Huge profits grain producers accumulated during 2006-2012 didn't get flushed down the drain, so to speak. As DTN reported in our award-winning 2014 series "Ag's Great Affluenza," many of you didn't go to Vegas on your winnings, but wisely reinvested in irrigation, drainage and on-farm storage, long-term advantages that won't vanish as fast as the memory of $6 corn.
Now we're getting a better grasp on the extent of those improvements and how they'll pay you back with dividends in decades to come.
A recent USDA Economic Research Service report, based on 2012 Census data and 2013 irrigation surveys, shows an amazing shift of irrigation practices out of the Far West and into the more humid Eastern states (see http://www.ers.usda.gov/…).
Between 2007 to 2012, irrigated acres in the East expanded by roughly 8%, with significant acre increases in Arkansas, Louisiana, Mississippi and Georgia. Perhaps most surprising though are percentage gains in states we don't normally associate with irrigation: Illinois (+10%); Indiana (+10%); Michigan (+18%); Kentucky (+25%); Tennessee (+80%).
The main reason northern Indiana and southern Michigan embraced irrigation is because seed corn companies insisted on it if you want to raise seed corn, growers told us at the time. And profits from raising seed corn compared to commercial corn can hit $200 to $300 more per acre, if you're lucky enough to secure a contract. Irrigation also allows you to raise tomatoes or potatoes or other specialty crops, in some cases more cheaply compared to California's drought-rationed farms. No wonder specialty crops are seeing a bit of a renaissance, now they don't compete so fiercely with King Corn for acres.
Other USDA surveys show the big spenders on new expansion with irrigation equipment in 2013 were California ($114.7 million): Nebraska ($57.7 million); Indiana ($38.8 million); Michigan ($38.4 million) and Kansas ($23.7 million). One-fourth of all the nation's irrigated acres are corn for grain, and that doesn't count silage.
Many Midwesterners view irrigation as a substitute for expensive levels of crop insurance, at least for yield coverage.In years like 2012's drought, growers more than paid for any investment they made in sprinklers. Consistent yields are what sells irrigation. "Irrigation is just one more risk factor you're eliminating," irrigation specialists said at the time.
Ditto for the splurge on grain bins this decade. On a trip through Southwest Ohio last week, I again witnessed the benefits of the on-farm storage and truck fleets growers have accumulated over the last decade.
Ohio farmer Alan Thompson, wife Theresa and their adult children now have enough on-farm storage to house a year's corn and soybean crop off 9,100 acres. They operate with an elevator mindset and look for basis opportunities to deliver when the area's processors are hard-pressed to fill their 365-days-per-year needs, Alan told me (see "Safety in Numbers" at http://goo.gl/…)
As a member of a buying/selling club with 175,000 acres under its belt, Alan pools just-in-time grain sales with other members to deliver in lots as big as 500,000 bu., earning at least another nickel per bu. premium.
"Dec corn has already been $3.65 four times this crop year and $4.50 once," he says. "If we get that kind of volatility, plus basis improvements and premiums, farmers will have opportunity to get above breakeven in 2015." You need storage to play the game, however.
The fact that Americans invested in their own businesses during Peak Corn is what makes me most optimistic about U.S. ag's ability to compete long term. Farmers in Ukraine can harvest bumper crops, but are paying 30% interest and can't afford imported inputs like fertilizer. Argentines operate without crop insurance or a rational federal economy, so farmers don't have the confidence to buy their own machines or bins and outsource almost everything. Brazilians often lack adequate storage, so can't ride basis improvements as easily as we do in the U.S.
Yes Peak Corn disrupted the normal ag economy, but some side effects--like the boom in irrigation, storage and other reinvestments in our production capacity--could make the down cycle more tolerable this time around.
To reread the DTN Series, "Ag's Great Affluenza" go to http://www.dtn.com/…
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