Focus On Long-Term Success

Growers implement strategies to help overcome the ups and downs of agriculture.

Quint Pottinger bags corn to sell to hunters for $5 per bushel. Sales in 2018 will make up 50% of his total corn production, Image by Jim Patrico

Farmers are well-versed in the usual list of tactics that can protect financial standing: cut costs, negotiate cash rents, restructure debt, protect working capital, refinance capital assets and insure appropriately. However, there are other approaches to long-term sustainability.

“There are a variety of ways to lose money but fewer to make it,” says Brent Gloy, with Purdue University’s Agricultural Economic Insights, who also manages his family’s farm in Nebraska. “You really have to understand your cost of business and make a point of marketing your crops at profitable levels. Be patient, because this is not just for today; it’s a critical long-term strategy.”

Develop an investment priority plan that shows where the highest return opportunities are for your farming operation. That’s the approach the following farmers are taking to help them through agriculture’s downcycle.


Quint Pottinger, New Haven, Kentucky, studied ag economics in college. When he decided to farm full-time five years ago, his education offered the solution to make it happen. He knew vertical integration could allow him to capture more dollars.

Pottinger bought a bagging machine to bag and sell corn to deer hunters for $5 per bushel. In 2017, he sold 20% of his corn production to local hunters--15,000 bushels in 16,000 bags. This year, sales make up 50% of total production.

“If I farmed in a more traditional sense, I think it would have been harder for me to get lender interest. They are intrigued with what we are doing,” he says. “My dad and I fill bags, and hand sew them shut. It is hard work and a lot of late nights, but it is worth it.”

Pottinger plans to eventually get an automated system, expand by buying corn from other local farmers and try to gain access to retail box stores that sell corn to hunters. He also has started selling corn at a nondisclosed premium price to a microdistillery and is exploring raising barley to market to local microbreweries. To step up per-acre income this year, Pottinger planted 70- to 75-day corn rather than 105- to 115-day corn so he could harvest in July and plant soybeans.

“We are projecting to harvest 25- to 30-bushel double-crop soybeans for a gross revenue on those acres equal to having grown 250- to 300-bushel-per-acre corn,” he says.

While still in school, Pottinger’s grandmother gave him first dibs to buy 80 acres that had been in their family since the 1700s. Pottinger was interested but had to find a creative way to make it happen. He bought the farm from the trust through a lease-to-own.

“I didn’t have to put any money up front. I had a five-year note with a 20-year payment plan. I had to make a balloon payment after the five years,” he says. “It was the only way to do it.”

Since that time, however, Pottinger and his dad have sought out other lease-to-own arrangements from retirees with trusts. They have grown to 1,500 acres using lease-to-own and balancing out those acres with rental ground to cover annual land costs.

“It is attractive to the trust because the owner gets more money after five years from the interest earned,” he says. “Commodity prices were good when I started farming in 2012, but I have always farmed in a declining market. This, and a wife who works as an IT project manager for Humana with health insurance, helps our cash-flow.”


Jimmie Musickis part of a five-generation family century farm in Sentinel, Oklahoma, and president of the National Association of Wheat Growers.

He owns and operates Musick Farms and Cattle Co. with his wife, Judy, son, Tracy, and wife, Ronda, and grandsons Colt and Larame. The operation includes alfalfa, wheat, milo and cotton, feeder cattle, a trucking business and seed sales.

“For us to be successful and grow, we have added businesses, diversified our crop-production options and run more steers on wheat pasture. You do what it takes to continue,” he says. “I also am passionate about helping the next generation farm. I flew by the seat of my pants at times, and young farmers today have access to tools and information I did not have.” Musick believes advising his son and grandsons allows him to pass on lessons learned.

“My advice to young farmers is to sharpen management skills and use outside experts to make decisions. Don’t step overboard in any one direction or with any one commodity. Find off-farm income as needed,” he says. “Attitude allows resiliency. You have to have a positive attitude.”


Kate and Matt Lambert own Uptown Farms, near Laclede, Missouri. The Lamberts are fifth-generation farmers, managing 2,500 acres of crops and hay, a commercial Red Angus cow/calf herd and flocks of registered and commercial sheep. The young couple got into farming full-time when prices and profitability were much higher than today’s markets.

