Friday February 9 Ag News

Agricultural Lending Increases, As Do Interest Expenses for Farmers
Cortney Cowley, Economist, Federal Reserve Bank, Kansas City
John McCoy, Research Associate, Federal Reserve Bank, Kansas City

Lending at agricultural banks increased sharply in the fourth quarter, after appearing to stabilize in previous quarters. Large loans drove the increase in farm lending, which may heighten concerns about cash flow in 2018 as interest rates have continued to rise steadily. At the same time, farm income has stabilized somewhat, but at a low level. And while the farm economy has remained relatively steady, further increases in loan obligations could stretch borrowers’ repayment capacity in the coming year.

Fourth-Quarter Survey of Terms of Lending to Farmers
Farm lending at commercial banks increased in the fourth quarter. Demand for all types of loans except farm machinery and equipment increased significantly from a year ago.  Current operating expenses continued to comprise the majority of loan originations, and loans for livestock made up 27 percent of all new non-real estate farm loans. The total value of operating loans and livestock loans increased almost 50 percent from the fourth quarter of 2016, but was still below 2014 and 2015 levels.

Large loans continued to account for the majority of farm loan volumes at commercial banks. With production costs remaining relatively high, loans of $100,000 or more accounted for more than 70 percent of total loan volumes. Although the share of the largest loans was down slightly from 2014 and 2015, it remained high compared to previous decades. In addition, similar to 2014-15, large loans were the primary driver of new loans in the fourth quarter.

Alongside an increase in the share of large loans, the average size of farm operating loans continued to grow. After declining in 2016, the average size of farm operating loans grew in every quarter of 2017. In the fourth quarter of 2017, the average size of farm operating loans nearly matched the previous peak in the fourth quarter of 2015.

The average size of farm loans at commercial banks increased alongside rising interest rates. Interest rates on all types of farm loans increased in the fourth quarter, continuing a trend of recent years. Rates on loans used to finance current operating expenses increased nearly a full percent, from 3.7 percent in 2016 to 4.5 percent in the fourth quarter of 2017. In addition, for the first time since 2014, more loans were issued with interest rates greater than 6 percent than loans with rates of 3 percent or less.

The combination of larger loans and higher interest rates has, in general, increased farmers’ loan payments. According to the U.S. Department of Agriculture, interest expenses on farm loans have risen steadily since 2013.  In fact, in 2017 real estate interest expenses were expected to be the highest since 1989, and non-real estate interest expenses were 23 percent higher than in 2013.

Third Quarter Call Report Data
According to commercial bank call report data, total farm debt outstanding increased slightly in the third quarter of 2017 from the previous year.  This slight uptick can be attributed to both real estate and non-real estate debt. Despite the recent uptick, change in outstanding real estate debt is down slightly from its most recent peak. Non-real estate debt, however, after a couple of quarters of negative growth, increased slightly in the third quarter.

Despite the slight uptick in outstanding debt, farm loan delinquency rates have remained low. Delinquency rates on farm loans for real estate and non-real estate stayed near 2 percent in the third quarter of 2017. Rates for both types of farm loans remained below delinquency rates for all commercial bank loans.

In addition to low delinquency rates, the share of nonperforming loans also remained low at most agricultural banks. Although the percentage of banks with more than 5 percent of nonperforming loans edged up slightly, almost all agricultural banks had fewer than 5 percent of their total loans listed as nonperforming.

Farm loan delinquencies and nonperforming loans have remained low, but liquidity at agricultural banks has continued to tighten. Average loan-to-deposit ratios continued to increase, albeit gradually, to 80 percent in the third quarter. Despite the gradual increase, the ratio is nearing the level of the most recent peak in 2009.

Third Quarter Regional Agricultural Data
Similar to survey data of commercial banks, regional Federal Reserve surveys of agricultural credit conditions showed stronger demand for farm loans. Demand for non-real estate farm loans increased in the third quarter from a year ago in most Federal Reserve Districts, with the strongest increases in the Kansas City and Minneapolis Districts. Growth in loan demand in the third quarter was not as high in most Districts compared to previous years, and all Districts except Dallas indicated higher demand for farm loans.

