Category Archives: Farm Business

What You Need To Know Right Now About The New Farm Bill

I wanted to share with you some of the things being passed around in regards to preparing yourself for the new farm programs to be instituted from the 2014 Farm Bill. From what I understand, we should have some concrete answers by late 2015/Early 2015. While we wait, producers and landlords should be aware that there are actions that should be taken now to prepare for the decisions that must be made during the coming months. The 2014 farm bill includes three decisions that farmers and landlords will be required to make in 2014 and 2015:

  1. Updating Program Yields: Owners will be permitted to update their program yields based on the farm’s actual production yields from 2008-2012.
  2. Reallocating Base Acres: Owners will be permitted to reallocate their base acres based on the farm’s actual planted acreage from 2009-2012.
  3. ARC Programs versus PLC Program: The Direct and Countercyclical Payments that were used under the 2008 farm bill have been eliminated. Producers will be permitted to choose between the new Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC) programs that replaced the DCP program.

There are still a lot of details that have yet to be announced, including final timelines, but it is a good idea to go ahead and start collecting information for these decisions now. The general timeline I am hearing is that owners will have an opportunity to update program yields and reallocate base acres during the late summer and fall of 2014. Decisions on the ARC/PLC programs are likely to be required during late 2014 and early 2015. As far as the “Reported Commodity Crop History Summary” letter that the FSA sent out back in August, this information will be key in making decisions for 2014 and 2015. According to the Michigan State University Ag Extension, owners and producers should take the following steps as soon as possible to prepare for the new farm bill:

  1. Review the FSA letter and Reported Commodity Crop History Summary and inform FSA within 60 days of the letter’s date if the information is incorrect.
  2. Begin now to collect information on the farm’s actual planting history during 2009-2012 – how many acres of each crop were planted on the entire farm during each year from 2009-2012?) and the farm’s actual yield history (what was the yield per acre for each crop planted on the entire farm during each year from 2008-2012?). Evidence from all sources (sales receipts, crop insurance records, etc.) should be collected retained (NOTE: FSA has not yet announced the rules regarding the information required for program decisions. Consequently, all information that could prove helpful in proving actual planted acreage or actual yields could be helpful).
  3. Communicate with your tenants and/or your landlords. The upcoming decisions will affect the program benefits that a farm collects during 2014 to 2018. All parties have a common interest in making the best possible decisions for the farm, so good communication and cooperation between landlords and tenants will be beneficial for all parties involved.
  4. Stay informed about the upcoming deadlines for decisions in late 2014 and early 2015. Read all emails and newsletters from your local FSA office and consult with your local FSA office and with your tenants or landlords about these decisions.
  5. Be patient but be alert. The farm bill was passed by Congress and signed by the President at a relatively late date, and the FSA has a major challenge in implementing the new programs in the 2014 farm bill. Landlords will need to become informed about program options and key deadlines and cooperate with tenants. Tenants can often have numerous landlords that they will need to consult and enrollment dates could fall during peak work periods. The new programs are likely to require some complex decisions in late 2014 and early 2015. Landowners and tenants should stay informed about program deadlines and program options to cooperate in the best possible decisions for each farm.

Manage Your Farm Equipment With “TractorPal”

How many of you have an old notebook where you store all the maintenance records, serial numbers and pertinent details about your farm vehicles? Well guess what – there’s an app for that! TractorPal can keep track of all your farm vehicles including not just your tractors and combines, but your truck, your 4 wheeler, the backhoe, sprayers, lawn mowers and attachments too. So right on your phone, you’ve got a clear picture of all ​your on-farm equipment ​where you can add other important information​ as well​, like the purchase date, price paid, original mileage and anything else you don’t want to forget. It has tools for managing vehicle maintenance too, putting the history of things like oil changes and tire replacements at your fingertips. What’s more, it can send reminders when service is due, and you can ​customize the timeframe for those. ​For every part you replace or filter you change, you can keep the part and serial numbers stored in the app so you aren’t at a loss the next time you’re at the parts store! Another convenient feature is the ability to email reports of all those details, whether it’s to yourself, the dealership or a prospective buyer. One thing I’ve come to realize is it really takes someone with a farming background to develop technology that is actually useful to farmers. TractorPal is no exception. Keith King, one of the app’s co-creators, comes from a long farm tradition – he told me he’s traced his family history back to the 1700’s and all along the way, they’ve been farmers. He grew up on his family’s farm in South Dakota and got the idea for TractorPal directly from those equipment notebooks that his father and grandfather always had. Being a big computer fan his whole life, it was only natural that he realized there had to be a better way to keep track of it all. He and his partner came up with the idea for TractorPal in October of last year and, with help on the technical side from a developer, launched the app in March. Right now, all of the data is stored on the user’s smartphone, but in the next couple of weeks they’re rolling out a new version that will sync all the data to the cloud. The app is available for both iOS and Android and can be downloaded for free. The free version limits it to just one vehicle, but for $4.99 you can open it up for unlimited use. If you’re looking for a more convenient way of tracking your vehicle inventory and maintenance, check out more details about TractorPal here!