The Lamberts constantly look at income and expenses, and believe controlling costs has become more critical today for maintaining financial responsibility. That includes operation costs as well as family costs.

“I cannot stress how much my monthly budget helps us with that,” Kate says.“We keep an eye on and protect our cash position even more so than before.”

She adds that knowing actual expenses, calculating breakevens and using all of the data they collect ultimately makes them better managers for the long run.

The Lamberts remain open to other cost-cutting and income-generation options. “We continue to find ways to add different income opportunities,” Kate explains. “That includes off-farm, custom work and new adventures like the corn maze and pumpkin patch we opened this fall.”

Farm Finances: Good News. Bad News.:

Farmers have watched commodity prices take quite a ride this year. Margins are tight, and trade policy is uncertain. But, there is a bright side to the current farm financial situation. And, a glass-is-half-full approach for the future may help farmers survive frustrating economic times.

“While the absolute amount of volatility is not exceedingly large compared to a few years ago, changes this year have taken expected profitability from near breakeven to substantial loss,” says ag economist and farmer Gloy.“As we monitor the situation going forward, farmers must be rational, not emotional.”

POSITIVE POINTS. Gloy highlights several silver linings to the fiscal challenges of 2018. For instance, he sees better wheat economics as the most overlooked improvement in the farm economy. Low wheat prices in 2016 contributed to a significant decline in wheat acres, to their lowest levels since 1910. Since then, wheat prices have risen nearly $2 per bushel.

“U.S. soybean acres also surpassed corn in 2018,” he says. “But more important was the drop in total acres, which increased chances of lower 2018–19 ending stocks, even with large yields.”

He notes global acres of major crops have trended sideways the last three years. Had expansion continued, production would be even higher today, weighing further on prices. Interest rates also remain well below levels of a decade ago. Finally, disciplined financial attention is reflected in farm loan delinquencies running below the long-run average rate.

FINANCIAL WORRIES. But, even with positive news, there are lingering concerns regarding farmers’ financial health. Tanner Ehmke, manager of CoBank’s Knowledge Exchange Division, says a gradual rise in interest rates is possible. (See “Interest Rates on the Rise,” page 25.) That might discourage farmers from leveraging farmland purchases with long-term debt. Rising interest expense on non-real estate debt, including operating loans, also could accelerate and increase costs, and pressure a farmer’s financial ability to operate. The Federal Reserve has raised interest rates twice this year and has noted more increases are likely in the near future.

“Farmland is about 83% of farmer net worth, so any further drops in land values will stress balance sheets,” Ehmke adds. “With erosion in working capital expected to continue into 2019, farmers may lean more heavily on debt to finance operations rather than buy land.”

He adds that farmers are increasingly borrowing against their assets--mainly land--to finance operations. By dipping into equity with long-term debt, he says farmers hope it will help them through any financial stress until more profitable times return.

Gloy says the current level of net farm income may be an indicator of future financial health. USDA’s fall estimate of $65.7 billion is well below the long-run average and harkens back to 2016 levels. USDA’s $12 billion in trade aid helps, but if economic conditions don’t improve, it may lead to more financial erosion. Lower net farm income could limit capital purchases, cash rental rates and farmland values.

The Ups and Downs of Cycle Reliance:

Long-term price cycles may provide some cautious direction for financial decision-making, but don’t expect them to serve as a crystal ball into the future. Current cycles are a case in point.

“Tariffs caused a lot of unanticipated concern beginning in May 2018, and no one knows how long they will influence commodity prices,” says Chris Hurt, Purdue University agricultural economist. “Odds are high the impact of tariffs will not even be recognized on our 100-plus-year charts. But, for now in the short-run, tariffs have become a big part of the outlook.”

Hurt’s analysis finds long-term price cycles last about 29 years. Observed cycles during the last century were 29, 27 and 39 years--two were boom-bust cycles, and one was moderate.

“The exact pattern of any cycle is dependent upon conditions that affect supply and demand during the cycle. They do not have to end in busts, especially if demand is strong,” he says.

