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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

MFP Payments Will Bolster Income in a Challenging Year

We recently sponsored a webinar, “MFP 2019: From D.C. Policy to Farm Budgets,” featuring Agriculture Economic Insights co-founders Brent Gloy and David Widmar. Register for our next free webinar, ARC/PLC Selection, on August 22 at 12:30 p.m. CST. Highlights from MFP webinar are below or watch the full webinar.


How should you view your MFP payments?

Direct farm payments in 2019 could constitute one-fourth of net farm income, the highest proportion in a dozen years. The Market Facilitation Program (MFP) implemented to offset the impact of trade disputes to U.S. agriculture will provide more than $50 per acre in income to producers in parts of our territory (see map). Click to view Kansas county payment rates on agmanager.info.

A webinar hosted by Farm Credit Services of America and Frontier Farm Credit helps producers better understand the impact of this year’s direct payments – for both their operations and the industry as a whole. Presenters David Widmar and Brent Gloy, co-founders of Agricultural Economic Insights (aei), as well as Derek Mohr, a financial officer based in Perry, Iowa, spoke just hours after USDA announced details about the issuance of MFP payments.

The first payment, expected this summer, will be up to half the announced rate for a producer’s county. Payments can range from $15/acre to $150/acre. There is no guarantee rounds two and three will occur.

MFP payments 2019 - five states
The $14.5 billion earmarked for MFP payments is big, but no record. Direct payments were higher in inflation-adjusted dollars in each of several years between 1985 and 2005, the economists noted.

Real Direct US Farm Payments
Government payments issued in 2018 proved significant for grain-producing states. Overall net farm income for members of the Kansas Farm Management Association increased from 2017 to 2018, with 80 percent of the increase attributed to direct government payments (including MFP, ARC/PLC, disaster payments and conservation payments).

net farm income and govt payments 2014-2018
Gloy and Mohr advised producers to be strategic about how 2019 government payments fit into their financial planning.

“When MFP payments were announced last year, we counseled our customers to retain as much as they are able and use the money to replenish working capital. Liquidity is essential in this ag environment. We are recommending the same this year, especially for those who end up having a good year.”
– Derek Mohr, financial officer based in Perry, Iowa

He noted that crops in his area are looking good – and market volatility offered better-than-expected prices for corn and soybean.

“It is risky to make any plans based on government programs,” Gloy said. “I would not make tax or purchasing decisions driven by this income, for instance,” he said.

Watch the full half-hour webinar below.

Crop Progress and Condition Remain a Challenge

Crops continue to run well behind average in this week’s Crop Progress report from USDA.

Corn silking

Soybeans blooming

Sorghum headed

7/21/19

Average

7/21/19

Average

7/21/19

Average

Iowa

41

71

47

72

Kansas

54

74

28

52

7

13

Nebraska

40

70

46

71

17

22

South Dakota

9

50

45

65

9

31

18 States (sorghum,
6 states)

35

66

40

66

27

40

Only 5% of the corn in the 18 states has reached dough stage, compared with 10% on average for this point in the growing season. The same is true of soybean podset, which is at 7% in the 18 states vs. a 28% average. Iowa stands at only 4% (28% average); Kansas, 6% (15% average), Nebraska 8% (25%) and South Dakota 0% (21%). Sixteen percent of sorghum is coloring, compared with a 22%.

Corn condition worsened very slightly again, losing 1 percentage point from the prior week. At 57% good/excellent and 13% poor/very poor, it looks much worse than last year’s 75% in the top two categories and 9% in the bottom two.

Soybean condition is unchanged at 54% good/excellent and 12% poor/very poor compared with 70% and 8% at this time last year.

USDA’s condition charts below bring home just how concerning this year’s corn and soybean condition is compared with the prior four years. Grain Sorghum, on the other hand, is enjoying better ratings than recent past years. Please note they run one week behind; the data ends with July 14.

usda nass 2019 corn crop progress

usda nass 2019 soybeans crop progress

usda nass 2019 sorghum crop progress

Winter wheat

Winter wheat harvest has reached 69% in the 18 sates, 10 points behind average. Kansas is at 96% versus 98% average for this week; Nebraska is at only 33%, compared with a 76% average; and no harvest has been reported in South Dakota, while 42% usually is completed by this time.

Top view of agricultural parcels

Painfully Slow Crop Progress

Only 17% of corn is silking, compared with a five-year average of 42% in the 18 top states, USDA reports. Likewise, 22% of soybeans are blooming, against a 49% average. The states we serve are among those lagging well behind average.

 

Corn

Soybeans

 

July 14

Average

July 14

Average

Iowa

8

40

26

52

Kansas

36

56

15

35

Nebraska

11

42

28

54

South Dakota

0

21

32

50

18 States

17

42

22

49

 

Condition is virtually unchanged in the 18 states, with corn and soybeans each improving 1 percentage point on the upper end, to 58% and 54% good/excellent, respectively. No change was seen on the bottom end, with both corn and soybeans at 12% poor/very poor.

Grain sorghum is not as far behind, with 24% headed and 14% coloring in the six reported states. This compares with 31% and 19% averages. Almost three quarters of the crop is rated good/excellent and only 3% poor/very poor.

