Hold on, the Road is Getting Bumpy

September 2016

 Hello to all our customers and friends,

       Again, like last month, the outlook in our trade area for fall crops is shaping up impressively.  We’ve received really nice precipitation and fall crops are looking phenomenal.  More rain is in the forecast for the next 10 days and that may bring us to the short end of haying season.  I’ve seen some of the nicest ears of corn produced on dryland corn acres in all my time in this state.  Milo is looking fantastic and I have no idea where it will go at harvest.  Some producers are expecting to feed their way out of the grain glut and with cattle prices as low as they are, that may work.  On the other hand, several producers thought cattle were low enough to be to be a safe venture in backgrounding calves to feeder weights; and were proven wrong.  How low cattle prices can go is anyone’s guess, but pork and chicken are also inexpensive in the meat case. 

      I attended the “Risk Profit Conference” last week and the K-State Ag Economics department should have renamed it the “Risk Loss Conference”.  While it was very informative, some of what I heard was disturbing.  Dr. Allen Featherstone, head of the department of Ag Economics, somewhat gingerly inferred that while the ag prosperity bubble of the last 3 to 5 years may not have popped, you can see the point of the pin coming into the picture.  Net farm income in 2015 was the lowest in Kansas since 1985. Net farm income in Kansas is dropping faster than the rest of the country due to our high dependence on ag commodities. The total cost of production for corn and soybeans in the last 10 years has increased over 70% for corn and 90% for soybeans.  With the drop in prices even the safety net of crop insurance has weakened significantly.  We’ve lost over $200 per acre coverage for corn, over $100 per acres coverage for beans and coverage for wheat will likely not cover planting costs.  With all this hanging over the ag scene, there were three perspectives given for future land prices, depending upon the duration of these downturns.  A $2000 per acre land value can level off at $1800 per acre, or with a longer downturn go to $1500 and with a prolonged downturn drop 50% to $1000 per acre.  Because repayment capacity has been reduced, current debt is climbing.  Intermediate debt in some cases cannot be serviced, hence machinery payments, and possibly refinanced debt. A negative snowball effect may be developing.  The ethanol industry is mature so we cannot look to it in the future to help use up the glut of grain.  One of the suggested partial remedies was to get land rent reduced.  I pointed out that real estate taxes are rising, in some states at alarming rates, and that puts a squeeze on landowners.  From my perspective it flows back to corporate insensitivity to agriculture.  We are overpaying for fertilizers, especially nitrogen and seed.  We are paying technology fees for attributes like roundup ready corn and soybeans when roundup no longer does the job.  Why are we still paying for it?  Expenses and thus the cost of production must be cut to the bone to survive.  My question is, “At what point does eliminating certain procedures jeopardize best management practices (BMP) and still comply with crop insurance requirements?”  Until next month, Myron