Black Angus Calves

Cow-calf Producers Seeking Better Margins

After the spike in profits to $575/cow in 2014, the cow-calf sector has been faced with much tighter margins for several years now – and next year promises to bring more of the same. That’s the bottom line from David Widmar, an agricultural economist with ageconomists.com and Purdue University, who will be the keynote speaker at GrowingOn® 2019 at five locations in Kansas in December. He points to revenues declining faster than production costs as the cause of the squeeze.

However, he says, “it is worth pointing out that total revenue remains historically high. Prior to 2009, revenues only occasionally reached $600/head, but they have remained above that level since then.”

Unfortunately, costs have remained above $600/head as well. (See chart below, based on Kansas Farm Management Association (KFMA) data.)

cow calf chart

As producers seek to maintain black ink, paying close attention to feed and pasture costs is critical, Widmar says. Combined, these costs account for two-thirds of total variable costs and about half of all costs.

KFMA records  for 2017 also indicate the difference in feed cost between the top third and bottom third of producers based on a margin of 30 percent for calves and almost 40 percent for feeder cattle, with the higher-margin third paying $89/head less per calf and almost $163 less per feeder.

The difference in pasture rent is less, with the higher-margin producers paying 10 percent more per calf and 20 percent more per feeder. In other words, they likely have better-quality pastures.

Some other costs have even larger percentage differences between top-third and bottom-third margins, but they are less important on the whole due to their smaller role in overall costs.

Overall, the high-margin producers using KFMA had net returns $334 per head higher than the low-margin producers.

Widmar will share his outlook for cattle and swine production, prices and margins at Frontier Farm Credit’s free GrowingOn meetings, December 3-7. Click for locations and times and to register.

Appraisals social media image

Rural Property Appraisals

Appraisals are an important step in the homebuying process. But when it comes to appraising farmland, acreages or residences in rural communities, there is often more to the valuation checklist than what meets the eye.

As a portfolio lender that specializes in financing homes in the country and rural communities, Frontier Farm Credit has the experience and expertise to help you make informed decisions about your rural property purchase. Here are five rural property features to consider when buying or building in the country.

Lot size and land use: Because no two rural properties are the same, rural property appraisers utilize area sales, market data and interviews with other real estate experts to determine whether each feature adds value or has undesirable qualities.

Lenders have different standards concerning lot size and land use. Although it is an industry standard to base lending eligibility on whether the property is residential, agricultural or recreational, Frontier Farm Credit provides country home loan financing for any rural property regardless of how the land is classified.

Location and proximity to other properties: Moving to the country can sometimes mean living within proximity to various types and sizes of livestock facilities. Land valuation experts recognize that in some rural areas, this may be a deterrent for homebuyers.

Other external factors rural property appraisers take into account include distance to major roadways, as well as proximity to metro areas that can provide employment and education opportunities, medical services, shopping and recreational amenities.

Water sources and septic systems: A third area assessed by rural property appraisers includes the presence of adequate water sources and a working septic system. While these costly components should always be examined by a professional during a home inspection prior to the appraisal, it’s critical to inquire about their functionality and availability.

In addition to determining whether the primary residence is supported by a rural water system or private well, appraisers also verify whether water is being supplied to other external structures on the property, such as livestock facilities. Appraisers also ask questions concerning the septic system to ensure it is up to code. Appraised value assumes these services are working as they should.

Outbuildings: Outbuildings are another factor that can contribute significant value to rural properties. Determing whether an outbuilding is an improvement or detriment to the property requires analysis of its condition and potential uses.

A few important factors to take into consideration include the age, quality and the highest and best use of the outbuildings. For example, rural property owners may rent out oversized machine sheds for camper or boat storage or even as additional machinery storage for farmers in the surrounding area.

Cost of maintenance and repairs: Many homebuyers tend to overlook the maintenance and repair costs associated with living in the country. Along with a thorough assessment of water sources and the septic system, it’s important to have home inspections completed by a professional in all major components of a dwelling such as the foundation, plumbing, heating and cooling, electrical and roofing. Similarly, property inspections can also identify costs associated with necessary repairs, upkeep or potential removal of outbuildings.

Having an accurate indication of what factors determine what your rural property is worth protects your interests as a homebuyer. Click here for more information on buying or building in the country.

Six Management Tips to Make 2019 a Success

As we head into year-end and make last-minute adjustments to income and expenses for tax purposes, next year’s planning also moves to the forefront.

To give you a leg up on the process, David Widmar, an ag economist with ageconomists.com and Purdue University, shares six management tips to jumpstart your thinking process.

  • Know the economics of your business and where to squeeze costs to improve margins.
  • Develop a marketing plan. “Plans are never 100 percent right, but help identify opportunities,” noted Widmar, who is involved in the family farm in eastern Kansas where he grew up.
  • Recognize the role of skill versus luck. This will direct your decisions.
  • Take time for strategic thinking – and then execute on your plan.
  • Instead of aiming to be right with every decision, focus on not being wrong more often.
  • Recognize the importance of time. It is your most valuable nonrenewable resource. Widmar encourages everyone to carve out one extra hour – per month, per week, per day – for financial management.