The current cycle started in the mid-1990s and peaked in 2012. Generally, the downward adjustment in revenue that follows comes quickly, because prices change quickly. Costs tend to lag by one to three years, as cash rent is not immediately bid higher, and costs do not adjust until margins go negative. In the current cycle, costs went negative for the 2014 crop.

“The moderation phase of the cycle--like for the 2014 and 2015 crops, when costs are near their high and revenues fall sharply--is a difficult time,” Hurt says. “Then, costs continue to moderate, and revenues begin to improve as grain inventories begin to tighten.”

But, if the market is still in the midst of a downward adjustment, farmers should continue to drive costs per bushel lower and push cash rents moderately lower. Land values could still weaken.

“Grain prices may (still) be on an upward slope. That is what the market indicated prior to May,” he says, explaining boom and moderation adjustments take time, perhaps from 2006 to 2020. “Then, there could be a number of years with more stability characterized by aligned costs and revenues. There are always ups and downs based on weather, macroeconomic events and other factors.”

Hurt explains costs and revenues may move more in line during 2018–2020. If so, the downward adjustment would have taken eight years, similar to 1981–1988.A period of new equilibrium, in which margins are narrow but average, and low-cost farms make progress, begins.

“Using past cycles to forecast future patterns must be done cautiously,” he says. “Many farms acquired fixed assets in recent years with the expectation of the boom phase continuing. But, the new equilibrium may be much lower than cycle peaks and could last for extended years.”

Hurt primarily advises farmers to manage costs and keep buying decisions in check for now. “But, when, strategically, money can be made with a strong financial position, be buyers at the lows. Obtain assets at bargain-basement prices when you can,” he says. “Our history lesson suggests that getting through the next few years and making the transition to lower levels of economic activity seems prudent. Only time will tell how the actual path of this cycle will unfold.”

Commodity Price Forecast:

While weather can throw a wrench into marketing plans, using estimated annual price ranges as a reference for sales decisions can help farmers identify the best opportunities all year long.

DTN analyst Todd Hultman forecasts yearly price ranges based on the supply and demand outlook for each commodity. “Generally, prices stay in that range unless there is a drought or other production problem,” he says.

Here is Hultman’s 2019 outlook for commodity prices:

> CORN. A consistent relationship exists between December corn prices and USDA’s cost of production. In 2017, USDA’s cost of production was $2.92 per bushel for farmers who own their land. Hultman uses $2.92 as the low end of price expectations and calculates the upper end by adding 50% of that to the cost, or $4.38 for 2018. Since 2015, spot-corn prices have stayed in a $3 to $4.40 range, which coincides with the cost-based estimate. For 2019, a big 2018 crop and plentiful ending stocks will pressure prices early, but prices should gradually improve within that price range with better U.S. corn exports thanks to Argentina’s drought and lower Brazilian production in 2018.

> WHEAT. Drought concerns in the U.S. Southwest followed by production problems worldwide bumped up the spot Chicago wheat price range the last two years from $3.60 to nearly $6. USDA cut global 2018 production 4%, which has kept prices from the lower end of the range. While the U.S. still has plenty of surplus wheat, supplies outside the U.S. are expected to tighten in 2018–19. Expect a price range for spot wheat during the first half of 2019 of $4.50 to $6.

> SOYBEANS. While soybean demand is growing, prices are trading near nine-year lows, in large part because of the U.S. trade war with China. America’s farmers will harvest another record crop, which follows a record Brazilian crop. Competition from Argentina will be minimal after this year’s drought. November prices have traded sideways since 2015 in the $8.50 to $12 range, with ending stocks showing the biggest expected surplus in 12 years. The estimated 2019 price range for November soybeans is $9 to $11 per bushel, with understanding of extra risk from the trade war with China.

> COTTON. Better world demand than expected and lower production have lifted cotton prices. Adverse weather in June bumped prices to 96.5 cents per pound. Spot cotton the last two years has traded in the 69- to 90-cent range. Cotton prices have not been above $1 since 2011. A reasonable target price range for 2019 is 70 to 90 cents.


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