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Planning for 2020: Small Changes in Costs Expected

The November installment of Two Economists and a Lender, a webinar series sponsored by Frontier Farm Credit focused on budgeting for the new growing season.

Below are highlights from their discussion, as well as the full webinar.

With harvest all but done, now is the time to start budgeting for a new growing season. Some costs likely will increase, although modestly, say Dr. Brent Gloy and David Widmar, co-founders of Agricultural Economic Insights. Producers also should factor continued uncertainty into their 2020 planning.

“Budgets are one of the most important management tools,” Gloy says. “But they often are underrated in its role of keeping on top of where you are. Updates and tracking are key to making good decisions.”

Budgets can be used for cash-flow planning, setting marketing goals, risk management, cost control, enterprise analysis and land rental decisions. The economists stress the importance of looking at “economic costs.” This includes out-of-pocket and overhead expenses, as well as opportunity costs.

In their 2020 cost projections below, Gloy and Widmar account for land and noncash expenses, such as family labor. Producers need to include family living cost in their budgets if they plan to fund it through their farming operation.

While every operation’s budget will be unique, Gloy and Widmar forecast that on the whole, variable corn costs will be slightly higher in 2020 and soybean costs slightly lower. Variable and total costs for wheat will be comparable to 2019. The economists project fertilizer prices will be a bright spot for what they call the “Prairie Gateway.”

Based on harvest-time (2020) futures adjusted for basis, they project a corn price of $4.04; soybeans, $9.36 and wheat, $4.62.

budget outlook 2019-2020

“Don’t be overly alarmed by the fact that corn and soybeans don’t cover non-cash expenses. That is typical,” Gloy says. In fact, with price very near the economic cost, corn looks very promising, he says.

“But wheat’s failure to cover out-of-pocket costs and land explains the reason acreage planted to wheat is falling.”

Once you complete your budget, keep it updated and use it, urged Aaron Raymond, a relationship officer in Lincoln, Nebraska. “If you create it for your loan application then ignore it, it is a useless exercise. Unfortunately, that is what I see most do. But those who do update and use it as the most confident decision makers.”

We hope you will join us for an upcoming webinar in the series:

Lessons Learned from 2019 – Webinar

Many would agree that 2019 “didn’t go as planned.” Before closing the book on this year, it’s important to reflect on the key lessons that can be learned. We will review the top lessons and help viewers reflect on their own operation’s outcomes.

Thursday, December 19 at 12:30 p.m. CT
Preregister via Zoom

Ripe corn with snow

Poor Weather Stalls Harvest

Even though crops are largely mature, harvest has fallen behind average due to farmers getting just what they didn’t need right now — moisture. In the week ended October 12, Iowa and South Dakota had less than a day of suitable fieldwork, Kansas had one full day and Nebraska 1.3 days.

In the 18 reporting states, 39 percent of corn has been harvested, ahead of the 35 percent average. Soybeans, however, are 15 points behind the usual 53 percent for this week. The states in our area are slightly behind on corn and significantly behind on soybeans:

CORN

SOYBEANS

Oct. 14, 2018

5-year average

Oct. 4, 2018

5-year average

Iowa

17

24

19

51

Kansas

63

64

16

33

Nebraska

25

25

39

54

South Dakota

17

21

29

65

18 States

39

35

38

53

 

USDA’s condition ratings are unchanged for corn, at 12 percent in the bottom two categories and 68 percent in the top two. Soybean ratings slipped one point on the top and gained one point on the bottom.

Sorghum is six points behind average, at 42 percent harvested. Nebraska stands at 32 percent, five ahead of average. But Kansas and South Dakota – at 19 and 21 percent respectively – are both behind nine points.

Winter wheat, at 65 percent complete in the 18 reporting states, also has slipped two points behind average. Kansas and Nebraska are each three points behind, at 62 percent and 89 percent respectively; South Dakota is eight points behind at 82 percent complete.

Better weather in the week ahead will help, at least on fields that aren’t too wet for machinery.

 

financials

Make a Wet Harvest Productive with Updates to Your Financials

By Bob Campbell, senior vice president

With grain harvest temporarily on hold due to rain in many parts of our territory, now is a great time to update your 2018 cost of production calculations and potential break-even prices based on anticipated yields.

Why is this important? We anticipate that most grain producers will store their 2018 grain and look for marketing opportunities in 2019. Understanding your cost of production on those bushels will give you an informed marketing target.

If you borrowed against your 2018 bushels, you will want to share with your lender both your updated cost of production and marketing plan, including the timing and amount of your planned sales. This conversation will allow your lender to help you identify the appropriate debt structure for your marketing plan and your 2019 production year.

Use your office time to also consider the cumulative impact the past few years has had on your operation. Ask yourself these key questions:

  • Do I have adequate liquidity? This is the working capital you have available to meet short-term financial obligations. While always an important indicator of your risk-bearing ability, working capital is especially critical in times of volatility. Frontier Farm Credit recommends, in general, that grain producers have working capital of at least $200 per acre farmed.
  • Has my overall debt load increased due to losses? If so, it is important to understand how this increased debt is impacting your fixed costs.
  • Do I need to adjust my operation to be cost competitive?

