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Farmers positive, cautious

By Staff | Mar 27, 2013

OMAHA (DTN) – Farmers and ranchers feel better about the 2012 season at year’s end than they did before planting, yet uncertainties from the ongoing drought blur their picture of the upcoming year, according to results of the latest DTN/The Progressive Farmer Agriculture Confidence Index.

The overall confidence index for crop and livestock producers is a positive 109.1, compared to 107.9 in August and 108.5 before planting the 2012 crop.

Each year, DTN surveys 500 farmers and ranchers and 100 agribusinesses before planting, before harvest and late in the year to take the pulse of the agriculture economy.

A value of 100 is considered neutral, while a higher value is optimistic and a value under 100 is pessimistic.

The survey asks individuals to rate their feelings about the present and expectations for the future. Those two ratings are averaged together for the overall confidence index.

Grain

Ratings from crop producers and ratings from livestock producers are also calculated separately. With crop producers logging a present index value of 138.6, they are more optimistic than livestock producers.

This crop producer value is up 16.8 points from the August index. Part of their optimism stems from the second-highest projected net farm income ever for 2012 at $114 billion, mostly because of high commodity prices and large crop insurance claims. However, crop producers are less optimistic about the future than they were in August, with that value falling 9.3 points to 89.4.

“You better believe I’m worried about moisture. We’re terrible dry,” said Dan Harney, who farms with his son near Woodward. Harney harvested an average crop this year, and if prices stay high, he expects his income will be about the same next year.

Aaron Augustine grows corn and soybeans under irrigation in Juniata, Neb., and he thinks next year’s income will be worse, but he joins Harney in naming water the biggest challenge farmers face in 2013.

“Last year, we started (planting) a month earlier than normal, and we had pretty decent subsoil moisture,” Augustine said. “That’s totally depleted now. We’ve got irrigation, but it will be pretty tough to have another year like this.”

“We need 18 to 20 inches to grow a crop, and we don’t get that much when it’s dry as it is,” Harney said, referring to weather patterns after a drought. Weather concerns compound other factors that are at the top of farmers’ minds this time of year – the battle for acres and price direction.

South America is expected to produce a large soybean crop, tilting the U.S. acreage race toward corn. Private analytical firm Informa Economics projects the U.S. will plant 99 million acres of corn and 79 million acres of soybeans.

“There’ll be a lot of corn acres planted,” said Augustine, “and I don’t think we’re going to maintain our prices,” which will contribute to a lower farm income next year.

Farmers also believe input prices will cut into next year’s profits. The survey shows that 44.6 percent of respondents think input prices will be worse 12 months from now and 40.7 percent believe prices will remain the same.

Jerry Hoffman, who farms in Raymond, Ohio, is concerned about how expensive fertilizers and chemicals are becoming.

“I’ve already priced out some 28 percent nitrogen and it’s pushing $400 per ton,” he said. “Potash and phosphate are actually down somewhat in our area, but nitrogen is going to offset that, and chemicals are probably higher.”

He also expects fuel prices to linger at their current high levels.

“I think fuel may stay at current prices, but I’ve also learned that, flat and simple, if the Mississippi River gets shut down because barges can’t move up and down, that will run prices up,” Hoffman said.

Livestock

Livestock producers feel better about their operation than they felt before harvest, but they still have concerns about the future. Their overall confidence score improved to 109.4 from 102.5 in the August survey.

Split out into present and future expectations, the livestock present index gained 14 points to 137, while expectations for the next year gained a slight 1.5 points to a still-pessimistic 90.5.

It’s been a tough year to raise cattle, said Taloga, Okla., farmer Dennis Fox. Fox is transitioning the business to his children, and they’re trying to hang on to their last 200 mother cows. It’s been a tough year to feed them, and with only 5 inches of rain this year, Fox said he is thankful for the wells and running water in his pastures.

Cattle prices have been good, but between buying hay at $325 per ton and needing a cake supplement, the farm is facing some tough times, Fox said.

“I think next year’s going to be about the same. We’re short of cows, and grains are not in real big stock, so I think it will run pretty well like it is now,” Fox said. “Don’t look for this drought to end anytime soon; I think it will drag on like it’s going now.”

Agribusiness

DTN also compiles an agribusiness confidence index and agribusiness owners appear more optimistic than they had been with an overall index of 100.7 compared to 93.3 in

August. However, agribusinesses were even more optimistic prior to 2012 planting at 111.1. Agribusinesses’ assessment of the present situation improved by 4 points, while their expectations for the future jumped by nearly 10 points.

A large majority of businesses rated 2012’s sales and profitability as normal or above normal and expect it to stay that way next year. Only 14 percent of the 100 agribusiness survey respondents said they think next year’s overall business prospects are worse.

Feed sales have slowed down at Visser Elevator Inc., in Sioux Center, as local livestock producers began culling cattle to stem the red ink induced by skyrocketing feed prices this summer, Garret Visser told DTN.

“We are just seeing that with high grain prices, they’re cutting back on livestock numbers, not being quite so aggressive,” Visser said. He’s expecting a little dip in business next year, but overall it should remain strong.

More than 60 percent of survey respondents said they anticipate sales of products and services to farmers to stay even with this year’s sales, which most classify as good. Profitability is expected to stay the same as now, and only 5.9 percent of respondents said current profitability was bad.

Bill Dale manages the Geneseo, Ill., branch of Farmers National Bank of Prophetstown. Seventy percent of his bank’s business is agriculture loans, and it’s been a good year for the banking business.

“We’re budgeting for another good year in 2013,” he said. “Farmers didn’t get hurt as bad as you’d think, given the drought. Eighty percent of our farmers, about the same nationally, carry federal crop insurance. That was a godsend for a lot of people.”

He expects some farmers’ finances will slip a little this year, but three years of strong income have built up a cushion for farmers to be able to handle a rough year. The outlook for farmers, and therefore the bank, is “pretty positive if the weather cooperates,” Dale said. “We’re concerned because we’re about 14 inches short on moisture right here, right now, so we’re not starting out next year with any kind of reserve.”

Dale said he sees prices remaining strong through the first quarter until planting season arrives. If weather cooperates, he sees prices drifting lower through harvest. But if there’s any kind of production hiccup, prices could be off to the races.

Based on the last three years of DTN survey data, businesses tend to rate their present situation as the most positive at the end of the year, perhaps because they have a better picture of the year’s sales and profitability.

Expectations are more fluid, however. Visser said it’s always difficult to judge what the year ahead holds, especially with the end of the growing season months away.

“You always stay optimistic, you have to,” he said.

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