homepage logo

Low prices will continue

By Staff | Dec 11, 2015

DAVID KRUSE, president of Commstock Investments, in Royal, outlines Dec. 3 for an estimated 100 farmers that as bad as margins and export woes are now, they can get worse. He said eventually that world’s food demand will exceed current supply and prices will recover; however, it will take some years to happen.



FORT DODGE – If they want to stay on the farm and in the farming business, farmers must be more proactive to:

  • Be vigilant in marketing their commodity grains.
  • Help their own corn-price cause by burning higher ethanol blends in their vehicles.
  • Avoid dipping deeper into debt.

According to Dr. Elwynn Taylor and David Kruse, there will be plenty to be proactive about in 2016 and beyond.

These were the overriding themes from Dec. 3’s speakers at the Farm News Ag Show at Iowa Central Community College in Fort Dodge.

Iowa State University climatologist Elwynn Taylor points to several features of the El Nino during his presentation on long-term dry and wet cycles Thursday morning at the 14th annual Farm News Ag Show on the Iowa Central Community College East Campus.

Taylor, Iowa State University’s climatologist, told more than 100 farmers that if the current El Nino weather pattern breaks up in March, they can reasonably expect a 1988-like drought year, with a 50 to 70 percent chance of harvesting below-trend yields.

Kruse, president of Commstock Investments, in Royal, told the same crowd that ag debt-to-asset ratio, considered tollerable at 4:1, has increased to 6:3. It’s not as high as the double-digit 1980 farm crisis, but it is a red flag waving in days where commodity prices hover below the cost of production.

1988-like drought

Taylor described the El Nino/La Nina weather patterns as a pendulum that swings wide in one direction and about equally as far in the next.

He said the current El Nino pattern, which is ag-friendly in the Corn Belt, is indicating that it has peaked. He said this is the third strongest El Nino since records have been kept starting in the 1950s.

If the El Nino breaks in March, farmers can expect a 1988-like drought, during which rain stopped in early spring and did not restart until July.

“By then it was too late,” he said.

He also showed forecasts that indicated the Corn Belt can expect above-average temperatures for much of the remainder of the winter.

The current overall weather pattern, he said, is in the sixth year of a 25-year cycle of volatile yields.

In only a few of those growing seasons can farmers expect to harvest trendline yields, while the vast majority will be below trend. Four of the last six U.S. corn yields have been below trend.

Taylor recommended that farmers be constantly vigilant in marketing their grain, understanding the percentage of their corn that is at risk of losing or gaining value at any time and market accordingly.

He said only 5 percent of all farmers market their grain that closely.

Ag’s hunger games

In a presentation titled, “Running the Gauntlet: Ag’s Hunger Games,” Kruse told farmers that several barriers stand between them and profitability.

These include:

  • Cash rents: Rates are too high. In August, ISU listed the average per-acre cropland cash rent as averaging $250 across the state. However, $200 is considered supportable, Kruse said. He recommended that if farmers cannot renegotiate to a profitable rate, they should reject it.

“We used to think that if I don’t rent it, someone else will,” Kruse said. “But I don’t think that’s the case anymore.” He said there is less cash liquidity in farm accounts than there were a few years ago.

If farmers walk away from high contracts, it’ll send a message to landlords that they need to rethink.

  • Interest rates: Refinancing is always an option, but current rates are not excessive and not likely to raise too much in the near future.
  • Strong dollar: Kruse said the strong dollar cuts their buying power, while at the same time causes U.S. ag export customers to look elsewhere for cheaper-priced commodities.

China, the top soybean trading partner with the U.S. is looking for soybeans in other places. Japan, the top pork trading partner with the U.S. is looking for pork elsewhere, Kruse said.

With interest rates being lowered in Europe to minus-levels, he said he expects international investments will continue to inflate the U.S. dollar.

“I’m afraid this can get worse,” he said.

1). U.S. grain balance sheets: Kruse said the November U.S. Department of Agriculture supply and demand reports show growing quantities of corn and soybeans, and expects that January’s final report for 2015 will grow both tallies.

“If the endusers were making money,” Kruse said, “I’d be more encouraged because they’d do more of what their doing” and chewing through the growing supply of grain more quickly. “But they aren’t making money.”

2). Grain competition: The price of soybeans in Brazil is so high, Kruse said, it equates in dollars to more than $15 per bushel.

“People ask me when Brazil will cut back on soybeans and I tell them, they aren’t,” Kruse said. “Soybeans are at a great price and they’re going to plant even more.

“There’s no room for optimism. The U.S. is not competitive with South American currency.”

3). Crude oil: As the price per barrel continues to fall, the discount for ethanol-blended gas grows less. He said ethanol margins are negative now and lower crude prices will slow ethanol production and add to the carryover balance next August.

Eventually, he said, the world’s food demand will get ahead of the food supply and commodity prices will rise again.

“But that’s going to take a long time,” Kruse said.

Please Enter Your Facebook App ID. Required for FB Comments. Click here for FB Comments Settings page