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From the Spring 2013 Logan County Farm Outlook

Who got hurt by the 2012 drought?

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[March 26, 2013]  Ask almost anyone in the ag industry, "Who got hurt in last year's drought?" and they will likely answer, "Everybody!"

Bill Sahs, a producer in the area north of Lincoln but south of the Hartsburg/Atlanta mount, said that all the central Illinois farmers had short yields due to the heat and drought conditions, but the ones who got hurt the worst were producers who did not take part in the federal crop insurance program. Those producers "self-insured" their own crops and bore the brunt of short yields and corn ruined by aflatoxin all by themselves.

Statistical information on what percentage of producers were in this uninsured category was unavailable, but most, including Troy Bauer of Hartsburg Grain, agreed that they were in the minority. "I could count on one hand the number of my customers who came in here with loads who were totally without insurance," Bauer said.

Federal crop insurance has become one of the staple inputs for farmers, just another cost among all the others to guarantee their success and cash flow. In a very good production year, it might seem attractive to lower the expense of insurance to increase the profit, but this gamble doesn't always work out. Sometimes it means the difference between higher profits and an inability to even cover your input costs.

Troy Bauer of Hartsburg Grain, an 18-year veteran of the ag industry, says that the second party in line who got hurt in last year's drought was the local grain elevator. Elevators all run on razor-thin margins, and low yields alone can make for a difficult economic year for an elevator. The 2012 corn yields were around 50 percent of what farmers have in a good year, and coupling that with the aflatoxin problem, elevators in central Illinois really got hurt.

Elevators make their money on services like grain storage, transport, drying and sales. In 2012 producers were urged to bring all their corn to town right away and not put anything in on-farm storage, so producers brought everything to the elevator as it came in from the fields. Elevators such as Hartsburg Grain dried the corn down to moisture levels far below usual in order to stabilize the corn and prevent aflatoxin from growing in the elevator bins. So, energy costs were higher for the elevator to prevent the corn in storage from all becoming further corrupted with the aflatoxin fungus.

Corn put in on-farm storage generally doesn't go through any drying procedure except having air circulated in the bin, giving the aflatoxin mold an opportunity to permeate the entire on-farm stored crop, meaning total loss.

Along with higher energy costs, the elevator was plagued with cash-flow problems associated with very low yield. The elevator had much less product to transport, dry and store, and suffered because the income-producing services were underused. Bauer said it is hard enough trying to stay alive when we have a low-yield year, and then there was the aflatoxin problem to deal with also.

The old-timer name for aflatoxin is "shiners," because if there is enough aflatoxin present in the test sample, the corn sample will glow under black light. The FDA has limited the amount of aflatoxin that elevators can accept to 20 parts per billion. Bauer said many loads that came in and tested with 20 ppb aflatoxin didn't glow at all under the black-light test, so they threw the black lights away and relied only on modern testing methods. "We developed standardized routines for testing the corn samples and believe we came up with the best ways to fairly protect the public and the producer," Bauer said.

Bauer said he had loads come in to the elevator with aflatoxin levels between 3 ppb and 500 ppb.

Although it was legalized in Illinois to blend affected loads with clean grain, Hartsburg Grain did not do any of that kind of blending. "You have to be certified by the FDA to do that kind of blending," Bauer said, and they instead sought other ways to remedy the aflatoxin problem and bring the producer some level of income.

Loads that came in infected with aflatoxin got discounted based on quality and purity. Loads with high amounts of aflatoxin were not brought into the elevator, but were instead trucked directly to cattle operations at a deep discount or hauled to grain terminals accepting corn with aflatoxin levels higher than the cattle operations would accept. Bauer said they found enough "outside-the-box" solutions for aflatoxin-infected corn that they did not have to deal with any grain salvage operations, which would give them pennies on the dollar for aflatoxin-affected corn.

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Bauer said that while the crisis is over for the non-insured producers who brought their product to town and sold it off for a discounted amount, thus suffering a one-time loss, the elevator continues to suffer. There is the lack of corn coming to town from on-farm storage, the lack of product transportation, and the lack of elevator storage in a normal production year just isn't there this year. "The only corn we have in the bins today belongs to the elevator, and we are waiting for the right time to sell it off to make a profit," he said.

Uninsured producers were injured by the 2012 drought, and so were elevators. It is also widely accepted that since the 2012 crop didn't adequately tax the fertilizer values present in the soil, chemical and fertilizer applicator companies like FS and Beason Ag will also be hurt by the 2012 drought because they won't be able to sell and apply as much product for the 2013 production year.

Local hub towns like Lincoln, Mount Pulaski, and Delavan were also hurt by the drought of 2012. When rains failed to come in late June and early July, people stopped buying things in town and slowed down payment on the products and services they had already purchased on account out of fear. The local economies of the towns supplying nonagricultural products and services were greatly affected because the optimism for a normal corn yield was lost, and businesses put on the brakes as they saw their cash flow slow to a trickle.

But not everybody got hurt. Current federal banking and financing regulations prevented the farm financing industry from taking risks without adequate coverage and collateral, so ag financiers seemingly were not injured by the 2012 drought.

The insurance agents and agencies selling federal crop protection insurance made their commissions on the policies they sold but were not injured by claims because they were paid out of the deep pockets of the federal government rather than local coffers. Insurance agencies selling crop insurance should in fact see a rise in 2013 crop insurance sales because the remaining holdouts have now become believers because of their 2012 losses.

And it is said that local producers who with foresight and planning purchased federal crop protection also made out all right, all the way from having their inputs covered to having some of their normal profits protected as well.

Bauer said the producers coming to the elevator in February for coffee and doughnuts in the morning were expressing optimism about the 2013 production year because they have seen precipitation here in Logan County at the right times and the right amounts, and that water was once again starting to flow from farm tiles. The National Weather Service and The Old Farmer's Almanac both predict that we will have normal precipitation in this area in 2013, along with warmer than normal temperatures.

And Bauer himself expresses optimism in the 2013 production year and hopes that the drought of 2012 was the kind of event that only happens once in the career of an elevator manager.



Spring 2013
Logan County Farm Outlook

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