Tight margins, low profitability dominate FarmFest

By Kent Thiesse

Whether it was comments by FarmFest forum panel members or the farmers attending the event, tight margins and low profitability were on everyone’s mind. The 2019 farm show was held August 6-8 in Redwood County, and a variety of agricultural leaders and policymakers, including U.S. Secretary of Agriculture Sonny Perdue, attended.

Profit margins in crop production have been quite tight in recent years, and for many producers are at a negative level for the 2019 crop year. Crop production expenses and land rental rates have remained relatively high for many producers, while crop prices for corn, soybeans and wheat have remained below breakeven levels. For farm operators that may have below average crop yields in 2019, the financial situation may be even more severe.

The livestock sector is not faring much better. Dairy farmers have been dealing with very low milk prices for the past several years, causing many to exit the industry. Cattle feedlot operators have also faced negative margins during the past year or so. Hog producers were able to show a slight profit margin earlier in 2019, following a short-lived rapid price increase; however, the return to lower market prices this summer has again created profit challenges for the hog industry.  

Most farm operators attending FarmFest expressed concern about the continuing trade war between the United States and China, as well as the associated tariffs. Shortly before FarmFest, the Trump administration announced added tariffs on a wide range of Chinese goods being imported into the U.S. China countered by announcing that they were restricting all U.S. ag imports into China. In the past year, added Chinese tariffs on ag imports from the U.S. has greatly lowered U.S. exports of soybeans, pork and other ag products to China, resulting in much lower commodity prices in the U.S.

The other trade issue that garnered considerable attention at Farmfest was the United States-Mexico-Canada Agreement. USMCA was agreed to by the leaders of the three nations earlier this year and has been approved by Mexico. USMCA would replace the current North American Free Trade Agreement between the three countries, which has been beneficial for many agricultural products. Canada and Mexico, along with China, are the three largest trading partners for U.S. ag exports. USMCA now awaits approval by Congress, which many ag leaders hope will occur later this year.

Due to the ongoing trade issues with China and other countries, USDA has announced another round of market facilitation program payments in 2019. The first round of MFP payments was made in 2018, based on actual farm-level crop production levels and a set price for various commodities. In 2019, the MFP payments will be based on planted crop acres by farm operators, regardless of the crop that was planted in 2019, with a set payment rate per acre. 

There is a minimal MFP payment per acre for 2019 crop acres that were prevented planted due to weather conditions, provided that an approved cover crop was planted. Producers should contact their local Farm Service Agency office for more details or to enroll in the 2019 MFP program. 

Crop conditions and yield potential, following a challenging spring planting season, were a frequent topic of discussion at Farmfest. Many areas of Minnesota and the Upper Midwest had corn and soybeans planted much later than normal. Even though more favorable weather conditions in late July and early August have improved crop prospects in some areas, many concerns remain. 

Most crop experts agree that the Upper Midwest will need to avoid a frost until October and have some favorable growing conditions late in the growing season in order for the later planted crops to reach maturity. Most farm operators and agronomists expect highly variable corn and soybean yield levels in 2019.

Many farm operators, agriculture and rural community leaders, as well as investors in renewable energy plants, are concerned about government policies related to the development and use of renewable energy. Many states in the Upper Midwest have a very strong and well established corn-based ethanol industry, which utilizes over 35 percent of the corn produced each year in the United States. In the past couple of years the U.S. Environmental Protection Agency has issued numerous waivers to gasoline refiners, which has reduced demand for ethanol and resulted in over-supply in some areas. The ethanol industry has also been concerned by the slowness to implement E-15 as an ethanol fuel blend.

For additional information email Kent Thiesse, Farm Management Analyst and Senior Vice President, MinnStar Bank, Lake Crystal at kent.thiesse@minnstarbank.com.  
 
To subscribe to BankWise for weekly Ag Lending News updates email Kristi Ploeger or call 651-789-3997. 

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