Who's in the Best Position to Grow in 2016?

November 13, 2015 01:30 PM
 
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“We've seen a lot of ups and downs, and there have been years where things have been very, very tight for us,” says Cheri De Jong, chief operating officer of AgriVision Farm Management, which includes dairy and row crops.

She’s no stranger to the volatility married to agriculture. For 25 years, she’s worked alongside her husband, scrutinizing numbers, and allowing the family's dairy business room to grow at what she calls a comfortable pace.  

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“I think we've learned over the years, that in the good years, and last year was a good year, you bank it away, you stock it away, you only grow at the pace you can grow,” she advises. “You never get too far out, because you never know what the next year is going to bring."

2014 proved to be a good year for dairies, meaning many operations are in the middle of expansion today. According to USDA, that growth is coming from every state but California. 

“Bottom-line is expansion is ongoing and at $15, $16 milk, we have not discouraged the culling of cows,” says Mike North of Commodity Risk  Management Group. “As more barns go up, and as additions get put on existing barns, as existing infrastructure on a dairy gets filled out, ultimately there's a continued demand for cattle. We’re looking at continued expansion the rest of this year and on into 2016.

Thanks to Mother Nature's help, the cow/calf sector is also seeing an opportunity to growth, with expansion taking place in the Plains. 

“I still think the cow/calf sector is probably the best growth sector to come,” says Don Close, beef economist with Rabo AgriFinance. “Not to say that we've tapped out potential in the others, and specifically the hog industry. But if you take the development in technology, the acceptance of the industry for the confined and semi-confined cow herds in the Corn Belt, how those program can fit into an existing landlocked row crop farm, and the overall growth in cattle numbers, that would be my number one choice today."

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But the difference between livestock and the row crop sector this year is stark. After several years of growth, many farmers are now looking to trim any excess from their operation. When looking at growth, Davis says the size of an operation doesn't matter. 

“There's been an opportunity to increase our working capital, our reserve our cushion so to speak, and those that chose to reinvest all into growth, without building up additional reserves, they will feel it more,” says Matt Davis of Farm Credit Services of Mid-America. “So, that's not a matter of size, just how they managed money in the good times."

“The real key would be to be very cautious, and farmers are very cautious,” says Creighton University Economist Ernie Goss. “They pull back on their ag equipment purchases, they pull back on what they're paying for land.”

Goss says we've switched from an economic tailwind to an economic headwind, and some of that can be attributed to the Federal Reserve Bank's decisions.  

“Now, we've got a little bit of a headwind, again because of the federal reserve at least moving in the direction of higher interest rates and of course the global economy is slowing down, so it looks like 2015 farm income is going to be down from 2014 and 2014 was down from 2013,” says Goss. “I expect 2016 to be a little bit better turn around there."

Goss says for farmers looking to grow and doing so by borrowing money, low interest rates do come with a certain level of risk. 

“By that I mean you get a loan out of New York, or get a loan out of a lender that doesn't have a presence in your community, that can be negative,” says Goss. “I mean in other words, you could have the lender not be there. Then you would be in deep trouble, or less supportive of the local economy."

He says that's why he thinks it pays to have a trusted relationship. “I think I would abandon my local banker with a lot of caution,” warns Goss. “That’s somebody that's very important to that community.”

Even though growth may be difficult, Close thinks row crop farmers may need to venture into uncharted waters to expand. 

“We see conventional row crop farmers are going to be looking for ways to diversify and stabilize income,” he says. “And that provides the opportunity to reintroduce cows. A lot of that could be done with confinement and semi-confinement cow operations that have very interesting opportunities.”

It’s more than just diversification that could help agriculture in the years to come. Goss says increasing trade relations, including major deals like the Trans-Pacific Partnership trade deal, could also help pull agriculture through. 

“We are in a window where we're seeing a headwind, no doubt about it, prices are down, but long-term you'd have to be bullish on agriculture,” says Goss.

What are your plans for 2016? Let us know in the comments.

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Comments

 
Spell Check

Jonathan Campbell
Elizabethville, PA
11/15/2015 04:29 AM
 

  Why are we talking about growth at the current profit levels. What about the law of supply and demand? We should be focusing on cutting costs and increasing efficiency

 
 

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