More info about The Van Trump Report

Sign Up For A Free 30-Day Trial!

Notes From The KC Fed Ag Symposium

I was invited to attend the 2014 Agricultural Symposium put on by the Kansas City Federal Reserve this week. During the two-day event (which ended yesterday) I was able to network and speak in great detail with several leaders in agriculture.  After attending events like this, I like to go back to the office and immediately get my thoughts and notes transferred into a more sensible format (I find it helps with retention and overall understanding). I thought it would be interesting and helpful to pass along MY thoughts and notes from the event via The Van Trump Report… Please keep in mind while reading my notes that attendees included players from many of the largest banks (Rabo, Wells Fargo, FCS, FDIC, US Bank, Farmer Mac, etc), global food suppliers (Smithfield, Hormel, Land O’Lakes, etc.) and others like Bunge, CGB, Gavilon, Koch, Ceres, etc…

Crop Prices? There was an electronic poll taken taken right of the gates in regard to what was most on attendees minds, as you can imagine the number one response was overall “RISK” associated with plummeting prices.  In other words the extreme swings are making it very difficult for everyone in the industry to mitigate risk. One great line I heard this week came from a large lending institution who’s clients are primarily in the row-crop business… He said, “well we’ve had our shot at trying to manage the insane swings and huge profit margins, now lets see how the livestock boys handle it.” 

Crop Prices? There was an electronic poll taken taken right of the gates in regard to what was most on attendees minds, as you can imagine the number one response was overall “RISK” associated with plummeting prices.  In other words the extreme swings are making it very difficult for everyone in the industry to mitigate risk. One great line I heard this week came from a large lending institution who’s clients are primarily in the row-crop business… He said, “well we’ve had our shot at trying to manage the insane swings and huge profit margins, now lets see how the livestock boys handle it.” 

  • Last year at this event there was talk of $3.00 corn…same thing this year, more talk of $3.00 corn.  Soybeans still seem to remain a bit of mystery to everyone simply because there is no real substitute for the higher protein. Wheat concerns stem primarily around logistical issues and geopolitical tail-risk i.e problems in the Middle East, Ukraine, etc… Chinese demand clearly remains the #1 focus for most ALL global lenders and risk managers.  Will the demand and rate of growth stay strong and for how long?     

Transportation? There was a big buzz in the crowd about “transportation” or should I say lack there of.  There is already talk circulating that US rail rates are going to be more than DOUBLE in many locations this year.  There is some fear there will be little to any rail available to support both a record US corn AND record soybean crop.  What happens if we throw in another rough winter like some forecaster are calling for in their early predictions?  To say US logistics could be a nightmare during and immediately following harvest might be an understatement.  Keep in mind this rarely ends up being a good thing for us the producer. Most generally the higher freight costs are passed along in the form of a lower “basis.”  Just look what the rail problems up in the Dakota’s have done to the price of cash-corn…some producers are now receiving less than $2.00 per bushel.  There is also fear that this could spill over into other areas delaying or raising the costs associated with other various inputs.  Looking for ways to lock in prices early might be a very smart play.  I’m telling you now many of the brightest minds and biggest players in Ag are increasingly becoming more concerned with the movement and logistics of grain in this country now that we have gotten deeper into the US energy boom!  Start trying to get ahead of the curve on this one… try to envision any way your operation could get put into a real pinch by lack of available transpiration, then come up with solutions and plans to avoid such a dilemma this winter.  

