The crop insurance battle continues

Crop Insurance

Here’s a photo of winter wheat in western Kansas buried under a snowstorm last weekend. Crop insurance is an important product for farmers in times like these. (Photo from the High Plains Journal)

WHEAT GROUP TWEAKS HERITAGE OVER BLIZZARD DAMAGE: David Schemm, president of the National Association of Wheat Growers, wants representatives of The Heritage Foundation and taxpayer watchdog groups that criticize the federal crop insurance program to witness the damage a spring blizzard inflicted on fields in Kansas, the country’s biggest wheat state, over the weekend. The storm, which dropped a foot to 17 inches in places, hit eastern Colorado, parts of Nebraska and the western part of Kansas, where NAWG estimates it destroyed 43 percent of the state’s winter wheat crop. The timing couldn’t be worse, as wheat farmers are already reeling from several years of extremely low prices.

“From their rhetoric, they would say a lot of farmers will go bankrupt and that’s how it’s supposed to be,” Schemm said of taxpayer groups and the conservative think tank on Tuesday as he surveyed his 4,500 acres of damaged wheat in Sharon Springs, Kan. NAWG had earlier tweeted: “A late season blizzard puts 43% of Kansas’ planted wheat acres under 14 inches of snow. @Heritage how would you handle w/o #cropinsurance?”

About 7.7 million acres of wheat in Kansas – more than 90 percent – are covered by a crop insurance policy, a liability amount equal to $1.1 billion, NAWG estimates based on USDA’s 2016 data. Most of those policies protect against revenue losses, as opposed to just drops in yield, the group said, making an important distinction.

Heritage’s two cents: It’s not true that the Heritage Foundation is against all forms of crop insurance, said Daren Bakst, the group’s research fellow on agricultural policy. “On the yield side, we should be covering deep losses,” like those experienced in the recent storm, he said. “Other risks farmers should be managing on their own.” Heritage did call for eliminating crop insurance policies that guarantee revenue when it released a 65-page paper – which Bakst edited – on managing risk in agriculture last year. Pros, read the report here.

Here’s the podcast recapping the damage in Kansas as well as some better news regarding rebuilding after the wildfires that raged through the plains states:

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.”

 

 

 

 

 

Railroads aim to improve grain handling

Inconsistency in the grain handling industry, specifically as it relates to rail transportation, was a topic of extensive discussions throughout 2014.

The Surface Transportation Board received numerous complaints about service problems in the rail industry, and held a public discussion back on April 10, 2014 to discuss the challenges shippers face and some possible solutions to improve efficiency. The discussions continued through October, but the cause of the problems and potential solutions depend on whom you talk to in the industry.

Grain trains

Agriculture is looking for more consistency in grain handling, and the railroads say they’re listening (photo from exactrix.com)

“Personally, I think they have some infrastructure problems,” said Kurt Glinn, a transportation coordinator for the Aurora Cooperative in Aurora, Nebraska. “There are some holes in their infrastructure that they haven’t serviced before. For example, in South Dakota, there are smaller operations that are basically land-locked.”

He said larger co-ops like Aurora, have a big advantage when it comes to loading grain cars.

“Two of our shuttle locations have a natural rail loop,” said Glinn, “and it runs in a full circle. So when the train gets on there, they leave the locomotive hooked up and it goes in a full circle. You load it, and then they come back and get it 10-12 hours later. It takes a lot of ground to do that. Both sit on 75 to 80 acres, and there is some industry in there, but it takes that big of a footprint.”

The Aurora, Nebraska Co-op is a larger business that has adequate access to railroads and grain cars, but there are plenty of others that may not even get rail service, because some tracks have been abandoned (photo from Auroracoop.com)

The Aurora, Nebraska Co-op is a larger business that has adequate access to railroads and grain cars, but there are plenty of others that may not even get rail service, because some tracks have been abandoned (photo from Auroracoop.com)

He added, “There are also lines across the country that they’ve flat out abandoned.”

At least one of the major rail carriers, Burlington Northern Santa Fe (BNSF), is committing large amounts of capital to improve some of the infrastructure challenges.

