Category Archives: Inputs

Which Farm Bill Program Should You Choose…GREAT TOOL!

To ARC or PLC remains the question and the timeframe for making that decision is September 29, 2014 through March 31, 2015. There isn’t a day that goes by when I don’t hear questions regarding which Farm Bill program to choose. I am by no means an expert on this subject and have many unanswered question myself. Some of the folks I consider the leading guru’s keep telling me it’s best that I simply continue to wait before making my decision. I have however recently been sent a rather fantastic decision making tool that I have been playing around with. From what I am told, the Farm Bill Decision Tool was designed by Dr. Art Barnaby in conjunction with Oklahoma State University and Kansas State University, with funding from Oklahoma Cooperative Extension Service, Southern Risk Management Education Center, and Kansas Cooperative Extension Center. This spreadsheet approach is easy to work with and allows you to customize and change crops, counties, etc… I believe this is a very helpful tool and am thankful for those folks at both K-State and Oklahoma State who put it all together. Click the link to access the “Farm Bill Decision Tool.” Another great resource I’ve found is Clint Clayton’s article “Base Acre and ARC-PLC Deadlines Reported”, which is available here. As always, make certain you are communicating and working closely with your individual agent in selecting the best and most appropriate coverage or your particular operation. Remember, there is no one coverage that is right for all producers or operations. In low margin years we need to careful do our homework…it will be the difference between simply surviving and remaining a profitable business.

Interesting Thoughts On Cash Rents

I came across an interesting article discussing how low cash rents could drop with $3.25 corn. It’s a great question, and one I constantly hear when out on the road. The author of this article Mark Gannon, astutely states in his summary that economics always have a way of working things out. And that “working itself out” is exactly what might happen in the foreseeable future. It’s a difficult situation when you drop the price of any commodity -50% in just 36-months, including a -25% since August 2013. Looking back at the forward contract price for corn at harvest, August 1, 2013 we were at $4.30 per bushel; August 1, 2012 we were at $7.59 per bushel; August 1, 2011 we were at $6.50 per bushel. We all understand, there is a lot of variation when it comes to crop prices. The argument being made is that land owners have to STOP basing their rental price decisions exclusively on “price.” Instead rental agreements should be based more around total farm income. It’s important to keep in mind that “price” is only one factor in determining profitability. Gross income is the main consideration which is a combination of price and yield. It may seem elementary, but Gannon describes a problem that he sees far too often. Landowners don’t have very good, current or accurate yield data on their land to figure gross income. They may not admit it, but there are landowners out there who could be getting 220 bushel an acre type cash rents but are only getting 160 bushel acre rent because they don’t have accurate up to date data. Gannon is convinced moving forward there has to become a better free flow of information and honest record keeping between tenants and landlords. This way, both the tenant and the landlord are making a fair long term business arrangement. He’s also convinced (and I tend to agree with him) that the future of farm leases are more flex-based cash rents. With open communication and incentives to get the best harvest possible, everybody wins! In the end, this seems to be the only real answer you can give to how low farm leases with drop. The best solution is roll with the market punches and make sure you are keeping good records and implementing more flexible type rents. For more from information on farm leasing and Mark Gannon, click HERE.

Q. Should I Be Locking In Propane Prices?

A. Yes – I continue to field calls from farmers asking about locking in propane prices. As I sit here today ​,​ I think this is​ a​ very smart play and something I have definitely been recommending for the past couple of weeks, at least on ​a ​significant portion of your fall and winter needs. Personally, I think securing 70% of your estimated needs makes a lot of sense at these levels. ​ I am NOT saying we don’t have the propane to meet our needs here in the US, because we do. But what you have to understand is as we make the transition to an energy “exporting” nation ​,​ the logistical infrastructure we have for years depended on has now been turned upside down. We saw what happened last year and many forecaster are already calling for an early cool fall followed by a somewhat harsh winter. You also have to ask yourself with a record crop set to come down the pipe, possibly being harvested at significant moisture levels, there could be a big push for drying. The other MAJOR concern is that ​the ​Cochin Pipeline is still out of the loop. For those of you who didn’t realize it, one source of last winter’s supply issues and sky high prices can be associated with was the reversal project of the Cochin Pipeline (Which runs from Canada down through the US). According to an ICF International study, the Cochin Pipeline had been the largest single source of propane supply into Minnesota (38 percent) and North Dakota (29 percent), and it was a major source of supply into Indiana (17 percent) and Iowa (13 percent). Wisconsin, which has no Cochin terminals within the state, was also highly dependent on the pipeline, sourcing propane from terminals in Minnesota. From what I am hearing, the folks up north now have to bank on rail delivering their needed supplies. The kicker is, as ICF International estimates, between 65 and 100 incremental rail deliveries per day would be needed during peak periods to replace the Cochin Pipeline. Can the industry drum up that many railcars? I highly doubt it. Moral of the story, with propane prices having drastically pulled back during the past several months and the logistic of the market drastically changing, best-of-practice seems to be reducing any unforeseen potential hiccups or price increases within your inputs. With corn price getting hammered as of late we have to make certain we don’t incur any additional expenses. If you ​’re ​looking to do more research about the logistical problems​,​ start here at LPGas

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.