Farm Land Bubble? Similar to what I believe…this is NOT a Bubble. Sure we might see a -15% to -20% pullback in price, but the dynamics of the current run is so much different than that of the 1980’s Farm Crisis that it doesn’t appear to be a “bubble.” Below are a couple of interesting perspectives:

  • Generally you can conclude a -2% pullback in “farm income” will soon prompt a -1% decrease in farmland values. If you figure we’re currently in the midst of a -30% drop in farm income then we could see a -15% setback in farmland prices. Another -10% to -20% drop in farm income then land values might pull back another -5% to -10%.
  • Loan-to-Market-Adjusted Collateral Value is remarkably strong. Meaning many of the recent purchases were made by producers putting down a large portion in cash. About 77% of farm ground that FCS has loaned on was for 50% or less of the selling price. Meaning most purchasers were putting a large chunk down and have only been financing a relative small portion of the sale price. In many instances farms have actually been purchased using NO financing at all…100% cash purchases.
  • Fixed Interest Rates – Close to 75% of ALL loans made by FCS on farm ground has locked in a fixed interest rate at one of the more historically low levels in our modern history.
  • Debt-to-Asset ratio is still relatively low at just 11% compared to the 20% ratio that is often viewed as a danger threshold. In 1985 the ratio was at 22% and was typical been above 15% for there last third of the 20th Century. In other words no real major balance sheet concerns as of yet when viewing the entire group of buyers.

*Special thanks to Doug Stark, President & CEO Farm Credit Services of America; Mark Partridge, Ohio State University and Chad Hart, Iowa State University for the great insight on farm land prices and values. 

Cash Rents? Most sources I spoke with believe “cash-rents” are currently way too high and will need to correct in some capacity. The big question however is how do we move from Point A (over-priced rents) to Point B (more fairly valued rents)??? Below are a couple of interesting thoughts:

  • Cash rents won’t break until farmers can no longer collateralize debt and paper by using some type of crop-insurance. The past few years it was easy for banks to approve operating capital and loans with crop-insurance guarantees at such extreme levels. Once this changes cash rents break.
  • Might take at least two-years from that point since most landowners won’t buy into the farmers first request for a reduction in rents. In other words the farmer is going to go to the landowner this next year and ask them to lower rents, many land owners will baulk. The farmer will more than likely leave with his tail between his legs and agree to give it one more shot. If price stay low the farmer will be requesting a MAJOR reduction in rent the following year and the landowner will have a tough decision to make, either agree to a big reduction in rents or run the risk of losing your tenant… hence this is when cash rents might really first start to tumble.
  • Remember about 55-60% of all crop ground is currently held by NON-operators, so this is a major concern moving forward for the balance sheet.

Ethanol? There was a great presentation by Todd Becker, President and CEO of Green Plains Inc. In a nutshell Todd and several others I spoke with seem to believe that US ethanol production may continue to increase on the heels of greater export demand. Several believe we will continue to see strong global demand for “clean energy.” If you combine the strong demand for clean energy with inexpensive corn and keep crude oil prices up near $100 per gallon you have an equation for explosive US export growth. Remember, US ethanol is essentially the cheapest fuel molecule in the World. As Todd pointed out “exporting” produces a Rin-less gallon and therefore makes a lot of sense for plants. He also pointed out that it’s much cheaper to add “capacity” than it is to bring NEW plants online. In other words the profit margins for existing plants might continue to escalate.  There is some talk eventually China’s push for “cleaner energy” might eventually be a huge US export market.  Most were doubting China would allow their own personal corn supplies to be used for fuel, simply not wanting to fight the protests, but will probably not have a problem eventually importing corn based ethanol in large doses.  Bottom-line, most everyone I spoke with was on the bullish side of the fence for ethanol and longer-term growth within the industry.   


Livestock Markets? There was a lot of small talk amongst the crowd during the various networking session in regard to the livestock markets.  The main question seemed to be how long can we stay at these lofty levels?  Many top industry executives said they never imagined they would see prices or profit margins like this during their lifetime. Somewhat surprisingly, many said their data, research, analysis and numbers conclude that we might simply be heading around the first turn of an extremely long bull run.  Dhamu Thamodaran, Chief Commodity Hedging Officer at Smithfield Foods and Joe Swedberg, Vice President of Legislative Affairs at Hormel Foods reiterated the worlds growing demand for “protein.” Derrell Peel, Professor of Agribusiness and Livestock Marketing Specialist at Oklahoma State University provide several slides regarding livestock, but I thought the two I included down below where fairly fitting for the cattle market.  The first simply shows the change in cattle inventory here in the US and the one below the change in beef demand that is taking place in China.  The overall consensus is that the world is continuing to march forward demanding a higher protein diet, finding ways provide the needed supplies will continue to be the challenge.    

