At the recent ECI Lending Technology Conference, a banker asked me a very good question. How can farming remain profitable with $1.50/bu. corn, $2/gal. diesel fuel, and fertilizer at $500 plus per ton, not to mention the high cost of seed, chemicals and taxes?
This question is on almost every producer’s and lender’s mind coming into the fall and winter renewal seasons. First, some estimates from Minnesota are indicating that with current prices, the cost per acre will be approximately $450-500. Even with a home run yield, 2006 could be difficult for certain crops, such as corn.
This will be a fall and winter during which producers and agrilenders will have to push the pencil and do enterprise analysis to determine the optimal cropping mix for 2006, or whether to sit it out on the sidelines. This may be a year when one strives to minimize losses rather than maximize profits.
Cash rents, which have risen as fast as land values, may have to be renegotiated with land values nationwide increasing 11%, the highest increase ever. You can tell that we are in the late stages of the bubble when objectivity goes out the window.
To all producers with debt, your agrilender is going to expect you to be well prepared with financial documentation. Those easy days of credit based upon asset values may be behind us.
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Editors' 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.
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