SD lenders: Control costs, look for daylight
SIOUX FALLS, S.D. -- Young farmers need to look for low-investment opportunities that will take advantage of their skill set in labor or technology to get through a low trough in the farm economy, some lenders said Jan. 18 at the South Dakota Ag ...
SIOUX FALLS, S.D. - Young farmers need to look for low-investment opportunities that will take advantage of their skill set in labor or technology to get through a low trough in the farm economy, some lenders said Jan. 18 at the South Dakota Ag Expo and trade show.
The annual event draws up to 1,400 people and is co-sponsored by the South Dakota Agri-Business Association and the South Dakota Grain and Feed Association.
This year's seminars included an economic outlook panel looked back at how the region came through the farm credit crisis of the 1980s, and compared the current situation with its low commodity prices.
Nathan E. Franzen, president of the agribusiness division for First Dakota National Bank, based in Yankton, S.D., said beginning farmers might have to "do things a little different than the prior generation did," and look for opportunities. He said, "I think they're out there."
One of the big questions for the region is how the Trump administration and others will impact things such as trade, crop insurance subsidies and the Renewable Fuel Standard.
Jason Edleman, regional vice president for Farm Credit Services of America, based in Huron, S.D., said crop revenue insurance is a bigger protector of farmers today than it was in the 1980s, allowing the economy rebalance itself "and get back into equilibrium."
Mike Hechtner, central regional president for CoBank, based in Omaha, Neb., which lends to local cooperatives, said while interest rates are going up, the region doesn't have inflation like they did in the 1980s. Also, farmers back then weren't able to fix long-term low interest rates that many farmers have today. Today's loans are made based on cash-flow, and didn't assume that high prices would be here forever.
Keynote speaker Matthew Roberts, a private agricultural economist who recently left Ohio State University, it's never been easy to get into farming, but there are long-term positives. To turn things around, the world needs to see acres leave production or a drought.
"Demand has to increase, likely through continued Chinese growth," Roberts said. "Costs have to decline - mainly cash rents need to decline, also seed, fertilizer and chemical. Over the next three to five years those cost of productions will be the biggest source of competitive advantage. Farms that have been conservative on the way up can be aggressive on the way down - those will be the ones that take most advantage of the situation we're in."
Getting cash rents and living expenses "under control" are the two keys to bringing costs down. Living expenses have increased faster than any other value on the cost side of farm income statements.
Roberts said there are some good signs for cost of living and expenses in agriculture. As of 2015, 9 percent of the world's residents are living in "absolute poverty" at under $2 a day. That's compared to 85 to 95 percent in 1820. In 1980, 44 percent of the world's residents were living in poverty.
The number of people living over the $2 per day poverty level was 9 percent in 1980, compared to 30 percent in the late 1990s, Roberts said. In 1970, over 2 billion people were living under the poverty level. Today, 700 million live on under $2 a day while 6 billion live on more than that. "The decline in poverty has been incredible, and the increase in wealth has been incredible," Roberts said.
People who get wealthier eat better.
Roberts noted that in 2001, China imported 600 million bushels of soybeans 15 million acres worth of soybeans. By 2015, China needed 65 million acres - a 50-million-acre increase. In the past eight years, global soybean production has increased by 4.7 billion bushels; global corn expanded by 16.7 bushels, he said.
Commodity boom-bust phases are always with us - about once in a decade for row-crop production, while dairy is five years; cattle, seven years; hogs, 2 to 3 years, and "chickens, about 35 seconds," he joked.
National average land costs were $2,100 in 2002, and by 2014, and $7,000 an acre. In the Corn Belt, 50 to 60 percent of farmland was in rented in the U.S. "Rented ground is almost in always in stronger hands than owned ground in a financial crisis," Roberts said. In Ohio, two larger farms of 15,000 acres recently failed, both with largely rented land. They were 95 percent rented so there was "nobody rushing to auction land off."
"There's ultimately an acreage overhang in the market - it's not just about bushels," Roberts said. "Right now, there's more productive capacity than there is demand to suck it up."