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Pro Ag: A year later, not much has changed

By Staff | Nov 27, 2016

“Supply is coming in from everywhere; even Ukraine (corn) is up 15 percent as they switched away from wheat for corn and soybeans.” —Chad Hart ISU?Extension ag markets specialist

FORT DODGE – It’s been a year since the last Pro Ag meeting was held in Fort Dodge, but the messages remain the same – farmland values will drop, grain prices will remain low and successful farmers are the ones marketing smarter.

Iowa State University Extension in Webster County hosted the 2016 Pro Ag meeting Nov. 17 with three speakers offering their crystal ball estimations for ag lenders, farm managers, landlords and farmers, and the only positive in the night was a catered evening meal.

Farm values

Wendong Zhang, an ISU Extension ag economist, said farmland values are expected to fall for the third consecutive year, possibly by 5 to 6 percent.

Wendong, who is touted as the new Mike Duffy and will host ISU’s 2016 Farmland Values Survey report in December, said the differences in the reporting districts’ farmland values is due to a diversity of income streams within the districts.

Wendong, who grew up in Shandong Province in northeast China, said that as of Nov. 15, farmland values had dropped by 3.9 percent during the previous 12 months, and expected at least another 1 percent to fall by December.

On Nov. 15, he said, the average farmland value was listed at $7,633 per acre. At the same time in 2010, the average high value farmland was almost $9,000 per acre.

The only other time there was a three-year decline in farmland in the past 60 years was during the 1980s farm crisis, which noted five consecutive years.

However, a farm crisis-like depression in ag with widespread farm failures is not expected, Wendong told the audience, under present economic conditions.

Nevertheless, he said farmers “who built houses too big or took too many vacations” during the years of record-high grain prices, rather than pay down debt, add to savings or reinvest in the farming operation, may be in for big struggles to remain in business.

Looking ahead, ISU’s Center for Agriculture and Rural Development thinks farmland values will increase by $5,000 per acre within the next 24 years. That would put the state’s average per acre value at $12,866 by 2040.

Record demand

Falling land values are linked to the value of the commodities they produce, and among all Midwest commodity products, there is little or no profitability.

“This is the same talk for the third straight year,” said Chad Hart, an ISU Extension market specialist. “Demand is really good, but supplies keep going up.”

“In reality this is a supply problem and it is likely to continue. All commodities are the same, but beans are in really bad shape.”

Using U.S. Department of Agriculture estimates, 2016’s soybean supply was at record 4.5 billion bushels, with demand claiming 4.1 bb, leaving a 480 million bushel carry-out in August 2017.

USDA estimates the average price for soybeans will be $9.20 per bushel.

For corn, USDA estimated supply tallied a record 17 billion bushels, with demand chewing up 14.6 bb, leaving 2.4 bb to carry into the next harvest.

USDA estimates the average corn price during this marketing year will be $3.30 per bushel.

Hart said he expects the number of acres planted to corn will fall slightly, but increasing trendline yields will more than make up the difference in grain supply.

“Supply is coming in from everywhere,” Hart said, concerning world supply; “even Ukraine (corn) is up 15 percent as they switched away from wheat for corn and soybeans.”

The primary growth has come from seed genetics which allow more plants per acre.

“In ag, we can argue all day why these things are happening,” Hart said, “but the need right now is to adjust.”

Better marketing

Concerning what makes successful farmers stand out among those who struggle during down markets, those revelations were no surprise either.

Successful farmers are doing a better job in marketing, keeping their yields high, while controlling costs.

Nevertheless, said Kelvin Leibold, an ISU Extension farm management specialist, success is not listed by profitability, but maintaining liquidity. Even farmers who “are doing better” than others, are still falling behind in their profitability picture, just not as quickly as others.

On average, in 2015, each Iowa farm burned through $92,000 of working capital. And yet, 65 percent maintained their liquidity and solvency ratings.

“We have a profit problem,” Leibold said, “that is becoming a cash flow problem, that is becoming a financial profile problem.”

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