By Rep. Paul Anderson
An economist at a meeting of the Rural Finance Authority last week in St. Paul was fairly blunt when he said that times are changing in agriculture. Cash grain farming, which has been quite profitable the past few years, will be hard pressed to show positive numbers in the next few years, while livestock producers should see strong profits in the immediate future. The reason for the switch is falling grain prices that are lowering production costs for those who milk cows or feed livestock or poultry.
Statewide, 2012 was a record high year for farm income. Pushed up by the price of corn and soybeans, net farm profits soared for those who made their living by selling those commodities. Last year, with strong yields in the main part of the Corn Belt, supplies of corn and beans recovered and prices fell dramatically. From a high of nearly $8 per bushel, the price of corn has dropped to between $4 and $5, with shipping costs (basis) lowering that price to around $4 at the elevator.
“We are going back to narrow, or in some cases, negative margins for crop farming,” said University of Minnesota extension economist Dale Nordquist. “Smaller farms, especially those that no longer have any livestock, could have a difficult time competing in this environment.”
Plugging in numbers for an average crop farming operation show little margin for error. As an example, if a farmer produced 175 bushels of corn per acre and was able to sell that corn for $4.75 per bushel (about 75 cents above current new-crop prices), he would still be beneath the cost of production. The same is true of soybeans as a 46-bushel per acre yield, if it were sold for $12 a bushel, results in a negative return of $9 per acre, according to Nordquist’s figures.
“The coming year looks to be a correction year for crop farming,” he added, “and it may be difficult for some to adjust to more lean times.”
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It appears that prices for propane gas may have peaked, at least for the time being. With the new month, supplies of LP increased and they seem to be holding in most locations. The wild card in all this is, of course, the weather because if it stays cold and demand continues to be high we may have supply issues toward the end of the month again. Forecasts are calling for a much-anticipated warm-up later this week, with highs in the 20’s being cause for celebration!
The Chippewa Valley ethanol plant operating in Benson, Minn., held its annual meeting Feb. 8. General Manager Mike Jerke told those in attendance that the plant has been curtailed from using natural gas on many occasions so far this winter. “There are system-overload days and then there are critical-overload days when we get a phone call to make the switch from natural gas to propane.”
As a result, the company has used much more propane this winter than in past seasons. Jerke estimated the increased cost of using propane instead of natural gas during January alone was around $1 million.
An economist from Kansas State University, Dr. Art Barnaby, was the guest speaker at the CVAC annual meeting. He gave a presentation on the new farm bill, which was passed by Congress and signed into law this past week by President Obama. He called it “as good as we could expect” in these times of fiscal restraint in Washington.
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