Demand for farm loan renewals and extensions also rose in every District. In the Chicago, Kansas City and Minneapolis Districts, only 1 percent of bankers reported lower renewals and extensions. All other bankers reported that renewals and extensions were higher or unchanged. In the Dallas and St. Louis Districts, more than 80 percent of survey respondents reported that renewals and extensions were unchanged from the third quarter in 2016. Loan repayment rates also continued to decline in each reporting District.

Despite continued moderation in credit conditions, farmland values generally have remained stable. In the Corn Belt and Southern Plains states, farmland values increased slightly or remained steady compared with a year ago. In the mid- to upper-Plains states, farmland values declined slightly, most notably in Nebraska, where farmland values fell 6 percent from the third quarter of 2016.

Conclusion
Farm lending was boosted by larger-sized loans in the fourth quarter even as interest rates continued to rise. Although overall leverage in the agricultural sector has remained relatively modest, the recent uptick in the average size of farm loans at a time of rising interest rates suggests that leverage and liquidity may remain a concern in 2018. Still, delinquency rates have remained low and the value of farm real estate has continued to support farm sector balance sheets as spring planting decisions approach.



Feb. 23 Workshop to Focus on Crop Insurance, Farm Bill 
Brandy VanDeWalle - Extension Educator

Today’s farmers and ranchers not only have to be efficient with production practices, but also need to be well-informed about risk management and the economics of their business. That's why crop insurance, the farm bill and other farm policy issues will be the focus of the next Farmers and Ranchers College program. It will be held Feb. 23 at the Fillmore County Fairgrounds in Geneva. The workshop will start at 10 a.m. with registration at 9:45 and wrap-up at 3 p.m.

Speakers for the program will include:
Steve Johnson, Iowa State University Extension and Outreach farm and ag business management specialist in central Iowa; Brad Lubben, Nebraska Extension policy specialist; and Austin Duerfeldt, Nebraska Extension southeast regional ag economist.

Johnson specializes in education related to government farm programs, crop insurance, crop marketing, grain contracts, farmland leasing and other crop risk management strategies and uses the ISU Ag Decision Maker and Polk County Extension Farm Management websites in his training. He will highlight the 2018 crop supply/demand and cash price outlook, 2018 crop cost estimates and planted acreage; and the weather outlook. He'll also highlight seasonal trends for new crop futures and marketing strategies and tools to implement new crop marketing plans.

In addition to extension programming, Lubben teaches agricultural economics courses on campus and is the director for the North Central Extension Risk Management Education Center. His integrated research, extension, and teaching interests include agricultural policy, trade policy, food policy, conservation and environmental policy and public policy. His presentation will focus on how the current ARC and PLC programs have provided substantial but declining support for Nebraska producers and the changes that lie ahead for these programs. He will discuss the new farm bill, due to be written in 2018, and other farm policy issues under debate in Congress.

Duerfeldt specializes in farm accounting, financial analysis, and taxation. As the Nebraska Extension southeast regional ag economist, he provides educational training on grain marketing, cash rent, land valuation, financial analysis, taxes, and negotiations. He will talk about the 2017 Tax Cuts and Jobs Act (Farm Edition) in regards to S199A, depreciation, COOPs and other important factors that impact farmers and ranchers.

Ryne Norton, Fillmore County Farm Service Agency director, will provide local FSA updates and Brandy VanDeWalle, Nebraska Extension educator, will discuss farm financial success and ways to cope during difficult times. She'll share resources for handling stress in challenging times.

Due to the generous contributions of many businesses and organizations, the program is free. Registration by Feb. 16 would be appreciated to provide an accurate meal count. To register call the Fillmore County Extension office at (402) 759-3712 or email VanDeWalle at brandy.vandewalle@unl.edu to register.



Managing Risk with Crop Insurance Workshop 

Those looking to improve their understanding of agricultural production risks and crop insurance are encouraged to attend an upcoming crop insurance workshop hosted by the University of Nebraska–Lincoln. University experts, industry representatives, and growers will lead the workshop Feb. 26 at College Park, 3184 US-34 in Grand Island.

Crop insurance represents the cornerstone of risk management due to its ability to transfer large amounts of financial risk from producers to someone else. The workshop will provide guidance on how to select a crop insurance contract and how this decision interacts with other aspects of a farming operation.

