About a year ago I wrote an article titled "Dear Landlord…Cash Rents need to come down!" encouraging landlords to consider lowering cash rent. I found out that there were a number of folks who were passionate about this topic and I had the opportunity to hear their opinions.
As I sat down to pen this article, I was thinking along similar lines, but the first draft of the headline wouldn't fit in the allowed space. It went something like this: "Landlords -- cash rent is still too high; seed companies -- seed costs are too expensive; fertilizer suppliers -- fertilizer costs don't work, and chemical companies -- chemicals costs are excessive." Well, you get the point, it didn't fit!
As we work with producers and begin to look at crop budgets for 2016, the math again does not appear to be in the favor of the producers. Input costs for 2016 appear to be very similar to 2015 with a few slight increases and hopefully a few slight decreases. Seed, chemical, fertilizer, and land costs account for approximately 70% of the total input costs on corn and even with reasonable cash rent, total expenses will likely exceed $600 per acre in 2016.
On the other side of the equation, the futures market has certainly been grumpy lately and does not give us any reason for optimism that for the 2016 crop prices will be any better than 2015. When both sides of the equation are combined, everyone wins…except the farmer. The farmer is looking at a potential loss of anywhere between a $100 and $200 per acre. I understand that the market is cyclical and the goal of being is business is making money, but why do the seed companies, landlords, fertilizer and chemical vendors, insurance companies, grain buyers, etc. all get to sell their products or services to the farmer for a profit, yet the farmer gets to take on all of the risk and be the only one in the equation going into the year knowing that they are likely to lose money. In my humble opinion, that is a bunch of…manure!
What can be done to remedy this? Simple, everyone needs to give a little. We always encourage farmers to run their breakevens, but vendors and grain buyers should do this too and consider pricing at or slightly above their breakeven rather than their normal profit margin. If everyone made small adjustments, this would considerably improve the farmer's opportunity to break even.
If you are a landlord or agribusiness and don't feel any compassion towards and are critical of farmers because of the "excessive" profit that was made during the good years, I would remind you that when they were profitable, so were you! They were buying your input products (often with all the bells and whistles, which made you even more money) and if they had "excessive" profits, they used them to pay down debt, expand their livestock operations, add rented land, purchase homes, vehicles, equipment, bins, buildings, etc., all of which was good for the local communities and good for agriculture.
So if you are someone who's livelihood comes in the form of a check written by a farmer and you have done well as a result of this the past few years, I would encourage you to pay it forward and help them out this year and by lowering your prices. If you are a farmer or rancher who needs help knowing your numbers, please contact one of our instructors at the South Dakota Center for Farm/ Ranch Management at 995-3098 or firstname.lastname@example.org.
Hofer is a farm management instructor at the South Dakota Center for Farm/Ranch Management at Mitchell Tech, Mitchell, S.D.