Armed with these answers, you can start putting together your business plan for the coming year. Based on anticipated markets, what are your initial thoughts about your crop rotation?  What would your initial cashflow projection look like based on your planting intentions?  How does the projected cost of production align with the markets?

I invite you to contact your local Frontier Farm Credit financial officer to discuss these and any other questions you might have as you assess your financial position.

Ripe corn field with standing water

Season Ends Much as It Started: Wet

Soggy conditions have slowed field work and narrowed the gap between this year’s progress and the five-year average. Days suitable for field work in the week ended October 7 ranged from 1.6 in Iowa to 1.9 in South Dakota, 3.2 in Nebraska and 4.6 in Kansas.

Corn harvest progressed to 34 percent, compared with 26 percent on average in the 18 states and soybeans, at 32 percent, trailed the average by four points.

Oct. 7, 2018 CORN SOYBEANS
Percent harvested Points gained in week Average Percent harvested Points gained in week Average
Iowa 15 4 13 18 3 31
Kansas 59 12 52 14 7 19
Nebraska 23 6 6 36 9 33
South Dakota 16 5 5 28 7 41

Corn and soybean condition in the 18 states was unchanged other than a loss of one percentage point on the high end for corn. Corn was rated 12 percent poor/very poor and 68 percent good/excellent; soybeans, 10 percent and 68 percent.

Sorghum harvest is complete in Kansas (equal to average), 23 percent complete in Nebraska (16 percent average), and two points behind average in South Dakota at 16 percent.

Soggy soils

Just as farmers were frustrated by wet fields at the start of planting, they are experiencing similar difficulties at harvest. The map below shows soil moisture in large portions of the Corn Belt and our service area are 40 to 160 millimeters above normal.

calculated soil moisture anomoly graph

crop protection network imagePlant diseases related to moisture, including northern corn leaf blight, gray leaf spot and tar spot, as well as Fusarium and Gibberella ear rots, are a concern in high-moisture areas. Lodged corn is at particular risk for developing mycotoxins.

Producers are encouraged to inspect their fields before harvest for signs of mold or mycotoxins. It’s important to work with your crop insurance agent to arrange an inspection of the field.

For those cutting silage, concerns caused by early plant maturity combined with inability to get into soggy fields go beyond mold and mycotoxins, which can develop and grow in storage. These include:

  • Higher dry matter silage: If dry matter is more than 40 percent, the digestibility of fiber and starch are reduced;
  • Less dense packing and greater oxygen content

South Dakota State University Extension offers the tips to improve results.

Looking ahead, an El Nino is likely in the weeks and months ahead. That points to a warmer than average winter in our service area. The Southwest and Southern Plains could see above normal precipitation. So much so in fact that during a webinar for our customers, Mike Murphy of Cattlefax predicted soil moisture in Texas and Oklahoma “could be fine by next spring.”

Corn now a week ahead; soybeans slightly less advanced

Corn harvest jumped 10 points to 26 percent in the final week of September. This is well ahead of the 17 percent average for the 18 reporting states. Eighty six percent of the crop is mature, 15 points ahead of average, so combines will continue roll, weather permitting.

Harvest in our territory also continues to run ahead of average, despite a lack of suitable field days in many areas.

State Percent Harvested 9/23 9/30 Average
Iowa 5 11 6
Kansas 30 47 39
Nebraska 43 65 42
South Dakota 5 11 7

 

Soybean harvest also advanced, reaching 23 percent complete in the 18 states. That is up 9 percentage points from the prior week and three ahead of average.

With 83 percent of beans dropping leaves (average, 75 percent), condition is rated unchanged at 68 percent good/excellent and 10 percent poor/very poor. Kansas and South Dakota have 58 percent in the top categories, Iowa 74 percent and Nebraska 85 percent.

Grain sorghum is running slightly behind average, with 34 percent harvested in the 11 reporting states (average is 36 percent); 62 percent mature (63 percent average) and 97 percent (2 points ahead of the 95 percent average). Its condition worsened one point at each end, with 54 percent good/average and 17 percent poor/very poor.

Winter wheat planting also jumped in the past week, from 28 percent complete to 43 percent, which is three points ahead of average. Progress in our states varies somewhat, with Nebraska slightly behind average:

State 9/23 Average
Kansas 41 32
Nebraska 72 74
South Dakota 67 65

 

Pasture and range conditions continue to improve, with 42 percent now rated good/excellent and 23 percent poor/very poor. Kansas is rated 53 percent good/excellent and 19 percent in the bottom categories.

Soil moisture in South Dakota continues to be short in some parts of the state:

  Very short Short Adequate Surplus
Topsoil moisture 8 20 65 7
Subsoil moisture 14 29 53 4

 

These two maps tell the story.

palmer drought index - Sept 2018

 

drought map 9-25-2018