“Understanding crop insurance can give producers a financial advantage,” said Cory Walters, assistant professor in the Department of Agricultural Economics at Nebraska. “Failure to understand how it works can leave producers financially stressed and at a financial disadvantage.”

Walters will kick off the event with an overview of crop insurance in Nebraska. He will also share results of recent crop insurance research conducted at the university. Since crop insurance is closely tied to weather, Eric Hunt, Atmospheric and Environmental Research, Inc. staff scientist, will have an outlook of the upcoming season and what it may mean for your operation. Crop insurance industry representatives will discuss crop insurance contracts, and a panel of Nebraska farmers will share how they manage risk with crop insurance.

“The goal of this workshop is to have a discussion on selecting the right crop insurance products for an individual’s unique situation,” said Walters.

The workshop will start at 8:45 a.m. and end at 2:30 p.m.

The registration cost is $35 before Feb. 20 and $40 afterward. Lunch is included in the registration. To register, visit agecon.unl.edu/cropinsurance. Paper registration forms can be requested by calling Sandy Sterkel at 402-472-1742.

For questions regarding the workshop, contact Cory Walters at 402-472-0366 or cwalters7@unl.edu.



Characteristics of Financially Resilient Farms 
Robert Tigner - Agricultural Systems Economist Educator

During the last 10 years, the economic environment that US farms have faced has been extremely variable. During the 2009-2012 period incomes and net returns increased and in 2013-14, they peaked. Production costs rose with the increasing income and began to decline in 2013, however, not as rapidly as revenue declined. Farm profitability declined due to the narrowing margins for grain production. The question for farmers is “What management strategies will consistently produce profits?”

Factors of Success Despite Downturn
First let’s look at what works for some real farms. Nicholas Paulson and Dale Lattz, agricultural economists at the University of Illinois, have used Illinois farm data to separate Illinois farms into profitability thirds, as well as time periods 2010-12 (higher prices) and 2014-16 (lower prices). They found a few management strategies that consistently produced higher returns.

The third with the highest profit farms produced more gross revenue per acre than either of the other two groups through a combination of slightly higher yields and price per bushel for corn and soybeans. Both yields and prices were 5-7% higher. None of the farms strove for the highest possible yield, but rather the most profitable yield. During 2010-12 the top third farm group had $112 more return to land and operator than the middle third group of farms. During that period high profit farms had nearly the same per-acre direct costs of production as the middle third farms, but in 2014-16 their costs were $6 less. High profit farms had lower per-acre machinery, depreciation, and repair costs, $17 lower in 2010-12 and $10 lower in 2014-2016. The top-third high profit farms had lower per-acre overhead costs too, $8 less in 2010-12 and $18 less in 2012-16.

The relative importance of revenue versus costs for higher profits also varied during the two time periods. For farms in the higher profit third higher revenues contributed more during 2010-2012 and lower costs contributed more to higher returns in 2014-16 compared to the other farms in the comparison.

Thus the “Take Home Message” from this data set is twofold. Capturing higher revenue during times of rising commodity prices is more important than managing costs. However, farm operators must not lock in costs during these good times that can’t be reduced when prices decline. During times of declining commodity prices, controlling costs is more important.
Steps to Resiliency

Now that we are in a period of tight profits and cash flow, here are some suggestions for managing in this tough economic environment:

1)    Control costs. Evaluate inputs to ensure there is a positive return to their use. For instance, soybean seeding rates might be reduced with little change in yield, but at a much lower cost. Review nitrogen (N) rates to ensure you are using the correct rates and not adding economically unbeneficial N. Look for good feed sources that are less costly but provide the same nutrients. Can you work with neighbors to jointly buy inputs such as seed to get bigger discounts.

2)    Renegotiate cash rent rates. This can be hard to do since Nebraska property taxes have risen recently, but one way to manage this negotiation is to include flexible lease provisions in case of high yields or prices.

3)    Reduce capital spending. Most farmers have already done this, but if the purchase reduces costs and cash flow, it may be a good purchase. Otherwise, repair machinery.

