Custom Rates Increasing

As would be expected with increasing fuel costs, average 2007 custom rates for farm work have also been rising, compared to custom rates a year ago, or even earlier in 2007. Most listed average custom rates for farm work in 2007 are 3-5% above the average custom rates listed for 2006. In addition to higher fuel costs, increasing cost for new and used farm machinery is also a factor in the higher custom rates that are being charged for most farm operations in fall 2007.

Iowa State University releases the annual Iowa Farm Custom Rate Survey each year in February, which is based on a survey of custom operators, farm managers and ag lenders on what they expect custom farm rates to be for various farm operations for the coming year. The 2007 Iowa Custom Rate Survey, including farm custom rates for some typical tillage, planting, and harvesting practices, as well as custom farming rates, is available at: www.extension.iastate.edu/agdm/crops/pdf/a3-10.pdf

All listed custom rates in the Iowa survey results include fuel and labor, unless listed as rental rates or otherwise specified. The average custom rates listed for 2007 should probably be increased by 4-6% to reflect increased fuel costs during 2007.These average rates are only meant to be a guide for custom rates, as actual custom rates charged may vary depending on continued increase in fuel costs, availability of custom operators, timeliness, field size, etc.

Ethanol Margins Remain Tight
The profit margins at most upper-Midwest ethanol plants have been extremely tight in recent months, with some ethanol plants operating at a negative margin on a short-term basis. The biggest factor has been the increasing price of corn during 2007. The average corn price for most ethanol plants was near or above $3.50/bu. earlier in November, which is over 50¢/bu. higher than late summer. The other big factor in the negative profitability at ethanol plants is the lower rack price for ethanol, which is the price that ethanol plants receive from gasoline biorefineries for the ethanol produced. On June 1, the average ethanol rack price was near $2.50/gal.; however, that price had dropped to below $1.90/gal. by early November. Fortunately, the ethanol price has improved somewhat in the past few weeks, and profits have started to improve at many ethanol plants.

The tighter profit margins at ethanol plants have meant lowers dividends being paid to farmers and other investors in local ethanol plants, compared to 2005 and 2006. Most recently built ethanol plants in the upper Midwest were built with investment capital from farmers and other local investors. The tight ethanol profit margins in 2007 have somewhat slowed the rapid expansion of the ethanol industry in many areas, and have even caused some proposed ethanol plants to be temporarily put on hold. Even though ethanol profits have been tight in the last half of 2007, many Midwest ethanol plants are still profitable and are doing quite well.

Overall, 2007 has not been the golden year for the ethanol industry that 2005 and 2006 were; however, the industry has continued to grow and expand at a very rapid pace during the year. Currently, there are over 130 ethanol plants operating in the U.S., with a production capacity of over 7 billion gallons annually. There are nearly 100 ethanol plants that are either under construction or are adding capacity, which will add an additional 6.5-7 billion gallons to the U.S. ethanol production capacity by early 2009. There has been some criticism of the ethanol industry in recent months by some groups and individuals; however, the ethanol industry and the move toward more reliance on renewable fuels as a future energy source is still alive and well in the U.S.

Walz to Speak at Rural Legislative Forum
Congressman Tim Walz will be the noon luncheon speaker at the 25th annual Rural Legislative Forum on Friday, Dec. 7 from 9:00 a.m. to 3:00 p.m. at the South Central College Conference Center, 1920 Lee Blvd., North Mankato, MN. “Celebrating Minnesota’s 150th Birthday: What Will Minnesota look Like A Generation From Now?” is the theme of the 2007 forum. Tom Gillaspy, Minnesota state demographer, will be the keynote speaker at the forum. The response panel will feature four Minnesota state commissioners, a deputy commissioner and two statewide educational leaders. The afternoon session will include several state legislators from south-central Minnesota. Forum sponsors include: Minnesota Agri-Women, Minnesota Farm Bureau, South Central Technical College’s Agri-Business Department and Farm Business Management Program, Region Nine Development Commission and the University of Minnesota Extension Service.

Registration cost for the Forum is $10/person in advance, and pre-registration is requested by Friday, Nov. 30. Cost is $15 at the event without pre-registration. The registration fee includes the noon lunch and all printed materials. To register or for more information about the forum contact the Blue Earth County Extension Office by phone at 507-304-4325, or by e-mail at: Mnext-blueearth@umn.edu

Editor’s note: Kent Thiesse is a former University of Minnesota Extension educator and now is Vice President of MinnStar Bank, Lake Crystal, MN. You can contact him at 507-726-2137 or via e-mail at kent.thiesse@minnstarbank.com.