Foreign Growth? There was a bit of discussion and questions being asked in regard to global growth and what effect falling crop prices will have on overall acreage.  Many in the crowd, including myself seem to believe corn acres in South America as well as here in the US will suffer further setbacks in the wake of sub-$4 corn. Mary Shelman, Director, Agribusiness Program at Harvard University & Chad Hart from Iowa State University provided us with some fantastic insight regarding growth in Africa, India and the Black Sea region.  We also heard some interesting global risk and portfolio management strategies presented by Brian Newcomer, the Executive Vice President of Business Development at Rabo AgriFinance and Elizabeth Hund, the Senior Vice President and Division Manager of U.S. Bank Food Industries. It was interesting to hear that most ALL global Ag lending institutions have a risk-management team that exclusively focuses on geopolitical tail-risk associated with the various landscapes and surrounding countries.  These team’s assign global risk valuations to each specific area then the banks cap the amount of money they will allow to be in play or at risk in each of these areas based on the various equations.  There are just so many moving pieces and dynamic that are in play these days regarding global agricultural…    

Big Data? We have all obviously heard the “buzz” around Big Data…but no one seems to really have their hand around what it all means.  Chick Studer, the Director of Industry Relations at Deere & Company did a great job of explaining how far we have come in the past few years regarding “technology”.  He explained how the “adoption speed” in regard to farmers being more receptive to technology is dramatically increasing. This could ultimately lead to much more rapid gains in technology then we have originally estimated. Also lots of talk in the crowd about ways to better improve yields via various technological tools, ways to see how your farms production is staking up against farms with similar soil types, etc. This field is rapidly advancing and I am excited to see what eventual comes form it all…Stay tuned! 

Bank Loans? Several in the banking sector believe they are going to start seeing a major increase in producers looking to carry their crop as long as possible…cash flow will obviously start to become tight, but banks seem willing to accommodate, at least at this juncture. There is also some talk about more loans in regard to producers seeking even more storage.  The banks seem to be in good shape and comfortable with the overall balance sheets of most.  An extended bear market could obviously change this mindset. 

Visit the KC Fed website: Thanks again to KC Fed President Esther George and her staff for continuing their efforts to provide great agricultural insight. They help provide many of us in the industry with tons of great information and research. You can go directly to their website and see ALL of the presentations by CLICKING HERE

 

Locking In Fuel?

I have talked to several producers as of late who are in need of fuel and are wondering if they should lock in a large supply or simply go month-to-month? As I mentioned back in early May, even though US crude oil production is surging, this is simply not a guarantee for cheaper fuel costs. Keep in mind, one of the world’s top crude oil exporters, Russia, is still facing much uncertainty in regard to economic sanctions and trade disputes. There is also some extreme uncertainties in regard to production and political disruptions in the Middle East (Li​b​y​a, Iran, Iraq, etc.). With drama surrounding some of the world’s top exporters I’m afraid the big energy traders may remain a bit nervous. Longer-term, yes, I believe we will could some type of break in US fuel prices, but right now there simply seems to be too much global uncertainty in the air. Let’s not forget we are also quickly approaching Memorial Day (May 26th), which generally kick’s off a surge in US gasoline demand that doesn’t peak until around July ​ ​4th and doesn’t finish it’s cycle until somewhere around Labor Day (Sept. 1st). I also want to point out that Saudi Arabia recently made a public statement that they would increase production if the world needed more oil supply in light of the sanctions being placed on Russia. However they followed that statement by saying they believed crude oil prices should stay at or slightly above $100 per barrel. Moral of the story, I’m thinking the risk (nearby) is still to the upside. Many producers have recently told me they can buy on farm diesel in bulk at or near last year ​’​s prices. With this in mind, I still like being a buyer now rather than potentially getting caught up in some type of mid-summer rally. Those who are comfortable waiting for more of a pull-back might want to consider making a move if WTI crude oil falls back below $100 per barrel.

