SE Minnesota farmers have grain to sell

With the current lower commodity prices and no real significant bump in the short-term forecast, careful planning has become more important than ever for farmers to stay in business.

Balancing lower prices for products farmers produce against the fact that input costs to produce those products haven’t come down yet requires more juggling than in recent seasons. Among some of the more significant costs is land rental, which is squeezing the bottom line of renters all over Minnesota and across the country.

Farmers have grain to sell

Lisa Behnken is a crops specialist with the University of Minnesota Extension office in Rochester. (Photo from AgriNews.com)

“Boy, is that a difficult one (to control),” said Lisa Behnken, a Crops Specialist at the University of Minnesota Extension Service in Rochester. “Rents keep going up and it’s very hard to renegotiate to bring those costs back down. It’s certainly a big part of the equation.

The high costs of renting land may lead to some tough business decisions.   Farmers may shuffle some land around, or even let a particular piece of land go back and not rent it anymore.

“We’ll see if people can do that (make things balance out),” Behnken said, “or if they’re going to let land go and back away from it because they can’t afford that. You may see some land changing hands because of the cost.”

With corn and soybean prices in the tank, are there other opportunities farmers may be looking at for profit? What about small grains?

“It all goes back to where their markets are,” Behnken said. “We have a good group with Extension that do workshops on small grains here in southern Minnesota and a good group of core farmers that grow small grains. They’ve got markets that they’re working with and are locked into.”

She added, “It can be successful, but it’s not just something you’re going to jump into. We don’t have the sell-points here. You need to have convenient places where you’re going to market it to. They don’t buy at every single elevator. It doesn’t mean you can’t do it, you just have to get everything in order, from planting it to marketing it.”

Behnken, who received her Master’s Degree in Crop and Weed Sciences from North Dakota State University, said farmers don’t want to be caught with a lot of grain in their bins in the summer and nowhere to take it.

Speaking of grain stuck in bins, farmers in southeast Minnesota still have a lot of grain to move from the 2015 harvest. Low prices at harvest made farmers very reluctant to sell grain that wasn’t forward contracted.

farmers have a lot of grain to sell

While exact numbers aren’t available, Lisa Behnken of the University of Minnesota Extension office in Rochester said there is quite a bit of grain in area bins waiting to be sold. (Photo from brockgrain.com)

“There are definitely crops to be sold,” Behnken said. “Some probably go forward contracted, but farmers don’t forward contract everything. Prices were down at harvest, so farmers didn’t sell right then, so it goes straight in the bin.”

While it’s important for commodity farmers to get their books in order, it’s equally important for livestock producers to watch their costs too, thanks to a recent run of lower prices.

“Cattle prices are softer,” said Behnken, “but the good side of that is they’re feeding animals much cheaper feed. However, they’re end product has also come down in price too.”

Do lower cattle prices mean it’s time for America’s livestock farmers to start expanding the beef herd? She said it all depends on your books and cash flow that your banker sees in those books.

“It’s all about operating money,” Behnken said. “You still have to go to the bank and make this whole thing cash flow. If I’m in the market to buy some feeders, I still have to have the cash to buy those feeders. Even if a farmer is raising his own corn to feed the animals, he still has to have cash necessary to buy the feeders.”

Cash flow. It’s more important than it’s been in many years, and it’ll determine what kind of decisions farmer make this year, and whether or not they stay in business.

“For some, it’s where their debt load is at,” said Behnken. “What’s my percentage of debt? If you have a more solid equity base, that’s a little different than if you’re highly leveraged. Then, it’s a whole different ballgame.”

 

 

 

 

 

Commodity prices may head even lower

There are still opportunities for profits come harvest time, but experts say farmers will have to work harder for them (photo from stance ventures.com)

There are still opportunities for profits come harvest time, but experts say farmers will have to work harder for them (photo from stance ventures.com)

There’s no question that commodity prices have taken a pretty big tumble in the last several months. That doesn’t mean profitability has left agriculture, but it does mean farmers will have to work a little harder for it than they did in recent years.

