Why should the farmer be the only one with risk when times are tight?

The sun has certainly shined on the ag economy the past few years creating a period of unprecedented profitability for farmers and ranchers. Though these times were good for farmers, they were also very good for landlords, ag retailers, and our local communities as a whole.

In 2014, the average farm or ranch in South Dakota spent over $1.1 million dollars, which creates a huge economic impact to the local and state economy. Of this amount, nearly $700,000 was spent on direct expenses such as seed, chemical, fertilizer, fuel, repairs, feed, and feeder livestock. Another $200,000 was spent on land rent, labor, interest, taxes, utilities, and insurance. Over $100,000 was spent on capital purchases such as breeding livestock, land, machinery, and vehicles while slightly below $100,000 was spent on family living expenses such as housing, food, entertainment, medical care, personal investments, and income taxes.

While some have criticized ag producers in recent years for their “excessive wealth”, I would argue that their “excessive wealth” had a huge multiplying impact in our local communities! When the farmer or rancher buys a pickup and new kitchen cabinets, local companies and local employees made money which they turned around and spent on [fill in purchase], which continues the cycle. So I think we can agree that everyone shared the “excessive wealth” during the good times.

Now let’s turn the table. If you have looked at a cash flow projection on a field of corn, wheat, or soybeans this year, they do not look very good. Dependent on whether you own or rent the ground, some producers are looking at anywhere from breaking even to a $100 – $200 loss per acre. If the farmer operates 1,200 acres, that is between $120,000 and $240,000 loss. So while the farmer is taking on all of the risk this year, are the farm suppliers, landlords, and machinery dealers going to share this potential loss just like they shared in the profits during the good times? The magic eight ball says… not likely!

These folks have all enjoyed padding their profit margins during the good times, so they need to give up some of that padding now that times are tough, because the farmer should not be the only one to get the short end of the stick! I think that feed and agronomy companies need to live with a lower profit margin on their products, landlords should consider dropping their cash rent to a reasonable level, and vehicle & machinery dealers may need to live with selling fewer units for a year or two. Whether it’s profitable or not, the farmer is still going to spend over $1 million dollars this year, but if everyone shares the risk, the farmer can hopefully survive to do it again next year.

If you are a farmer or rancher, value the relationships you have and do business with local ag friendly companies who are willing to share the risk with you during the tough times. At the South Dakota Center for Farm/Ranch Management, we work with ag producers to help them know their numbers better which allows them to make better decisions and be more successful. We can be contacted at 995-7196 or sdcfrm@mitchelltech.edu.