in times of tighter margins, budgets are critical. A capital budget is a sound decision-making tool to help avoid impulse or tax-based purchases, which should be based on return-on-investment analysis. 

Start the year by implementing tax saving strategies that usually get put off or implemented later in the year. Review your health and medical expenses to see if a medical reimbursement plan is justified. Review compensation for family members and employees. Consider charitable gifts of remaining inventories, especially if you normally use the standard deduction. 

These few options can yield huge returns. Challenge your tax preparer to come up with even more money-saving strategies.

Moe Russell 
Risk Management Expert

Think Outside the Box

If you bulletproofed your balance sheet, you should have adequate working capital to not only survive 2016 and 2017 but to look at opportunities sure to come your way.

Before the end of the year, prepare a market value balance sheet so you know where you are starting from in 2016. Develop an accrual projected income statement that includes expenses, operator draw and reasonable profit. I suggest $50-per-acre profit. I think you will be surprised at the opportunities you will have, but you can’t take advantage of them if you don’t have a plan and are not prepared to execute it. 

Think outside the box. The non-GMO, natural meat and organic trends aren’t going away. It is a $36 billion industry and growing at double-digit rates. My client that made the most financial progress in 2015 figured that out.

John Phipps 
Farmer & Commentator

Control What You Can, But Don’t Be Afraid to Live Life

There will be many factors in 2016 we cannot control, but those we take ownership of can make a big difference in our outlook.

Beware of the atmosphere. 2016 is an election year. Studies have demonstrated the most reliable persuasion is fear, so prepare for continuous impending calamity. This exposure will also affect business decisions, as you will tend to only notice data that confirms your emotions. 

Watch the competition. All the university analysis goes out the window when the guy across the road raises his bid. Remember too, you might be that guy.

Maintain your real safety net. Friendships don’t thrive on neglect. Few things are as calming and refreshing as interacting with the people you like and trust the most. 

Learn something new, such as cross-country skiing, backgammon, how to use Twitter or bread-making to offer a sense of accomplishment that might be absent in your farming activities. A new hobby or skill can also prevent sliding into passive habits such as more TV watching or Internet surfing.

Walk your farm. Any regular exercise is a plus, and a modest goal of plodding across familiar roads and acres might actually happen. The surprise? When you see the farm you think you know without a windshield.

Don’t miss the funny things along the way. Notice the absurdities this year promises. You can’t write jokes as good as we’ll be living.









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