4)    Reduce family living costs. Family living costs rose during the good times in ag, but now family budgets should be reviewed. The nice-to-have items will likely be dropped in favor of the must-haves such as health insurance. Review cell phone plans, satellite TV, the Sirius/XM subscriptions, and any automatic payments. Do not use credit cards for family living. Credit card use could lead to even more debt that can’t be serviced.

5)    Increase revenues. If you have unused or minimal use assets, such as the extra semi, consider renting them to someone else. Make sure you capture all variable costs first and some or all fixed costs of the asset. Have a crop marketing plan that considers today’s marketing environment and your cash flow needs. Execute the plan.

6)    Increase non-farm income. Many spouses already work off-farm to get benefits and health insurance, but everyone in the farm operation may have to do so too. Consider what your skills are and whether the non-farm income will reduce farm income. You may find that planting is delayed, which could be more costly than the additional non-farm income. Can a side business be added? Maybe you have a hobby that can produce income.

These suggestions could take some very serious conversations and open communication within farm families, but the viability of the farm is at stake.



NCTA and Mississippi State announce poultry partnership

Leaders from the Nebraska College of Technical Agriculture and Mississippi State University signed a cooperative agreement Wednesday [Feb. 7] designed to train workforce entrants for the midwestern state’s burgeoning poultry industry.    

The newly developed program includes three semesters at NCTA in Curtis, Nebraska and a semester at MSU’s Department of Poultry Science. Upon program completion, students will earn an Associate of Applied Science in Agricultural Production Systems, with a concentration in poultry science.

There are currently no undergraduate poultry science degree programs in Nebraska. Mississippi State’s program is one of only six nationally that offers undergraduate and graduate degrees in the discipline. 

Ron Rosati, dean of the Nebraska two-year college, chose to partner with MSU’s Department of Poultry Science because of its reputation for training leaders in agriculture.

“The quality of the teaching, research and extension programs in poultry science at Mississippi State are well known throughout the country,” Rosati said. “The MSU program offers hands-on learning in facilities that are similar to those found in a commercial setting. This partnership will give our students the tools they need to succeed in Nebraska’s growing poultry industry.”

Nebraska currently produces about one million broilers per year. At full operation, the industry expects expansion will allow production of more than 100 million broilers per year. In Mississippi, poultry is the No. 1 commodity with more than 746 million broilers produced in 2017 across 1,430 farms. The production value of the industry in the Magnolia State tops $2.8 billion.

Mary Beck, poultry science department head, spent 25 years as a faculty member at the University of Nebraska prior to taking the helm at Mississippi State. Her relationship with NCTA, a campus in the University of Nebraska system, helped facilitate the agreement.

“It is exciting to be able to partner with a college in Nebraska to help train the state’s workforce in poultry and expand agriculture in a place where I spent much of my career,” Beck said.  “This is a unique partnership that should be mutually beneficial to our two institutions and states.”

Nebraska is seeing expansion with new facilities at Grand Island and Fremont, in addition to existing operations in eastern and central Nebraska.  The industry has called for educational programs which offer college degrees and technical expertise suited for commercial poultry operations.

“The new NCTA-MSU partnership is ideal for meeting demands for a well-educated and skilled workforce in Nebraska’s expanding poultry industry,” said Steve Wellman, director of the Nebraska Department of Agriculture.

Upon completion of the 77-hour program, students can enter the workforce in management positions throughout the industry. Students also have the option to further their education at the University of Nebraska-Lincoln animal science department or in Mississippi State’s poultry science department.

Judy Bonner, Mississippi State provost and executive vice president, spoke to the benefits of the unique partnership.

“We have developed a number of innovative partnerships with Mississippi community colleges and are excited to partner with the state of Nebraska to help students earn a degree and enter the workforce as leaders in the industry there,” Bonner said. “This partnership further expands MSU’s position as an academic leader in poultry science at the national level while providing students an invaluable opportunity to pursue a career in a growing industry."

The partnership provides students access to a cost-effective program with low tuition and quality academics at NCTA and resident tuition at Mississippi State, Rosati said. Current tuition at NCTA is $127.50 per credit hour.

Slated to begin in fall 2018, program details may be found at https://ncta.unl.edu/poultry-program or from Professor Doug Smith, chair of the NCTA Animal Science and Agricultural Education Division at 1-800-3-CURTIS or at doug.smith@unl.edu.  Review MSU’s program at www.poultry.msstate.edu.



