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.
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 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.
[to top of second column] |
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.
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