Spring 2016 Logan County
Farm Outlook Magazine

Input sector continues to take a hit
By Jim Youngquist

Troy Bauer, manager at Hartsburg Grain Company:

“This year it is going to be Economics 101…supply and demand. Farmers and the elevator were going to have to watch their expenses this next year. A lot of farmers are sitting on their grain because the price is so low.”

Les Rohlfs, owner of Rohlfs Implement in Hartsburg:

“The ag industry had a couple of good years not long ago. Farmers bought some new equipment and now they don’t need equipment or repairs. We are down the food chain because they need seed and fertilizer. You have to plan for this type of swing. We are lucky to be a small company with a loyal following.”

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[March 30, 2016]  The January 15, 2016 edition of the Des Moines register said that many Iowa farmers are not expecting the agricultural economy to improve anytime soon, with a majority of those surveyed at the recent American Farm Bureau Federation conference preparing for a drop in income this year and many are taking steps to conserve cash.

A season of conservatism is also the opinion of our local ag community. As grain prices continue to hover in the “no profit zone,” the input sector of the ag industry continues to take the heat along with producers. One local source said that it is as quiet as a mortuary at equipment dealers, and “you don’t buy ahead at the local fertilizer dealer.”

Bankers are taking a stern look at the books for 2016 and will be likely to continue to extend credit for one year amidst this price downturn, but are unlikely to go two years. “Bankers are going to be looking very closely at [debt to asset] ratios,” says Matt Bennett of Bennett Consulting. “We’re going to have to be better businessmen than we’ve been.”

Adjustments need to be made. The pencil needs to be sharpened. In a recent Farm Journal Media Pulse poll, 1,500 farmers were asked which expenses they were going to cut first in 2016. Thirty percent (30%) said they were going to cut every input category. Thirty eight percent (38%) said they were going to trim machinery expenses first. Nine percent (9%) said they were going to trim fertilizer expenses, six percent (6%) said they were going to trim seed costs, and two percent (2%) said they were going to trim crop chemical costs. A surprising 15% said they weren’t going to trim any costs.

Bennett encourages younger producers to seek wise council from older generations for guidance on surviving tough times like the 1970s and 1980s. “We need to understand what it’s going to take to be able to get through what will probably be the toughest time in a lot of our careers,” he says.

Trimming costs will be a key element to approaching profitability. These cuts will affect the entire ag industry and each sector will respond with price cuts of their own, plans to deploy crops at a lower cost, and all will struggle through this together. Not everyone will survive. Some producers and some input dealers will fail during this price downturn and seek bankruptcy protection. Some of your favorite people won’t be in the business in the next two years if prices fail to return to profitable levels.

Prices at fertilizer dealers continue to plunge, making daily adjustments. Buying ahead means you will likely pay more. Most farmers will buy their fertilizer elements in a “just-in-time” fashion which is contrary to how they both are accustomed to doing business.

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Fuel prices are currently much cheaper, but it may be a double-sided sword. While it will cost much less to put the crop in the field and operate machinery, the industry is fearful that the U.S. congress will look at cheaper fuel prices and say, "Why do we need the ethanol mandate when we have such cheap gasoline?” Gutting the ethanol industry will likely lower corn prices currently hovering in the mid $3 (about $3.55 a bushel at the time of writing) range by about $.75 a bushel. That would be very destructive to the entire ag industry.

When asked what would cure the problem, producer Tim Gottschalk who farms near Armington, said that returning to $4 a bushel corn and learning new ways to produce crops at lower prices would help return to profitability.

According to a Reuters story on March 8, 2016, corn prices recently edged up because a Department of Agriculture report said that some corn and soybean traders were worrying about the weather: A late spring freeze in the Great Plains, pockets of dry conditions in the southwest Plains, and problems with too much rainfall and flooding in parts of the Delta. But “the weather-fueled gains will likely be short-lived, with a return to $4 a bushel in corn looking "like a million miles away," said Kevin Van Trump, president of Missouri-based consultancy Farm Direction.

Meanwhile, producers and the entire ag industry continue to languish.

Read all the articles in our new
Spring 2016 Logan County
Farm Outlook Magazine

Spring 2016 Ag Perspective 4
Predicted decline of local farm economy 7
Will 2016 see the effects of El Nino end and La Nina begin? 14
What is going on in farmland sales? 17
Input sector continues to take a hit 20
How equipment dealers might weather the decline 24
WOTUS - to 'What, us?' 29
'Ag in the Classroom' and 'Teen Teachers' raising awareness of our life dependency on agriculture 35
2015 County Crop Yields Released 42

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