Wheat Production- Record Output is Exacting a Toll on Farmer Finances

DTN Ag Policy Editor Chris Clayton reported today that, “Farmers in the Plains are harvesting a corn crop that is paying roughly the same cash price as the winter wheat crop they are planting.

Neither crop is expected to generate profitability, but wheat production is busting records and sharply taxing Wheat Belt growers’ financial reserves.”

Mr. Clayton pointed out that, “By Ohio State University calculations, inflation-adjusted 2016 wheat prices are the worst in 50 years, currently running 9% below 1998-2005 averages. (By the same token, corn’s 2016 inflation-adjusted price is expected to be up 19% compared to that depressed 1998-2005 era).”

“Before fall planting began, Kansas State University released an outlook that showed farmers would need winter wheat to yield 60 bushels per acre to break even. USDA estimated this year’s national average yield for winter wheat was 55.3 bpa. A lot of operations in Kansas are coming off a strong harvest year — the state average was 57.0 bpa for 2016, according to USDA’s latest estimates — so farmers are leery about the prospect of reproducing such a yield next harvest,” the DTN article said.

Mr. Clayton added that, “In terms of belt-tightening, [Marvin Anliker, market president of American State Bank & Trust Co., in Garden City, Kansas] said more farmers are forgoing chemicals, especially with weed management. Producers who learned to rely on chemicals to fallow ground and convert to no-till farming to conserve moisture now are breaking out the old iron to till for weed management as a cost-saving strategy…[S]till, Anliker said most farmers he works with are sitting in a pretty strong equity position, even though they may have burned through their working capital and cash reserves in the past two years. For farmers who are more highly leveraged, Anliker said his bank has been able to do some restructuring, as much as can be done, and gone to Farm Service Agency loan guarantees to stretch out the payments over longer periods. That reduces the cash-flow requirements needed on the farm.”

Today’s article also indicated that, “Farm Credit Services of America also has been very active with those who are stressed customers who have depleted or wiped out their working capital, said Bill Davis, chief credit officer for FCS America. Davis spoke at a financial and ag-law conference last month in Manhattan.

Davis said farmers need to look at underperforming assets, such as marginal ground, and decide whether those assets would be better served converting to working capital. That could mean selling a tract that is a little farther away from the rest of the operation, for instance.”

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