Farmers warned about taking on debt

MARSHALL, Mo. – Accelerating land prices, higher fuel and fertilizer costs and potential hikes in interest rates are some of reasons farmers are being cautioned to manage their farms more carefully than ever before.
“Be extremely careful with debt, if you want to stay in business,” said Abner Womack, University of Missouri economist and co-director of the university’s Food and Agricultural Policy Research Institute in Columbia.
Rising prices. In 2005, land prices rose 11 percent; in 2004, land prices went up 7 percent.
“An 18 percent increase puts land to where it is very difficult to pencil out a profit from farming. If you have deep pockets and a good off-farm job, you might make it,” Womack said. “You may be tempted to pursue land when it becomes available, but do your calculations before buying.”
He also cautioned farmers about paying higher rent for crop land. Results from balance sheets on representative farms across Missouri show good crop farms are making a return of only $48 per acre and many in drought areas had negative returns last year.
Concerned. Womack said the numbers made him more worried about the farm economy than he had ever been before. Two years of record-breaking crops put a lot of grain into bins, he said.
The current carryover of soybean stocks is 400 million bushels. Corn stocks are at 2.4 billion bushels, about 1 billion bushels above normal. The current outlook calls for yearly averages of $1.90 per bushel for corn and $5.35 for soybeans.
However, current prices on the futures market are running ahead of those levels.
“When you can get a price 50 cents above the projected season-average, you ought to look at selling part of your crop,” Womack said.
“Our models give an average price,” he added, “but, they also show that is not a straight line, as there is always volatility in the market. There will be 50-cent swings above and below that average corn price.”
Set a target price. Womack advised farmers to set some target prices on what they can sell for, then when the price hits that level, take action.
“You will have to act quickly, because with huge supplies hanging over the market, high prices can’t be maintained for long,” he said.
High futures prices may be caused by buyers looking at the drought monitor for the Corn Belt.
“Prolonged drought that persisted over western states seems to be moving eastward,” Womack said. “We saw drought over a big portion of Missouri last year. Now there are large areas of Iowa and Illinois that are abnormally dry.”
Drought. According to Womack, with current supplies in the bin, it will take a huge drought to get stocks back down to normal.
The Food and Agricultural Policy Research Institute’s model gives a more favorable outlook for livestock producers. Beef, pork and chicken prices are expected to remain good.