According to the USDA Economic Research Service, U.S. net farm income is set to decline by 36 percent in 2015, and commodity prices are not expected to improve in the foreseeable future.
“Farmers are going to see more financial stress in the next six months, but they have many resources available to stay ahead of the curve on finances,” says Farm Management Specialist Steven Johnson, Ph.D., with Iowa State University Extension and Outreach. In this episode of Profitability Matters, Johnson shares his insight on 2015 and 2016 commodity markets and steps farmers can take to ensure a financially strong 2016.
- 2016 will look a lot like 2015 for row agriculture, and it will likely bring similar challenges to marketing the soybean crop. But new strategies can help you get ahead of these challenges.
- Take a critical look at your grain storage strategy.
- It will be difficult to make money off of commercial storage this spring.
- If farmers pay their elevator $0.04 per bushel per month for storage, and if they have debt at five percent APR, grain prices need to rise $0.08 per bushel just to break even.
- Unless we have a major weather event, we likely won’t see a spring rally great enough to justify storing beans past the marketing year.
- Look for a narrowing basis—the period between now and December will likely bring a basis improvement.
- In 2016, farmers should be more aggressive with pre-harvest marketing to capture higher prices in spring and early summer—prices in July 2015 were $0.80 higher than they are now in November.
- Know your costs. Costs in 2016 will not be significantly lower than 2015, and December is the ideal time to revisit your cost structure.
- Calculate your breakeven point and current costs to better understand your financial situation.
- A reasonable goal is to cut five to ten percent of crop costs over a two-year period.
- Look most closely at fixed costs—land, machinery and family living—to determine where you can make cuts.
Read the December 2015 issue of Illinois Field & Bean for a more in-depth look at Johnson’s perspective on 2016 margins, markets and finance tips. For more farm profitability tips, visit his work with Iowa State University Extension and Outreach and stay tuned for more episodes of Profitability Matters.