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Finding the Blue Sky in Agriculture
It’s not reported much, but there is blue sky in agriculture, and we want to explore it.
But first, have you heard of this saying?
The brain is like Velcro for negative experiences, but Teflon for positive ones. Rick Hanson, a psychologist and author, writes about taking in the good. “People will work much harder to avoid losing $100 than they will work to gain the same amount of money.” He adds, “Painful experiences are much more memorable than pleasurable ones.”
Farmers are no different. They can tell you exactly what year they grew their farm’s worst crop, the lowest price they ever took for corn or soybeans, or where they were when the broker called and asked for more margin money for their futures trading account.
There is hope for farmers in Hanson’s message.
Here’s how to “take in the good” in three simple steps.
- Look for good facts and then turn them into good experiences.
- Really enjoy the experience. Stay with it for 30 seconds without getting distracted.
- Intend and sense that the good experience is sinking into you.
We want to help you take in the blue sky for agriculture in 2017.
After sinking prices in nearly every grain and livestock market in 2016, economists see a return to higher ground.
“The heavy red ink for cattle operations could be behind us, and profits are projected to return to the hog market this spring,” says Lee Schulz, Iowa State University Extension economist.
Some grain analysts and market watchers see record global demand as poised to dwindle record supplies and to offer opportunities for farmers to sell at profitable levels in mid-2017.
There’s more blue sky. Now may be the time to buy good, used equipment. The outlook for fertilizer prices and cash rent rates point in favor of savings for farmers.
- Mike McGinnis
lower Cash rents
Growers looking for some positive news on the cost side can take heart knowing that, on average at least, cash rents are going down along with the price of commodities.
Agricultural land rents – both irrigated and non-irrigated – are projected to fall 6% year over year in 2016, according to the U.S. Department of Agriculture. The average value of cropland in the U.S. will fall about 1% to $4,090 an acre, the first decline in seven years, the agency reports.
The downturn is a marked reversal from gains the past decade when cropland values doubled and cash rents jumped 71%. The falling cost of land – among the only decliners since many other inputs including seed and fertilizer stand fast or rise – likely will continue until crop prices begin to rise, says Jeff Voeks, a market adviser at Stewart Peterson Brokerage Solutions.
“Cash rent prices will edge lower,” Voeks tells Successful Farming magazine. “To say they’ll fall is overstating it a bit, but I think they’ll continue to eke a little bit lower.”
While rents are down year over year, corn prices have tumbled about 10% and wheat futures are off by about 20%. Soybean prices are up from last year, but only because they rebounded in the first half of 2016 on weather worries that never materialized.
Lower rents will help out younger farmers, especially small stakeholders who are trying to expand their holdings or to get started in the industry, says Larry Glenn, an analyst at Prime Ag in Quinter, Kansas. While conventional wisdom would say that now isn’t a good time for a young farmer to jump into the industry, it’s possible that getting in now when rents are low could pay dividends in the future.
Even large bank- and corporation-owned farms will likely be forced to reduce rents due to extremely low crop prices, though probably not as drastically as small farmer- or family-owned landholders, he says.
“Big corporate farms are going to want to stay up as high as they can,” Glenn says. “I wouldn’t be surprised,” however, if larger banks or corporations that own farms make adjustments based on the price of grains and soybeans, he says.
Cash rent prices probably will continue to fall into next year. To offset declining or stagnant crop prices, growers are reportedly saying they’re going to cut back on corn and bean planting, Voeks says. This will only work if they hold true to their word, he says.
Still, it will take a while to work through the glut of several years’ worth of high yields, which could mean an extended period of low rental prices.
“Downward pressures likely are being placed on rents,” says Gary D. Schnitkey, a professor in the department of agricultural and consumer economics at the University of Illinois. “Therefore, it is likely that average rents in 2017 will be lower than those for 2016.”
Now is the time in agriculture when farmers should be looking for opportunities, according to Michael Boehlje, Purdue University economist.
- Tony Dreibus
Certainly one of the biggest silver linings in the storm clouds of a depressed farm economy has been the significant savings being offered on late-model, and low-hour machinery.
Values on high-horsepower tractors, four-wheel drives, combines, self-propelled sprayers, and grain carts are one quarter to one third less than in 2012.
“I’ve never seen opportunities to buy large machinery at such competitive prices as exist today,” says Jeremy Knuth of Heritage Power, a John Deere dealership out of Baldwin City, Kansas.
“We are looking to move out built-up inventories, and we are willing to work hard to make a transaction work for an individual farmer’s situation,” Knuth says.
Another hallmark of this massive inventory of late-model machinery is that most of the equipment for sale carries unprecedented low hours. It is not uncommon to uncover a 2014 model year 300-plus-hp. tractor for sale with fewer than 500 hours.