“BNSF is planning on $6 billion dollars in capital expenditures to improve operations in 2015,” said Amy Casas, Director of Corporate Communications for BNSF. “It’s a direct reflection of our pledge to meet our customers growing freight demands. The plan includes $2.9 billion dollars to replace and maintain the core rail network and its related assets.”

While the projected improvements will take place across the country, not all states appear to be struggling with grain handling transportation issues.

Amy Casas is the Director of Corporate Communications for the BNSF railroad (photo from linkedin.com)

Amy Casas is the Director of Corporate Communications for the BNSF railroad (photo from linkedin.com)

“We actually have more than adequate supplies of rail cars and service for our grain shippers,” said Tom Tunnell, the President and CEO of the Kansas Grain and Feed Association. “Our current condition shows empty elevators waiting for the winter wheat harvest.”

He said recent rainfall is welcome, but it’s creating delays in winter wheat harvesting.

“As a result, we don’t have any transportation issues right now,” said Tunnell. “We don’t have anything to ship until they cut it. We also anticipated the harvest and emptied our storage, so whatever is cut early will be retained at the elevator because we can store it.”

Although things look good so far this year, Tunnell said they have had some big grain handling challenges in recent years.

Tom Tunnell

Tom Tunnell is the President and CEO of the Kansas Grain and Feed Association (photo from ksgrainandfeed.org)

“We had a lot of grain on the ground about 18 months ago,” said Tunnell. “The cost to get rail cars was extremely high, way above normal. The premiums were in the thousands of dollars per car range, but all that’s gone away. We’re back down into a more normal range.”

Fewer rail cars means more demand and higher prices. Amy Casas said one of the improvements BNSF intends to make should help lower prices come fall harvest.

“In 2015, we plan to acquire approximately 7,800 more rail cars,” said Casas. “Of that total, about 900 will be the new cover-hopper grain cars. We also plan to acquire more than 300 locomotives this year too.”

Kurt Glinn said the ethanol industry may have lowered demand for shipping grain, but thanks to advances in seed technology, demand for grain shipping may be on the rise again, hence the need for more cars.

“When ethanol came in over the last 15-20 years,” said Glinn, “I think the railroad saw a decrease in their business. Because of the ethanol industry, there was less grain to be shipped due to ethanol plants using a lot of corn.

“Now, we’ve got better hybrids, agronomy practices, herbicides and stuff like that,” said Glinn. “We’re raising more corn per acre than we’ve ever raised before, so even with ethanol usage, we have a lot more corn to ship than in recent years even with the same number of acres planted. There’s more grain and the railroad is struggling to keep up.”

Tom Tunnell said railroads are also struggling with increasing demand for cars because of the Bakken oil field in North Dakota.

Bakken Oil Well

Ag experts say the Bakken Oil Fields may have taken some railroad cars that otherwise would have shipped grain (photo from deq.mt.gov)

“Much of the railroad’s equipment was taken by the efforts in the Bakken oil exploration in North Dakota,” said Tunnell. “It was taking up a lot of the railroad’s interest and time as well. However, since that time, oil prices have gone down and that situation doesn’t exist anymore.”

Glinn has a similar perspective on the railroad hauling oil out of the Bakken. “To me, personally, I think they would rather haul oil than grain,” said Glinn. “That’s just a personal opinion.”

Glinn said he thinks the shipping challenges can get better, but it will take some time.

“I think they’ve got some logistical problems,” said Glinn. “I think in the next few years we’ll see these shuttle loaders that can load 110-120 cars will improve things. The railroads would like to see more of these. Railroads want more efficiency. They want to pick that train up in 15 hours and move on.”

The price of corn’s steep drop may have played a role in some of these challenges.

“If the price of corn stayed at $7 a bushel, the railroad would have been very grain efficient,” said Glinn. “If you cut that price by 60%, and then you start whacking it another 15 cents a bushel for increased freight to compete with oil or the refrigerated cars to haul fruits and vegetables, they can’t do it.”