Spring wheat is 9 points behind average in heading, at 78%. Its condition is rated good/excellent on 76% of the acres (down from 78% a week earlier) and just 4% poor.

Winter wheat harvest in the 18 reported states also is still running late, with just 57% cut compared with 71% on average.

 

July 14

Average

Kansas

81

95

Nebraska

14

52

South Dakota

0

21

18 States

57

71

 

Early end to season?

Naturally, the late start to the spring crop season has raised concerns about whether there will be enough time for crops to mature. Feeding that concern are forecasts by several weather companies that a normal frost date could be the best-case scenario; early frost is a distinct possibility. That would be especially bad for the tardy crops in the northern reaches of the Corn Belt.

For instance, Drew Lerner, founder of World Weather Inc., said: “I do not see this growing season being extended, especially in the northern parts of the Midwest. The odds are really high that we’re going to end up with the northern areas finishing out early.” He bases that observation on a repeating sunspot cycle: In 1965 and 1983 saw early frosts and were tied to solar minimums, which we are approaching again. “Further research also reflects that anytime the solar minimums are at play and we have a slight cooler bias [which he predicts for this summer, despite current heat], we tend to verify with early frost or freezes.” Click to view full forecast on agweb.com.

In the same article, Farm Journal agronomist Ken Ferrie noted that an early frost/freeze can take 30-40 bu./acre off corn yield in some areas.

This worry is keeping December corn futures above $4.20/bu. and November beans above $8.90 – despite 2018/19 corn exports 11% below a year earlier at the same time into the marketing year. In its July supply/demand report, USDA reduced its projected exports for the third time, to 56 mmt, compared with 62 mmt in April. Yet exports are still running below the average weekly pace needed to reach USDA’s projection.

Meanwhile, because of logistics snarled by historic flooding, soybean exporters are struggling to deliver some 7 mmt of beans purchased by China before trade talks broke down last month. Shipments to all locations reached 38.5 million metric tons by July 4, compared with 50.3 mmt a year earlier. Outstanding sales, on the other hand, were 10 mmt, up from 7.2 mmt last year.

Beans not moved this summer could leave bins too full and clog delivery channels this fall for those lucky enough to have good crops. The challenging 2019 season hasn’t yet outlived that adjective.

Storm in the field

Still a Story of Moisture and Slow Crop Development

Excess soil moisture is abating – but slowly, and more moisture could be on the way. In the 48 contiguous states, surplus topsoil now is reported on 15% of the cropland. This is down 5 percentage points from last week, but still well above the 8% surplus in topsoil at this same point last year. Likewise, subsoil moisture is in surplus supply on 17% of the acres, down from 20% last week but up from only 6% last year.

The percentage of topsoil that is short or very short increased from 12% last week to 15% this week, compared with 30% last year; moisture shortage in subsoil creeped up from 12% last week to 13% this week, but is very favorable compared with last year’s 32%.

TOPSOIL

Surplus

Adequate

Short / very short

Iowa

16

80

4

Kansas

13

81

6

Nebraska

12

84

4

South Dakota

31

68

1

48 states

15

70

15

 

Crop development continues to lag, with only 30% of the corn silking and 10% of the soybeans blooming in the 18 reporting states. This compares with five-year averages of 22% and 32%.

Corn silkingweek of July 7

Corn silkingaverage

Beans bloomingweek of July 7

Beans bloomingaverage

Iowa

1

14

7

30

Kansas

19

38

7

20

Nebraska

2

16

10

37

South Dakota

0

6

3

31

48 states

8

22

10

32

 

Corn condition, rated at 57% good/excellent, was up one percentage point from last week and about what the trade looked for.  Soybeans’ good/excellent rating decreased one percentage point to 53%; the trade expected an increase of one to two points.

Grain sorghum heading is actually ahead of average in Nebraska (11% vs. 4%) and Kansas (5% vs. 4%). Meanwhile, South Dakota reports 0% is heading compared to a 15% average. Combined, the six reporting states stand at 22% heading, 2 points behind average.

Nebraska sorghum is rated 79% good/excellent. This is ahead of Kansas sorghum at 69% and South Dakota sorghum at 59%. For the six states, 83% is in the top categories. Very little is rated poor/very poor.

USDA’s supply and demand estimate on Thursday is the next indicator of where these crops may be headed, but it will be some time before there is any confidence in acreage or yield estimates. USDA is conducting another acreage survey this month as it attempts to get a handle on prevent-plant acres. Meanwhile, crop insurance claims are being logged as well.

Winter wheat

Wheat harvest is creeping along and has reached 47% in the 18 reporting states, well behind the 61% average. Kansas has cut 61% (average, 84%); Nebraska, 2% and South Dakota none (6%).

Long-range weather

The Climate Prediction Center’s 8 to 14 day outlooks indicate the likelihood is on the side of wetter and warmer than normal weather. The one-month outlook shrinks the area likely to have above-normal rainfall and suggests the center of the country will be cooler than usual.
Map source: Weather.gov

8-14 day outlook July 2019

1 month outlook July 2019