Agricultural conditions softened since the Federal Reserve System issued its last Beige Book in January. The latest issue expresses a number of concerns about the economic state of agriculture. “Severe winter weather affected several Districts with some crop damage being reported by Richmond and Atlanta, while Chicago noted disruptions in the flow of agricultural products. Both Kansas City and Dallas cited dry conditions adversely affecting wheat crops, while San Francisco reported concerns about water shortages and water costs. Several Districts noted falling feed prices had a positive effect for cattle and hog producers. Kansas City indicated farmland price appreciation moderated from the rapid pace seen in the past few years. Crop prices received in January by farmers fell from a year earlier for corn, wheat, soybeans, hogs, and chickens; prices increased for cotton, rice, oranges, cattle, milk, eggs, and turkeys.”
The truth is known! The jig is up! Since 2006 you have had a secret relationship with your machinery dealer. You have acquired an expensive addiction to iron with new paint on it. In the past 7 years the amount of money you have spent on power has doubled. Why is that? Come clean now! “Because you could?” Oh. OK. Well, there must be another reason; come on, what it is? “Because the government wanted you to?” Oh, well, that seems to clear up things. You’re free to go, just watch yourself, now.
Your February farm checklist should include a visit with your crop insurance agent. He or she will be happy to see you, and may have the coffee pot on. Don’t wait until March 3rd rolls around and USDA announces the spring guarantees for Revenue Protection policies on corn and soybeans. You already have an idea that soybeans will be just over $11 and corn will be around $4.50. Nothing can be done about the lower guarantee levels compared to past years, but keep in mind guarantees have been lower than they will be this year. Just go visit with your agent, have a cup of coffee and ensure that the policy on file for you does not need to be adjusted in the wake of the new economic era that we have entered.
Buyers and sellers of farmland and those who are paying cash rents for farmland may only have to look at the interest rates of the 10-year Treasury note to determine the direction of cash rents and their rate of increase or decrease. While farmland owners and farm operators do an interesting dance to negotiate cash rents, the outcome is quite relative to the Treasury yield. How would it know?
It has been a long time since you calculated your breakeven cost of production. Remember that? Unfortunately, that calculation will have to be made this year, and the sooner the better. You should not make any commodity sales if you don’t know your breakeven costs, because it may be the difference between losing a little bit of money this year and losing a lot of money this year. The earlier the better for the breakeven calculation, because it may help guide the amount of money you pay for crop inputs.