Farm Horizons, April 2015

Outlook is cautious for 2015 farm year

By Brad Salmen

2015 could be a pivotal year for area farmers.

“Right now, I’d say the outlook is ‘yellow,’ or ‘caution,’” said Paul Filzen, an instructor at Ridgewater’s Farm Business Management program. “We could see things go either way. If we get good yields, and good prices, we don’t have a problem. If prices stay where they are, and/or we don’t have high yields, then we have a problem.”

Yieldwise, said Filzen, this year is shaping up to be better for area farmers than last year, when many acres didn’t get planted, or sustained damage, due to the weather. But this doesn’t mean a banner year is likely – Minnesota is already abnormally dry, and the long-term forecast is for below average rainfall.

In addition, things look rather bleak on a number of other indicators.

Crop prices have fallen to extreme lows, and even on the livestock side, hog prices are down along with milk prices, and look like they will remain suppressed through the summer.

Meanwhile, input prices – things like land/rent prices, feed, seed, fertilizer, chemicals, and repair costs – are up.

And that leads Filzen to worry.

“It’s not reason to panic, yet,” he said. “But we had a market meeting today, and the average farmer cannot break even raising corn and soybeans right now.”

And if the pattern continues the way it has been . . .

“It’s 2016 I’m scared of,” he said.

Essentially, another bad or below-average year would lead many farmers to face debt crises, in which they would be forced to liquidate some assets to pay off debt to increase term debt coverage and hopefully help maintain their net worth or equity. Especially if prices, set in Chicago, remain static or drop as states to the south experience good rainfalls and high crop yields, like last year.

“Worst case scenario, we get a partial draught coupled with the same prices as we have now or worse. With lower prices and less crop on hand, they probably won’t get their 2015 bills paid, which will carry over into their 2016 cash flow,” said Filzen. “And if they haven’t financed from 2014 to get into 2015, well it just becomes a snowball effect.”

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