Livestock Iowa Master Matrix Adopted in 89 Counties

In January, 89 of 99 Iowa counties notified DNR that they plan to evaluate construction permit applications and proposed locations for animal confinements by using the master matrix. With 10 exceptions, all counties will use the matrix during the next 12 months. The following counties will not use the matrix in 2018: Davis, Des Moines, Keokuk, Lee, Mahaska, Osceola, Plymouth, Wapello, Warren and Washington.

Animal producers in these counties must meet more requirements than other confinement producers who need a construction permit. Producers qualify by choosing a site and using practices that reduce impacts on air, water and the community.

Counties that adopt the master matrix can provide more input to producers on site selection, and proposed structures and facility management. Participating counties score each master matrix submitted in their county and can recommend to approve or deny the construction permit. They can also join in DNR visits to a proposed confinement site.

While all counties may submit comments to DNR during the permitting process, counties that adopt the master matrix can also appeal a preliminary permit to the state Environmental Protection Commission.

The deadline for enrolling in the program is Jan. 31 of each year.

Find more information, including a map of participating counties by searching for Master Matrix at www.iowadnr.gov/afo or directly on the master matrix web page.

The master matrix applies to producers who must get a construction permit to build, expand or modify a totally roofed facility. Generally, these are confinement feeding operations with at least 2,500 finishing hogs, 1,000 beef cattle or 715 mature dairy cows.



Drop in Land and Some Input Costs Expected in 2018

Land and input costs for corn and soybean production are expected to decline in 2018, according to research conducted by Iowa State University Extension and Outreach.

The research, released in ISU Extension and Outreach publication “Estimated Costs of Crop Production in Iowa – 2018” (FM 1712), shows soybean costs falling by $10 per acre from 2017 levels and corn production dropping by $5 per acre. All cost estimates in the report look at average cost for farms in Iowa.

The total cost per bushel of soybeans is projected at $9.46 for the herbicide tolerant variety and $9.41 for non-herbicide tolerant beans, at an expected yield of 50 bushels per acre. The total cost per bushel of corn following soybeans is $3.48 (180 bushels per acre) and $4.07 for corn following corn (165 bushels per acre).

The drop in prices is attributed to a moderate decline in herbicide, fertilizer, lime and seed prices, as well as lower expected cash rent costs. These drops, however, are barely expected to offset increases in machinery, labor, insecticide and crop insurance costs. This is especially true for corn as diesel and gas prices are expected to increase fuel costs by $13-14 per acre.

“This year appears to be a mix of good news and bad news,” said Alejandro Plastina, assistant professor and extension economist at Iowa State University. “The cost of some inputs are going down while labor and fuel costs are going up. The net result is a very small percent reduction in costs for 2018.”

Cost of production has declined significantly since 2012, with total corn costs dropping 19 percent and soybean production falling 14 percent. These reductions in cost, however, are dwarfed by falling prices. The price per bushel of corn is down 53 percent since 2012 and soybean prices have dropped 35 percent.

Stagnant prices and continued tight margins make it even more critical for farmers to know their breakeven price and to have a sound marketing strategy, Plastina said.

“In order for this information to be useful these budgets need to be adapted to the real costs experienced by an operation,” Plastina said. “An accurate breakeven price is based on both costs and expected yields. This is a critical piece of information to have in order to create a marketing strategy.”

Ag Decision Maker file A1-20 has Decision Tools that can help farmers better calculate their operation’s cost of production. Since actual costs vary considerably from farm to farm, the editable spreadsheets can aid them in understanding their crop production budgets for 2018.

“If farmers don’t know their breakeven price then it is really hard for them to determine when to sell their crops,” Plastina said. “Everyone is seeking a higher sales price and if you don’t know when that price is enough to cover costs, then you are always waiting for the next round of price increases to come, which might not happen and you’ve missed an opportunity to sell for a price that will cover costs.”



