Ag economy continues to stumble; best advice is to have marketing plan

CLARKS MILLS, Pa. — Farm income and the commodity markets are on the minds of most farmers and that was made clear at an AgChoice Ag Forum Jan. 27 in Clarks Mills, Pennsylvania.

Farmers from across Mercer and Lawrence counties listened as Kurt Barth, from Brock Associates, talked about global and farm economics.

Farm income

Barth said net farm income was down 38 percent in 2015. The drop in cash receipts was attributed to both crops and livestock.

Brock Associates research showed that in 2013, crops earned more income than livestock. Crops were reported as having raised $220 billion and livestock production totaled $183 billion.

In 2014, livestock earned more income. Brock Associates research showed $212 billion earned from livestock production and $210 billion in crops.

However, the numbers fell in 2015: $191 billion was earned in crops and $187 billion in livestock.

Debt

Barth said the research by the USDA Economic Research Service confirms farm debt is increasing. He said the real estate debt is expected to rise by 6.1 percent to $208 billion and non-real estate is to rise by 6.5 percent to $159 billion.

Barth added there is concern about the debt-to-asset ratio increasing. USDA ERS data showed that it has increased since 2013, from 11.3 percent in 2013 to 12.8 percent in 2015.

Land values

Barth said it’s no secret that cropland values are going to fall, in part due to the crop prices. He said land values in the Corn Belt dropped 2.3 percent, and overall, U.S. per-acre land values dropped 0.7 percent to $4,130.

He expects land values will fall further before they go back up.

The research from Brock Associates used a formula based upon the USDA projected 2015 gross farm income as of November 2015, to determine that land values in the United States should be closer to $3,314 than the $4,130 value. The research also showed that cropland is 25 percent overvalued, by historical measures.

Grain marketing

All that grim economic news means it is more important than ever to have a marketing plan for grain, Barth said.

Market decisions require four steps: what to do, meaning sell or not; how much to sell; how to do it, using the basis; and finally, keeping a journal of why a farmer does what he does. Barth recommends writing down why the farmer sold and what the farmer sold.

Goals

In establishing the marketing plan, producers need to establish a realistic goal, identify the decision-making environment and identify beliefs.

Barth said to have a price and basis outlook for both the short term (now through six months) and long term (six to 18 months out). He also recommends writing an outlook down and updating it as needed.

Production costs

Producers should also consider the cost of production. Farmers should determine the fixed and variable costs and remember that not everyone’s costs are the same.

Also when developing a marketing plan, consider risk-bearing ability. Barth said a highly leveraged producer will look differently at grain marketing than a producer with a low debt-asset ratio.

Emotional decisions

And finally, avoid emotional decisions. Barth said one surprising thing is that this can actually be gender based. He said women make fewer emotional decisions when it comes to selling grain than men.

Other points from Barth:

• The dairy market needs more export demand before prices can begin to recover. Barth said he is not optimistic about Class III milk prices without greater export demand.

• Barth said it is a good time to purchase fertilizer due to low natural gas prices. It is definitely time to make a nitrogen purchase, if it’s on your list.