Recently, I shared the podium with Jim Garrison, who is a retiring executive with Mid America Farm Credit. Jim has been in the agrilending business for 28 years and has seen many economic cycles. He had a powerful message at this year’s Ag Producer conference: it is a good time to be a good farmer!
I agree with his thoughts that some producers farm big just to farm. That is, they take on more leased ground at any cost, or purchase land that is not economically feasible. While, both Jim and I have a positive look on agriculture, the operational risks are increasing.
Costs have increased significantly both variable and fixed. Corn at $3.50, $9 beans and wheat are all coming with an increased cost structure that compresses margins. There is also significant price volatility and this is one year not-disciplined marketers made some individuals look smart. In many areas of the country, farm programs do not provide much downside protection. With higher crop revenue insurance premiums, yields must fall more sharply before insurance coverage kicks in. Weather variations have been significant over regions and within regions affecting yield and quality.
As Jim clearly stated, profit margins need to more than double for farmers to be in the same risk vs. reward position in 2008 compared to the 2001-2005 period.
Heed Jim’s Advice:
- Know your cost
- Be careful in negotiating land leases: Protect the producer, fair compensation and flexibility
- Have strong risk management programs to accommodate increasing risk
- Keep the business model workable at $2.50 corn, $5.00 beans and $4.00 wheat. We are still playing in a world that’s economically flat!
Editor’s note: Dave Kohl, The Corn And Soybean Digest Trends Editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at firstname.lastname@example.org.