Farmers brace for lean times in ag economy

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LONDON, Ohio — The 2015 edition of the Farm Science Review featured the same new equipment, innovation and technology that farmers have come to expect over the past several years.

And as always — there was a good size crowd on hand to see it in action, and to talk face-to-face with local equipment dealers and manufacturers.

But along with the awe and wonder over the new machinery — farmers were also concerned about how they’ll remain profitable going forward.

This year’s return on corn and soybeans were near break-even prices, and below break-even for some producers, which is leading them to do everything they can to reduce costs.

“(We’re) definitely not looking at any new machinery purchases this year, like we have the last few years,” said John Bergman, a grain farmer from Elmore, Ohio.

Balancing act

Bergman farms about 1,000 acres of corn and soybeans. He said farmers don’t have as much money to spend as in years past — but at the same time — he said they should be careful not to make too many cuts in their operation.

“You’ve still got to maximize yield,” Bergman said. “Usually, when you cut corners, you hurt yourself in the long run.”

That was the same philosophy of the farm equipment companies this year — who agreed farmers are being more conservative — but also that they can’t afford to give up on efficiency.

“The customers are definitely going to have to do some inventory — some income statement and balance sheet management,” said Tony Resh, district sales manager for New Holland.

More efficiency

But at the same time, newer equipment usually means getting the crop harvested faster, and in better condition — important things that can have a big effect the value of the crop.

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New Holland’s newest hay equipment, for example, is designed to help farmers mow and bale faster, better quality hay — which is important in years like 2015 — when farmers had a very limited window of opportunity to make hay.

“I think these guys are going to need to stay on top of technology,” Resh said. “The equipment is (an) important piece in maximizing their productivity and efficiency.”

Land rents

As profitability declines, one area farmers are trying to save is by reducing their land rent rates. The cost of rent per acre increased dramatically when commodity prices were increasing — but has been slow to reduce now that commodities are in a state of decline.

Jim Mintert, director of Purdue University’s Center for Commercial Agriculture, said revenues for some Indiana farmers have dropped $300-$350 per acre in just the past three years. Meanwhile, input costs like seed and rent, are down only $30-$40 an acre.

While farmers may not break even this year, Mintert said they need be thinking long-term. By paying higher land rents now, farmers are securing land for the future that they might otherwise lose for good.

“Effectively, what you’re doing by paying something larger or greater than the break-even cash premium, is paying an option premium for the right to continue farming that property in the future, when hopefully it becomes more profitable,” he said.

Many grain farmers still have strong working capital, he said, but will need to use some of that to survive the tight years, in anticipation that things will get better.

Eroding capital

But if land rents don’t come down soon, “that working capital position will erode pretty rapidly,” he said.

Mintert is encouraging farmers to work with landlords, to show them what’s going on, and hopefully get the owner to agree to a more flexible rate agreement, or something more closely tied to the market.

He and his colleagues have developed an online calculation tool to help farmers calculate the impact rent has on their operation, and to their working capital.

That information can also be printed and shared with landowners, to “let them see how revenues have changed,” he said.

Mintert said in many cases, landowners are unaware how severe the revenue decline has been. They heard about the run-up in commodity prices — but not as much about the decline.

The numbers would “surprise a lot of those landlords,” he said.

Tough sell

But getting landowners to accept less money still won’t be easy. Some landlords have begun lowering land rates, in exchange for keeping the same farmer on the same land, and in exchange for conservation practices that the farmer promises to the landlord.

Other landlords are holding out. Nick Domaschko, a retired farmer from Aurora, Indiana, rents out farmland in three states. He said he doesn’t plan to lower his rents — at least not yet — because he’s concerned the savings would only help the equipment and seed companies.

When farmers are making more money, the ag companies “charge accordingly,” he said. “I think they step right in there and take it.”

In his opinion, the run-up in commodity prices (2006-2013) led to higher prices for equipment and seed, because the companies knew the money was available.

“These companies figure it out — just what a farmer can pay,” he said.

More Farm Science Review coverage:

Rainfall and water quality on farmers’ minds at review.

2015 Farm Science Review live coverage.

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