“We’ve had opportunities over the last 5 to 6 years where if you ride the market, you could hit a home run with your marketing by selling at $6.50 or $7 a bushel,” said Arlan Suderman, the Senior Market Analyst for Waterstreet Solutions in Peoria, Illinois. “Now you’re going to have to hit a lot of singles.”

In agriculture, what goes up has to come down. Marketing experts and financial analysts looked at the recent high commodity prices with wonder, and more than a little trepidation.

“It’s kind of like a storm you see on radar. You know something’s coming, you’re just not sure what it’s going to be,” said Bob Campbell, Vice President of the southwest territory, which includes Nebraska and Wyoming, for Farm Credit Services of America (FCS).

Campbell said, “We knew that prices couldn’t sustain themselves at the 7 or 8 dollar level, and really, even over 6.” He added, “In agriculture, the best cure for high prices is high prices.”

Campbell said the downturn in prices is going to hurt producers this year. “It’s happened fast enough that, in this cycle, producers will not have had the ability to adjust their cost structure yet, so we expect producers to incur a loss this year. However, that’s coming on the heels of several years with profits that they’ve never seen before.”

As a result, going into the downturn in prices, Campbell said, “Financially, they’re generally really strong, so they’ll be able to weather the price decrease in this cycle.”

Campbell said, “If there’s any upside at all, we know that low prices are coming, and will continue if you forecast prices on the Board. Producers have some time to really evaluate their cost structure going forward, and find out if they can handle a two or three year window of low prices.”

Campbell said FCS built forecast models in case prices began to drop in land prices during the run-up, and they’ve been doing the same thing with commodity prices.

He said, “We saw the real estate prices escalating, we started a model that said we’re not going to start lending money to producers as this land market escalates. We figured out what land could service on $4 to $4.50 corn, and what kind of debt service it could handle from that point.”

“We created models in our four states that said, based on the production, and based on the area and it’s proven yields, this is the amount of debt we’re willing to extend on that acre of ground,” said Campbell.

Campbell said, “In an area where we thought the land could handle $4,500 of debt over the long term, if someone wanted to pay 10 to 12,000 dollars, that’s fine, because they’re coming in with a lot more equity. Without the equity, we knew in the long term that wouldn’t be sustainable.”

He did notice caution among lenders during the recent run-up in commodity prices. Campbell said, “What we saw going forward is most lenders didn’t follow the rising prices with increased levels of lending or credit. They kept their level of lending pretty moderate.”

Going into the price downturn, Campbell said most grain producers shouldn’t be over-leveraged. “All they really have to figure out now is what’s their cost structure. For fixed cost structure like payments, rent, your land taxes, can you do anything to lower those so we can lower the break-even point?”

Market experts are worried commodity prices may continue lower yet before we see a price floor.  (Photo from ace.illinois.edu)

Market experts are worried commodity prices may continue lower yet before we see a price floor. (Photo from ace.illinois.edu)

They’re even advising their clients to lower their family-living costs. Campbell said, “We know those costs have gone up because they could. Can you bring those back down to some degree?”

Suderman, the Senior Market Analyst at Waterstreet Solutions, said it’s going to be important for farmers to take Campbell’s advice into consideration, because he doesn’t see prices rising in the short term.

“Given outside factors pressuring the markets, and the lack of outside money in the commodity markets, we’re looking at December corn in the area of $2.85, which is lower than the market fundamentals justify.” He added, “I could see November or January soybeans going to the $9.60 area, and if it’s a really big crop, maybe $8.80.”

“Farmers are going to have to be more careful, watch their expenses, and recognize profit opportunities when they come,” said Suderman. “They have to be able to make a business decision and lock in that profit, because opportunities are not going to last very long.”

Here’s an interesting video from KRCG TV in Missouri that may support what the experts are saying about lower commodity prices as we head into the harvest season: