Advice for facing challenges in 2014

Farm Forum

As the 2013 crop year has been tucked away, farmers, always the optimists, are preparing for what will be planted this spring. As the year ended with predictions of low commodity prices, continuing challenges wait on the horizon. If all of the stars align, this would be the year for an early spring, followed by gentle rains, and few weed and pest challenges. Best of all, there would be a surprise event that would boost crop prices. However, farmers are also realists and know that they’ll have to work hard to produce great crops.

Three Extension specialists who deal with farmers through the Aberdeen regional office shared some thoughts about 2013 and the challenges that will be facing crop producers in 2014.

“As far as crop production, we went through quite a season,” said Mark Rosenberg, agronomy weeds fields specialist for SDSU Extension. “We thought we’d have an early start, but weather events gave us a later start for planting. Many were cropping later than they had in a long time. Producers spent April and May getting in row crops. It was amazing to see how fast crops caught up despite a significant delay. By June 1, crops were almost on track for normal development. Some had late planted beans, which was pretty unusual in the area. Development speeded up into August with average development by the end of the growing year.”

Corn averaged about 150 bushels per acre and soybeans were in the 40-bushel range, according to Rosenberg. Wheat yield was about 40 bushels per acre with some winter wheat going higher. Sunflowers had some problems, but it could have been a planting issue or may have been a lack of timely moisture.

As far as the weather for this spring, Laura Edwards, climate specialist, says, “The models show that there are equal chances normal for precipitation in January, and equal changes for above and near normal temperatures. The climate has been wet over Idaho and Montana, keeping us in a holding pattern. The 3-month outlook staring in January shows below average temperatures over North Dakota and eastern Montana. Precipitation, in January through March shows equal chances.”

And with no El Nino or La Nina events indicated, the trends are neutral. Looking at December, precipitation and temperatures have been all over the board, making it hard to forecast the season. “One event can put us over the top,” said Edwards. She referred to the storm called Atlas.

As a recap of the growing season, Edwards said October had record moisture. While some soils are not totally saturated, there is good moisture in the upper layers in the soil. She said indications are not seeing any further drought development. Things are in a holding pattern with the frozen soils.

Kim Dillivan, Crops Business Management Field Specialist, says that on the economic side of the farm bill, this past year the legislation has been extended twice. There is now talk that both the House and Senate want to get the farm bill done in January. It looks like it will be getting rid of direct payments, getting rid of counter cyclical payments with some type of substitute for price protection and revenue protection. It’s still a guessing game as to what the final legislation will look like once it’s voted on by Congress.

With predictions for lower commodity prices, Dillivan sees the continuity of the corn market continuing as the soybean market is not quite as depressed. Brazil has been planting on schedule. It’s predicted that they’ll have a good crop unless there is a major weather related event, which in turn will affect U.S. markets. There is an increase in demand, in general, for the next 3 or 5 years. There is a growing middle class in other countries that want more meat items. They want a high quality diet, which is good news for the demand for U.S. crops.

As farmers look at budgets for 2014, they need to know what is the break-even point. Margins are lower than the last few years, certainly for corn, and input costs will need to be tighter to offset the difference.

Rosenberg agreed that producers will look for ways to trim costs. “It comes down to how much money they have invested and how much more efficiency can they get back by making changes,” Rosenberg said. “They’ll need to use precision agriculture to better place their seed, use better genetics and better weed management. Those are the areas where they can really invest to get on top of costs.”

Rosenberg said in 2013 more Roundup resistant weeds were reported. Although not quite on the level on kochia, water hemp has been a problem along Interstates 29 and 90, Rosenberg said. “There is enough pressure from common water hemp that it’s contributing to eroding the bottom line. Producers will have to use costlier pre-emerge or residential herbicides, which are spendy but will keep ahead of the weed pressure. Growers have to pay close attention, not just in 2013, but down the road to learn what chemistry will help control these problems.”

“Roundup has been used to take care of pre-emergent weeds, but the problem is that kochia emerges so fast and quick,” Rosenberg said. “The weeds get too big before spraying takes place. “It’s a vicious cycle and producers need to be aware of the concerns and look at the application of pre-emergent chemicals.”

Among the economists, Dillivan said the anticipation of tighter profit margins is causing producers to rethink some of their practices. There is a need for some adjustments of the budgets related to financial decisions. “We want producers to be prepared for that, in addition to lower margins.”

Edwards said that looking at the drought monitor the climatologists are not concerned about continued drought conditions. There are some areas, such as just to the east and south in Minnesota, Nebraska and Iowa, where lingering drought will carry over from last year. The state of South Dakota is in pretty good shape and has improved since summer and fall. North Dakota is pretty wet.

The western part of South Dakota had a record wet calendar year, especially in northwest South Dakota around Hettinger, Lemmon, Buffalo and Bison. Edwards said those areas are really, really wet. Lemmon had the wettest calendar year, 8 inches above their previous record. There are four long term stations in that area, all reporting record moisture.

Edwards cautioned that in May, there may be a need to worry about some spring flooding, even along the James River, as there has been spring flooding in the last 3 of 6 years. Wet falls set the stage for flooding. “It’s been talked about, but there is not an official warning yet,” she said.

“With the high land values and land rents, and areas with real historic rents trending upwards, when those rent decisions are made, producers need to take a hard look at the bottom line,” Rosenberg said. “There is going to have to be some serious homework as part of the first step to see what producers are getting themselves into when agreeing to that rent.”

Edwards noted as an example, on some land out west, there was a farm that had trouble in the 1980s. They were in over their heads and are now just getting themselves dug out. The risks that are out there and the necessary budgeting can affect financial issues for a lifetime.

What will happen in 2014 is a question mark. Farmers hope for the best weather conditions and the best possible crops. The specialists urge farmers to carefully consider risk management tools to protect revenues.

“We at Extension can help with those issues,” Dillivan noted. “We encourage people to stop in or call us to find the resources needed for this next year and beyond.”

Crop budgets

According to information from Jack Davis, crops business management field specialist, planning budgets for 2014 are showing negative margins for corn. Using 2014 corn prices at $4.00 and soybeans at $10.80 crop margins for corn are negative $(35) for corn following soybeans, negative $(95) for corn on corn acres, and positive $36 for soybeans following corn.

Using a 150-bushel corn yield for a corn/soybean rotation puts revenues at $600 an acre and total costs at estimated at $635 resulting in negative $(35) margin. The corn on corn planning budget assumes similar costs and a 10% yield drag resulting in 135-bushel yield with revenues at $540 and a negative $(95) margin. The incentive to plant as many corn acres as 2013 for 2014 is not being presented at this time.

Direct costs as a percent of revenue are 53% for corn in the corn/soybean, 59% for corn in the corn/corn system, and 30% for soybeans. The two key direct costs for each crop are seed and fertilizer. Seed and fertilizer expenses as a percent of revenue are at 38% for corn and 20% for soybeans. As seed and fertilizer costs are at a higher percentage of revenue, management focus on these two items will pay good dividends. Land and equipment costs are also key cost items in each of the crops.

With lower commodity prices and near constant costs compared to the past four years, margins are projected below levels realized during that time. Fertilizer costs are the most variable category from year to year and prices have trended lower for fertilizer during 2013. Corn on corn is not as profitable as compared to past years. If a farm experiences yield drags with continuous corn, crop rotations may offer a profitable alternative.

The price and yields used in these budgets favor soybeans, also giving incentives to use crop rotations. To achieve the greatest return, management time should be spent on cost control and best management practices of key input items, according to Davis.