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.
“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.
“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.”