To  hear the details of how to employ these steps – and to hear Widmar’s assessment of the farm economy and his crop and livestock outlook for the year ahead – register for one of Frontier Farm Credit’s free GrowingOn 2019 meetings in Kansas, December 3 to 7.

Quality Issues Raise Crop Insurance Questions

Producers in some areas have experienced a perfect storm in weather in 2018. After a delayed growing season, crops caught up and matured ahead of normal, only to have rain delay harvest. That opened the door to quality problems ranging from soybean pod shattering to mycotoxin contamination.

In fact, USDA’s Crop Progress report this week shows harvest in the 18 states behind average for all crops, and Kansas is among those with crops still in the field:

Corn remaining (%)

 

Corn
5-year average remaining
Soybeans remaining (%) Soybeans
5-year average remaining
Sorghum remaining (%) Sorghum 5-year average remaining Sunflower remaining (%) Sunflower 5-year average remaining
Kansas 11 5 26 10 38 20 37 8
Reporting states  

16

 

13

 

12

 

7

 

27

 

16

 

39

 

25

 

More than a quarter of the beans in Kansas are still in the field, according to USDA’s count. “We were hearing reports of quality problems,” said Ruth Compton, crop insurance officer in Hiawatha. “I don’t believe it’s been a huge problem but with a lot of soybeans still in the field, there is a continued concern.”

Different situations

The crop insurance claim process differs depending on the situation. For instance, if a field is flooded and has standing water, you are not allowed to harvest for food use. You have the option to sell to a salvage buyer if you can find one who will take your production or you can destroy the crop and take a zero on your Actual Production History (APH). If you have a quality issue that your elevator discounts less than 8 percent, it doesn’t support a claim.

And, although the price drop from the spring guarantee of $10.16 to the harvest price of $8.61 appears large, in almost all cases, it would not produce a claim on its own, depending on the yield. The table below illustrates the yield needed to trigger a claim given various revenue guarantees. The October average falls between the $8.65 and $8.66 rows in the table.

revenue guarantee table

revenue guarantee table

In all cases, you need to weigh the impact on APH against the amount a claim might be worth. Your Frontier Farm Credit insurance offer can help identify the avenues you can use to ensure the impact on your APH is minimized.

A bigger question this year may be the effect on your Market Facilitation Program (MFP) payment. That is paid strictly on the bushels produced. The first of two possible payments is $1.65 on half your production. So the question is: Is it better to combine the crop to collect the 82 cents, plus a likely additional payment, or save the cost of combining and file a claim?

Your Frontier Farm Credit insurance team can help you make that determination – and guide you through the claims process when quality is at issue.

For those who want to review before proceeding, click to view the USDA/Risk Management Agency fact sheet on Soybean Kernel Damage Quality Adjustment Procedure.

Winter wheat

Winter wheat planting also is a bit behind average, with 90 percent completed in Kansas, 8 points behind usual. 77 percent has emerged, well behind the 89 percent average. As of Nov. 11, USDA rates 44 percent of the crop good/excellent, compared with 54 percent in the 18 reporting states. Fourteen percent is poor/very poor in Kansas while 12 percent falls in those categories in the 18 states, headed up by Oklahoma, Oregon and Texas.

Image: Purple seed staining of soybean in south central Nebraska. Photo courtesy of Jennifer Rees, UNL CropWatch

Advocating for Farmer Veterans

veterans day boxIt is difficult to overstate the role that rural America plays in defending our country. While only 14 percent of the U.S. population lives in rural communities, nearly 45 percent of service men and women grew up in small and rural towns. Among them – Tammy Darbyshire, an account specialist at Frontier Farm Credit’s Emporia office.

Tammy and 29 fellow veterans traveled to Capitol Hill earlier this year to help Farm Credit advocate for programs that support those transitioning from war field to farm field.  Farm Credit partners with the Farmer Veteran Coalition to promote Homegrown by Heroes, a voluntary marketing label to help farmer veterans connect with consumers. Regionally, Frontier Farm Credit works with veterans organizations to provide education on the business side of farming and ranching.

When veterans return home, many are looking for a new purpose. As Tammy knows, they can find that in agriculture. Tammy married a third-generation Kansas farmer 23 years ago. Even though she wasn’t raised in ag, she hopes her sons will carry on the Darbyshire farming legacy.

“It takes a great appreciation to be in agriculture,” Tammy said. “You have love it to put in the hours, to do what they do to be in ag.”

For her part, Tammy draws on many of the skills she learned in the military to serve her customers at Frontier Farm Credit.

“The No. 1 thing I learned in the military was team work. You have a platoon and you have these people who always have your back,” she said. “Being a teammate at Frontier Farm Credit is so easy because the people are so easy to work with. And we respect each other, just like in the military.

“I think our customers can feel that each time they walk in the office. They know we’re going to them, too.”