Home Commentary HAT Commentary: Sharpening the Pencil, Tightening the Belt

HAT Commentary: Sharpening the Pencil, Tightening the Belt

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The shock was almost palpable in the room of Purdue agronomists and economists when the August crop numbers came in from USDA.  After a planting season with up to 4 replants by some growers and crop ratings that were consistently the worst in the nation, how yield numbers could be so high was a mystery. Since the report, most farmers continue to express disbelief in the numbers and displeasure with the market reaction that sent corn futures to new contract lows.

It had been hoped that the Midwest Crop Tour this week would provide some evidence that the USDA had screwed up again. Instead, the tour seemed to confirm the big yield numbers. So now we wait for the combines to roll and the grain carts to fill. While we wait, perhaps it is time to consider the changes that will have to be made to ride out a downturn in the farm economy that may go on a lot longer than many had expected.

A lot of us, myself included, had been hoping we would begin to see a recovery, after several years of falling farm income and commodity prices below the cost of production. After nearly a decade of increase, we had been told to expect a “soft landing.” What we did not see, or want to see, is that we landed in a quagmire from which it will be hard to extricate ourselves.

For the past several years, we have been told farmers need to invest in technology to increase production to feed the large world population that is coming in the next 50 years.  That mantra is still being preached by some today.  What these prognosticators fail to address is that these hungry people have not been born yet, thus are not ready to sit down at the table for dinner. Economic forecasts continue to project that for at least the next decade agriculture production will continue to outpace demand. This means profit margins for farmers will continue to be thin or nonexistent.

Producers have been working to reduce costs for the past several years, but with the prospect that this was a short-term decline. With the likelihood that this is a longer term decline, major changes will need to be addressed beginning in 2018. For example, putting a crop in the bin at harvest and waiting for the market to rescue you with higher prices down the road is not going to work like it used to. Buying cheaper seed, using less inputs, and not buying new equipment is not a strategy that will work for the long haul.

I was told one time that, when times are tough, farmers just keep doing the same thing  — they just work harder at it. It seems to me we need to work smarter, not just harder, as we face several more lean years. We also will need policies that focus on helping farmers be financially sustainable. This includes a tax policy that helps growers manage their business and a safety net that helps then manage their risk.  Aggressively working to increase agricultural trade is one of the best things the federal government can do to help farmers survive.

Farmers and Agribusiness are bullish on the future of agriculture, but it is going to take more than optimism to realize that future and survive it.

By Gary Truitt