People have to eat, and there are more and more people needing food.
Long-term agriculture is optimistic.
Yet, there’ll be tougher times ahead before farmers and ranchers return to profit levels of some recent years.
“This will require adjustments, close communications with financiers and perhaps restructuring for success and opportunity,” according to Parry Briggs, northeast Kansas regional vice president of Frontier Farm Credit.
“Recent low prices for corn are 84 percent below all-time highs, and feeder cattle recent lows are 51 percent below the highs. This is return to realistic prices,” Briggs said at a Farm Profit Conference in Hillsboro.
Demand driven by ethanol expansion has leveled off. There’s been slowdown in the emerging economy, and strengthening of the U.S. dollar.
“With good production years, and expansion in the proteins, there are abundant supplies in the United States and the world. Supply side of the equation is winning the balance,” Briggs insisted.
Graphs revealed good grain production expanding stocks to exceed U.S. use. Wheat stocks are 50 percent above use.
Cow numbers have increased since mid-2014, after declining nearly annually for about two decades. The 2016 inventory was up 1.02 million from 2015, and this year’s count is up 850,000, totaling 31.5 million cows.
Highest national cow count in recent times was just over 39 million in 1982.
Per capita net beef supply is coming up, too, about 56 pounds in 2016, with 2017, and 2018, forecast at 57 and 58 pounds, respectively.
Consumption dipped to just a little over 53 pounds in 2015. Per capita net beef supply was 80 pounds in 1985.
Pork and poultry outputs are also expanding. Poultry production, at 75 billion pounds, is more the double the low of 29 billion in 1982.
“There’s more protein to consume,” Briggs tallied.
Farmers made lots of money for several years, but that’s now changed.
The U.S. net farm incomed peaked at $123.3 billion, in 2013, and declined annually to $71.5 billion last year.
“Despite lower net farm income, farmers’ debt-to-asset ratio remains low,” Briggs noted optimistically.
“Demand looks softer short term due to the strong dollar and political environment challenging exports,” he said. “Ethanol demand growth is now flat, and the domestic population is eating less protein.”
With supplies of nearly all commodities “long,” Briggs said, “More moderate prices and less volatility are in the long-term forecast.”
Contrary to some popular belief, “Price will most likely not fix the problem,” Briggs indicated.
“Agriculture needs to reconcile the reality of our current revenue stream. Cost reductions are needed,” Briggs demanded.
He recommended farmers know their operations; actual costs, break-evens, production history, variables and fixed costs.
“Be a low cost producer by focusing on big items that are in your control,” Briggs urged.
Farming is risky business, but can be better managed using crop insurance, improved marketing, limiting input purchases and taking advantage of interest rate opportunities.
“Maintain a strong financial position with risk-bearing capacity through strong working capital and sustainable levels of debt,” Briggs encouraged.
Farmers should know their own strengths and weaknesses as an operator and manager. “Then align with a team of specialists for crop insurance, commodity brokerage, inputs, and your lender,” he said.
Variable costs are about one-half of gross farm income. “These costs need to be tracked and analyzed on a crop year basis, not a tax year basis.
“Assess the cost of production, and don’t over or under spend on key input costs.” Briggs said. “Maximize return on variable costs, but don’t cut costs that limit production.”
Family living can be 15 percent of gross income, and must be tracked to be controlled. “Non-farm income can help with insurance and other benefits, to offset family living costs,” Briggs pointed out.
Fixed asset costs for a farm include land rent, land payments interest, and machinery debt, typically less than 40 percent of gross income.
A low cost producer reduces input costs and curtails, postpones or will downscale capital purchases such as vehicles and machinery.
The place where bigger changes can happen relate to the four “Rs” overhead. “This can be done by re-amortizing owned land loans, refinancing machinery, renegotiating rented land rates and re-assessing family living,” Briggs said “Where you can make the most difference is by analyzing and adjusting fixed costs to reduce the gap by $50 to $100 an acre,” Briggs said.
“Agriculture is cyclical and things will turn around. The extreme high commodity prices weren’t sustainable, and are most likely gone for a while, but profitability will return for many operations,” Briggs said.
With continuing higher population, the current global food production trajectory won’t meet 2050 needs. FAO (the Food and Agricultural Organization of the United Nations) says food production must rise by 70 percent.?