"Our C-O-P is near $3 with seed down $15 and fertility down $25 per acre." – Central Indiana Farmer
In a recent price comparison of tractors available on dealers’ lots, Successful Farming magazine identified 42 high-horsepower tractors of various makes with fewer than 400 hours. It is not unusual to find 3-year-old machines with only 150 hours. This same situation is well stated in Class 7 and larger combines, as well.
The poster child of like-new large machinery is the grain cart. A search of John Deere’s dealer website, machinefinder.com, finds 252 large (1,000-plus-bushel) grain carts for sale that are 3 years old or younger. Even more amazing is the number of brand-new carts that are 2, 3, and even 4 years old still sitting on dealers’ lots. For a detailed analysis of large machinery price trends, refer to the December issue of Successful Farming magazine on pages 32-36.
There is another aspect that accentuates the unprecedented value of large and late-model machinery. Manufacturers have armed dealers with an array of financing plans to entice buyers.
“Whether it’s a certified preowned (CPO) program or low- or no-interest financing, dealers are in a position to reward farmers for buying in ways not available before,” observes Nate Weinkauf of Case IH. These programs commonly inspect used equipment, often making necessary repairs and improvements before going on used lots. In addition, a dealer can extend warranty coverage of a used machine for up to three years.
While it’s not necessarily new, you will find it far easier to lease large and late-model machinery than in the past.
“It’s a financing option that appeals to certain farmers who are trying to minimize debt,” points out Brad Tolbert of John Deere.
Though it may be stating the obvious, leasing large and late-model machinery is far more affordable than in the past because the base value of the leased machine is lower.
However, as Rick Vacha of Ritchie Brothers Auctioneers warns, don’t wait to pull the trigger on such good deals. “We are already seeing once-large inventories of such combines as the Deere S680 dry up, which is driving up their auction values,” he says. “I certainly expect the same to happen to high-horsepower tractors this winter.”
- Dave Mowitz
Input costs Vary
Good news: Seed prices have remained fairly steady from 2016 going into 2017.
Bad news: That steadiness doesn’t match the dip in corn and soybean prices from last summer’s spike.
“The price of some products has gone up; some have gone down. Overall, we are pretty flat from where we were in the past year,” says Jeff Hartz, director of marketing for Wyffels Hybrids.
The decline in commodity prices has prompted farmers to economy-shop for seed.
“We have started to see growers become more sensitive to the price of seed and trade down,” says Chuck Lee, head of seed product marketing for Syngenta Seeds. “They are choosing hybrids that have a lower number of traits. Within the same trait class, we have also seen a trend of growers moving into picking the lowest-priced hybrids.”
Cutting traits is a way to save money. Remember, though, that pests such as corn rootworm and European corn borer (ECB) still lurk.
“Farmers have to be careful that they don’t get into a situation that can backfire,” says Hartz. “We saw some non-GMO fields in eastern Iowa that had an issue with corn borer. We saw that in 2015, too, when corn borer cost farmers 30 to 40 bushels per acre in yield.”
More good news is that prices for nitrogen (N), phosphorus (P), and potassium (K) plunged to their lowest since 2007 two to three months ago, says David Asbridge, president and senior economist for NPK Fertilizer Advisory Services.
“We have had way too much capacity across the board with N, P, and K, but they (manufacturers) are beginning to manage it somewhat,” he says.
"We marketed 1/3 of our 2016 corn production above $4 per bushel." – SW Kansas Farmer
Asbridge says prices will likely remain steady through winter and start rising in March through the end of spring. This coincides with heavy fertilizer use during and shortly after planting. Prices will then drift lower before rising again (albeit at a lower level than in spring) in the fall.
“At this point, because of overwhelming capacity, we don’t see any big price hike,” he says.
Except . . .
One factor that’s changing the N market is the opening of three large-scale N plants, the first to be built in the U.S. since the 1960s. Last year, CF Industries Holdings, Inc. opened a urea/urea ammonium nitrate (UAN)/anhydrous ammonia plant in Donaldsonville, Louisiana. This firm has expanded a new ammonia plant, followed by a urea synthesis and granulation plant at Port Neal near Sergeant Bluff, Iowa. It wasn’t open at press time but is expected to open any day. Iowa Fertilizer is also building a new anhydrous ammonia/urea/UAN plant in Wever, Iowa, expected to open in mid-February, says Asbridge.
“If for whatever reason that Wever plant doesn’t open up in mid-February, there could be issues with procurement, particularly urea and also UAN,” he says. That’s why Asbridge is recommending to clients they lock in about 40% to 45% of anticipated urea and UAN needs soon. Anhydrous ammonia supplies should be adequate, he says.
K and P
Industry overexpansion has throttled down the potash market, with about one half of the Canadian industry shut down, says Asbridge. This – along with a fall run on potash – helped perk up K prices a bit.
However, the fall run will take some of the pressure off the spring market, he says.
Mosaic, the biggest U.S. phosphate producer, is reversing its latest slowdown in production.
Thus, Asbridge is recommending his clients to lock up one third of their phosphate and potash needs by the end of January.
- Gil Gullickson