Iowa Corn Technology Commercialization Manager Named to North American Plant Phenotyping Network Executive Board

Members of the North American Plant Phenotyping Network (NAPPN), an association representing major plant phenotyping centers across the continent, have elected Iowa Corn Technology Commercialization Manager David Ertl to the Executive Board. The goal of the NAPPN is to increase the visibility and impact of plant phenotyping and facilitate communication and cooperation within the plant phenotyping and related communities. Plant phenotyping is the process of measuring and analyzing observable plant characteristics. The organization represents scientists and researchers in the rapidly evolving area of plant phenomics, formed as a regional partner of the International Plant Phenotyping Network (IPPN). By bringing together a diverse group of stakeholders within the scientific community, the Network help farmers advance future corn traits and those of other crops.     

“I am honored to be one of three individuals representing industry elected to the North American Plant Phenotyping Network Executive Board,” said Ertl. “My highest priorities will be finding additional funding for expanding efforts of phenomics initiatives and to collaborate with other crops and to help broaden the Network to collaborate across disciplines and crops.” Ertl also serves on the Executive Committee for the Genomes to Fields Initiative, a public-private partnership building on publicly funded corn genome sequencing projects to identify key corn genetic traits that impact yield and the plant’s ability to respond to environmental conditions.

An important part of NAPPN mission is to broaden the phenotyping community across traditional disciplinary boundaries and promote best scientific practices through encouraging collaboration between this community and different stakeholders from academia, industry, and the public sector.

NAPPN will hold its next General Assembly at Phenome 2018 on February 14-17 in Tucson where the ad hoc Board will pass the torch to the newly elected Executive Board, who will outline next steps for the organization, including a discussion of the network’s provisional bylaws and a vision for the future.

Ertl has been on staff at Iowa Corn since 2011 where he manages contract research projects in both the public and private sectors. Projects include the areas of biotechnology trait development, phenotyping, genetics and genomics, corn production, biomass production, biofuels, biobased chemicals, and startup business ventures.

Ertl’s responsibilities include developing new technology, obtaining intellectual property (patents) and out-licensing technology to commercial providers. Specific projects include developing new traits in the areas of nutrient use efficiency, and involvement with Genomes to Fields.

Previously, Ertl worked at DuPont Pioneer as a corn breeder and later as a research director. During his time there, he helped develop commercial corn hybrids and is an inventor on 15 patents. David holds a Ph.D. in plant breeding from Iowa State University.



NPPC LOOKS TO EXPAND TRADE WITH SOUTH AFRICA

The National Pork Producers Council this week submitted comments as part of the U.S. International Trade Commission’s (USITC) investigation of U.S. trade with sub-Saharan Africa. Last November, following the receipt of a letter from U.S. Trade Representative Robert Lighthizer, USITC launched its investigation into expanding trade in the region. The investigation will examine opportunities for trade expansion between the United States and sub-Saharan Africa.

The U.S. pork industry has seen increased pork sales with South Africa following the country’s decision to partially lift its ban on pork imports. During the first nine months of 2017, U.S. sales to the nation reached 946 metric tons, a 200 percent increase from 2016. South Africa restricts the import of pork from countries with Porcine Reproductive and Respiratory Syndrome (PRRS), though the World Health Organization has claimed that trade does not increase the risk of transmitting the disease. The nation also requires non-frozen pork imports to be tested for trichinae, though the parasite is not present in commercial pork.

NPPC supports lifting the trade restrictions imposed by South Africa, which would support the U.S. pork industry’s efforts to expand export markets throughout the region. The USITC is looking to deliver its final report to the USTR by April 30.



USDA to Survey Farmers Planting Intentions for 2018

As the 2018 crop production season begins, the U.S. Department of Agriculture’s National Agricultural Statistics Service (NASS) will contact producers nationwide to determine their plans for the upcoming growing season.

NASS will mail the survey questionnaire in February, asking producers to provide information about the types of crops they intend to plant in 2018, how many acres they intend to plant, and the amounts of grain and oilseed they store on their farms. NASS encourages producers to respond online or by mail. Those producers who do not respond by the deadline may be contacted for a telephone or personal interview.

NASS safeguards the privacy of all respondents and publishes only aggregate data, ensuring that no individual operation or producer can be identified.

Survey results will be published in the Prospective Plantings and quarterly Grain Stocks report to be released on March 29.