FarmLogs – Bridging The Technology Gap For Farmers

Technology has made some amazing advances over the last couple of decades. The internet alone has changed the world, not only in what we have access to, but how we actually DO things. It’s made our lives so convenient, right? Well, Jesse Vollmar didn’t think so when he started looking around the farming community where he grew up in Michigan. “We talk about how advanced farming is with GPS in our tractors,” Vollmar says, “but it’​s a joke because we put GPS in tractors 20 years ago!” He noticed how crude the technology was that his family and other farmers in his community were using, how confusing it was even after attending expensive training classes and how all of it was parked on one hard drive rather than the internet. The whole system seemed very broken to him. And this is an area of expertise that Vollmar is very much qualified to criticize – he had his own web consulting firm before he was even out of high school. Him and his partner continued operating that firm after graduating from Saginaw Valley State University, but ever aware of the huge gap in farming technology, he knew they had to move into that space. The partners spent three months at Silicon Valley’s Y Combinator, what Vollmar calls the “Harvard of tech start ups”, where they learned how to build the company for their farm management tool and were able to connect with investors. Now, FarmLogs is filling the void that Vollmar felt big ag companies and Silicon Valley had left behind. “The people that were building technology for us were the big ag companies, but that’s not their job,” he explained. “They need to build machines, create new seeds – that’s what they’re good at.” As for Silicon Valley, that is a million miles removed from agriculture and most who flock there forget farming even exists. Having grown up working on his family’s farm combined with a strong tech background gave Vollmar a unique perspective on what was needed. FarmLogs has taken all the big data sets available and wrapped them into a clean, easy to use application that is customized to individual farms. Using National Weather Service data, FarmLogs can display the precipitation amounts in fields, eliminating the need for time consuming rain gauges. When you start a new account on FarmLogs, it already knows what has been grown there, dating back for seven years. It can even predict what you plan to grow next based on crop rotation data. All of that information is pre-filled, eliminating yet another time consuming step. Field performance, inputs, on farm inventory – it’s all there. The company’s latest feature is the first of its kind in an agriculture app like this. They’ve taken the USDA soil survey data and incorporated it into FarmLogs so it can be matched up to individual fields. Not only is the data interactive, it’s also easy to read and understand. On the horizon, they have an automated activity tracker planned. It will be able to detect when you’ve entered a field, what the activity was, where you worked the ground, etc. That data could, for instance, allow a farmer to see that inputs were twice as much on one field and why, ​which is ​all automatically generated and easy to understand. “Easy” is a characteristic of FarmLogs in general. Their motto for developing the functionality of the software was “If you know how to farm, you know how to use FarmLogs.” The company’s first hire was actually a usability expert to design something that a user didn’t have to be a computer expert to understand. FarmLogs is a totally free application that can be accessed and updated across multiple platforms – from your iPad to your cellphone. All of the data is in the cloud, so it is also accessible from anywhere that has an internet connection. The company’s biggest goal right now is to ​bring on as many users as they can in order to get feedback on what farmers actually find useful and valuable. As Vollm​a​r put it, “Farmers are our partners and we want to be their technology resource.” He also feels that technology is important not only in helping farmers farm, but in bridging the gap between a younger generation. “You always want your children and grandchildren to take over the family farm,” and Vollma​r thinks using data science and technology is a way to get them excited about ​that prospect. Check them out and sign up for your own FREE FarmLogs account HERE!

Saving The Farm… One Wedding At A Time

From the archives…we ran this in November 2013.

For those looking for another “on-farm” revenue stream or a business for the kids this might be your answer. A lot of readers might have already taken part in this growing trend without even knowing it. It might have been out of necessity, or out of a desire to simply be close to home. It might have been in your own back yard, or the pasture of a relative or neighbor. I’m talking about ‘on-farm weddings’, a fad among young couples right now who are wanting a rustic backdrop for their special day, and farmers across the country are embracing the new business model. One dairy farm in Central California was actually featured in Kelly Clarkson’s video for her song ‘Tie It Up’. Tony Azevedo, owner of the Double T where the video was filmed, would argue that the ‘I Moo’ trend is not exactly new. He’s been hosting weddings on his dairy farm for more than 20 years now. “Weddings,” he said, “literally saved the farm.” During the 1980’s, there was a big consolidation in dairy operations with developers buying up farms all through Central and Southern California. Azevedo had to make a decision whether he was going to “milk every cow in the county” or maintain the small family operation that his father started 60 years before. Dairy has not been an easy business in California for many years now. Since 2008, 19% have gone under. Drought and high feed prices have nearly made the business a losing proposition for the small farm. But Azevedo was determined to live up to the promise he’d made to his father – to die on the farm. Him and his wife have a passion for antiques, and at the time already had an antique buggy museum on their 300 acres, along with a vintage train and a full-sized replica of a Western town. Out of that, the idea to host weddings came to them. The income from that bought them the time to go organic and stay small. “I lucked out. I never thought I’d see the day when people would pay more for milk from cows at pasture or that people would want country instead of country club for their wedding.” Other farms around him have picked up on the trend and started hosting events as well. While Azevedo definitely depends on the money from his wedding business, he’s happy for the competition because he already has more weddings than dates available.

*Below are a couple of pics from Erin Stidham’s recent wedding. I am certain many of you have met or talked with Erin in the past, as she is part of our Farm Direction team. Bet you can’t guess who married them? It was Chase Orstad, one of our top farm advisors. Just doing our part to support the “farms”.

ErinS580