Ink About Ag: How do you win in tough times?

By Connie Sieh Groop
Special to the Farm Forum

Would you sell land if you could get $10,000 an acre? The speaker at this year’s Lamont-Rhodes lecture at Northern State University said he opted not to take the offer for his land in Mason City, Iowa, despite tough economic times.

Michael Boehlje let people know he considers himself a farmer who faces tough decisions every year. Each year he plans to reduce costs by 10 percent through better decisions. He shared his thoughts in a speech presented by the NSU School of Business and Dacotah Bank with an audience of farmers, business students and area business people.

Boehlje knows his numbers. He is also a professor in the Department of Agricultural Economics and the Center for Food and Agricultural Business (CAB) at Purdue University.

Explaining his decision not to sell his land, Boehlje said that ag is in a downturn, but the future is very bright. Land will hold its value even though there may be cash flow challenges. “If I was a flipper, I might have behaved different,” he said.

Unfortunately, he noted the downturn for ag will likely continue as 20 percent of current income will disappear in the next few years, as it comes from federal farm programs and crop insurance subsidies. That’s one of the highest percentages for federal dollars in recent times. The money will go away, maybe by 2019, maybe as early as next year. That will be a real challenge for many as farmers look at their revenue stream and try to move forward.

In reducing costs in his operation, he said it comes down to choices. It’s important to know not only cost per acre; in today’s world that must be broken down to cost per bushel. In their operation, estimated costs for corn pencils out at $4.05 per bushel which includes paying himself. When he checked at the local elevator at Osage, the current new crop price bid is $3.41/bushel. “It looks like we’ll be losing money again,” he exclaimed which brought a laugh from the audience.

Variable costs of production are at $2.52. So, he’ll be cover his cash costs which are 40 percent of the costs of production. His opinion is that it’s smart to continue to produce as much as you can to minimize the high fixed costs of the business.

Farming/ranching is a high fixed cost industry. It doesn’t make sense to shut down production. The only way to get through tough times is focus on what can be controlled. Companies like John Deere may be able to shut down a plant and wait for demand but those in ag can’t do that. His advice: Think better, faster, cheaper.

The good news is that as incomes in other countries increase, there is more demand for animal protein. He noted that people in China don’t eat much animal protein but mostly because it’s not available. As income increase, there is more and more demand for animal protein. That demand is a driver of the ag economy. Two things come into play: growth in income in other countries and the ability to export products.

Boehlje said he didn’t want to get into politics but producers need to realize in the ag economy, one in four dollars that goes into our bank accounts comes from exports. It’s essential to keep those avenues open. Word is that Mexico is meeting with South American countries to consider potential sources for corn and soybeans if trade agreements with the United States fall apart. He predicts that growth in the market will only come from increased exports.

Boehlje said farmers and ranchers can get through the tough times by working better, faster, cheaper.

He said these times require serious sessions with lenders to figure out how to restructure balance sheets to rebuild working capital. There will be bumps in the road and Boehlje worries about operators who will end up as road kill. Lenders need to work with producers to use strategic tools to make the needed transitions.

Agriculture is a growth industry. The only way to get higher prices is through increased demand, he reminded the group. We don’t control the weather or market prices so focus on what you can control. Hopefully you can ride out the downturn and wait until the prices get where they need to be.

As the crocuses bloom in our pastures, we embrace spring with the work associated with our industry. Seeds for the future are planted. We look forward to better days. How we define working better, faster and cheaper in our operations is up to us.

Connie Sieh Groop is a freelance ag journalist. If you have any suggestions for ag stories, email her at [email protected]