2011 Year in Review by Kohl:
- Interconnectedness and convergence
- In the early part of 2011, it appeared that the U.S. economy was making a nice recovery. However, black swans or unusual events and the convergence of increased oil prices, Japan’s natural disaster and sovereign debt issues placed a damper on the consumer, and, therefore, businesses that provide consumer services
- Swiss Cheese
- Swiss cheese has become a good metaphor to describe the agricultural and U.S. economies. Some areas are in the islands of prosperity, while others are experiencing a recessionary feeling.
- Land values gone wild
- The grain industry, while experiencing high prices, has more at stake with higher variable input costs, and rapidly increasing fixed costs in terms of cash rents, land values and overhead cost for machinery and equipment investments
- Dairy and drought
- In the dairy industry, there has been a rise in prices due to exports of whey and dry milk powder. These high milk prices have been offset by high grain and other input costs. The hog and poultry industries have experienced similar trends.
- Extreme droughts in the southern plains and other areas have reduced cow and livestock numbers, which has resulted in higher prices for both cows and calves.
Looking Ahead to 2012 by Thiesse
- The breakeven cost of producing corn at trend-line yields will likely be close to $5/bu. for corn for many producers in 2012, and $11/bu. for soybeans, which are increased compared to 2010 and 2011 levels. The expected 2012 breakeven prices compare to just over $3.50 for corn and near $8 for soybeans as recently as 2008.
- Crop producers also need to pay attention to the level of cash rental rates are for 2012, and may want to consider a flexible cash lease as an alternative to a straight cash rent lease. A good flex lease adjusts the final land rental payment, based on actual crop yields and prices during the year of production.
- Profit margins in the livestock sector improved considerably in 2011, and should remain quite solid in 2012.
- The big question mark for 2012 will be what happens to feed costs, which will likely be impacted by final 2011 crop production numbers and usage, as well as 2012 crop planting intentions.
- Land Values
- Land values ended the year at record levels throughout most of the Midwest, including one sale of farmland in Northwest Iowa for over $20,000/acre.
- Excellent farm profits in 2011, continued low real estate interest rates and high demand for farmland are likely to keep land prices strong in 2012; however, a significant drop in grain prices and reduction in profitability in 2012 could cause land prices to moderate later in the year.
- Renewable Fuels
- 2011 was a fairly profitable year for most of the ethanol industry. However, 2012 shows signs of being a bit more unstable, with challenges related to erratic input costs, unstable fuel prices and government uncertainty.
- Govt Programs
- Congressional leaders made some progress on the next farm bill late in 2011. However, no agreement was reached, so farm bill discussions will likely continue well into 2012, and possibly beyond.
Cheers from Ag on the Forefront to a prosperous 2012 in agriculture!