MAKING FARMING WORK DURING TOUGH TIMES

IOWA SOYBEAN FARMERS DISCUSS 2020

BY BETHANY BARATTA

Iowa State University reports 44% of Iowa’s farmers are financially vulnerable, carrying the highest level of debt in the nation.

The Iowa Soybean Review talked to farmers about how they are financing their operations and maintaining optimism as 2020 begins.

Bob Plathe, LuVerne area farmer and former Iowa Soybean Association director, says his farm was impacted by hedge-to-arrive grain contracts in the mid 90’s causing him to look for off-farm income. Now Plathe works in the renewable fuels industry and farms with his son.

Joseph L. Murphy/Iowa Soybean Association

FUTURE READY:

YOUNG FARMERS READY TO TAKE ON CHALLENGES, OPPORTUNITIES

Another growing season has come and gone on Randy and Megan Francois’s farm in northeast Iowa. A year of challenging planting and harvest conditions, uncertain anhydrous and propane supplies and volatile markets is in the rearview mirror.

2020 brings the expected birth of a daughter in February, son J.J.’s second birthday, Randy’s fifth year of farming and a renewed hope for a better year ahead.

“We’ve evaluated our successes and obstacles in 2019, and we’re ready to take on 2020,” Randy says.

Diversification

After graduating from the University of Northern Iowa with a degree in business management, Randy returned to the family’s soybean, corn and hog farm near Manchester.

Randy now has a 25% ownership of Hillside Partners with his parents, John and Liz, and another business partner, Ryan Kress. They raise hogs in a wean-to-finish system, utilizing 75% of the corn raised on the farm in their onfarm feed mill. Soybeans are marketed directly to the end user, bringing back DDGs and soybean meal to use in their feed rations.

Each partner has other grain and business interests outside of the partnership. They have two full-time employees and hire seasonal workers to haul feed and plant and harvest crops.

Diversification is at the heart of the operation. In addition to raising and selling hogs, they do custom spraying and manure hauling.

“The manure business and custom spraying has helped bring in additional income,” Randy says. “We’re not relying solely on the crop or hog prices.”

They’re also using equipment they already own to run their businesses, Megan says.

Randy Francois on his northeast Iowa farm.

Joseph L. Murphy/Iowa Soybean Association

“Swapping labor for equipment helps cut down on what our inputs are,” she says. “We don’t have to make huge equipment payments, and that’s allowed us to get started in farming.”

This diversification made it possible for Randy to return to the farm full time in 2015. Megan has a business degree from the University of Iowa and is a mortgage and consumer lender at Dupaco Community Credit Union in Manchester.

“For us, the only way for farming to work is to have off-farm income to support our family and have additional stability,” Megan says. “Health care is an added benefit to the off-farm income.”

Challenging year

Planting on the Francois farm got a late start in 2019, despite having a second planter to speed up the process. Within days of planting the first field, 4 inches of snow fell. The weather was snowy, then wet, then dry, then wet, all within the same growing season.

Scarce anhydrous supplies in the spring turned into propane supply issues in the fall.

“It was very stressful,” Randy says. “It was challenging to plan if and when we would be able to combine. Moving equipment, moving grain, everything compiled.”

There are plenty of decisions to make between now and March 1 — which seeds to order, what crop rotation looks like for this year and beyond, and what fertilizers will be needed. But with trade uncertainty and potentially another round of Market Facilitation Program (MFP) payments, the couple says 2020 isn’t so clear.

“Last year at this time, MFP payments were already planned,” Randy says. “But we don’t know if we’ll have MFP 3.0., or how the 2020 election cycle will affect the trade outlook.”

While some variables are outside their control, the couple says there are factors they can pencil in.

“We spend a lot of time on — as markets are constantly fluctuating — understanding our cash flow and break-even levels,” Megan says.

Constant communication with their lenders, families and employees has helped them make decisions about ways they can farm more efficiently. Taking advantage of educational opportunities through the Iowa Farm Bureau, Iowa State University Extension and other institutions has helped them gain a better understanding of markets and planning.

Weathering these challenges is also about perspective and surrounding yourself with people who understand the goals and want you to be successful, the couple says. One of those people is Randy’s mom, Liz.

“She really sets a good tone to realize the goal is in sight, the crop won’t be in the field forever,” Megan says. “Having that optimism has been helpful.”

FINANCIAL FORECAST

Robb Ewoldt of Davenport and Iowa Soybean Association district director, says it was important for him to get over the stigma of having to find an off-farm job in order for him to save his farm.

Robb Ewoldt pilots his Freightliner semi while hauling dry ice on a multistate route.

Joseph L. Murphy/Iowa Soybean Association

“This is called, operation save the farm,” Ewoldt says referring to driving his trucking routes. “But when it comes down to it, when I want to give my kids the opportunity to farm, this is what I have to do. There are a lot of things in life that you don’t want to do but you suck it up and do it.”

He says losses that have impacted his farming operation will take years to overcome.

“There’s not that much left over to get ahead,” he says. “I say I haven’t worked a day in my life until this year. That tells you my state of mind right now.”

STRATEGIES TO MITIGATE FINANCIAL RISK IN 2020

A new decade brings renewed optimism for better times ahead for farmers.

“As we look into 2020, we’re guardedly optimistic,” says Jim Knuth, senior vice president for Farm Credit Services of America. “We believe there’s opportunity in 2020, while also realizing there’s still volatility and uncertainty.”

While there may be reasons for optimism, Alejandro Plastina, Ph.D., assistant professor of economics at Iowa State University, says price forecasts suggest another challenging year.

Long-term price forecasts projected by the U.S. Department of Agriculture suggest soybean prices under $9 per bushel and corn around $4 per bushel this year.

“If we believe these forecasts carry value, it will be very hard to change the direction of profitability in 2020,” Plastina says.

Knuth is hopeful that the U.S. – Mexico – Canada Agreement (USMCA) will be finalized in 2020. He’s also optimistic final negotiations with China will be firmed up, especially if it appears President Donald Trump will win re-election. If China believes they will have to deal with President Trump for four more years, Knuth said, they will be much more likely to come to the table and make a deal. Both trade agreements are critical for stronger demand and better markets for U.S. agriculture.

The addition of these two deals could improve the economic outlook in 2020, Plastina says.

Farm profitability in 2019 was expected to rise nearly 10% over 2018, according to Plastina.

“It’s not the cash receipts from crops that will be much better than 2018,” Plastina says. “Instead, the increase in net farm income will mostly be driven by Market Facilitation Program (MFP) payments.”

MFP payments, issued to farmers losing money as a result of lost markets from the trade dispute between the United States and China are expected to reach $14.3 billion for the 2019 season. Net farm income is projected to rise to $92.5 billion for 2019, with 31% of that income from government payments like MFP and crop insurance benefits, according to Carrie Litkowski, an economist for the USDA’s Economic Research Service (ERS). (Final information regarding 2019 farm sector profitability had yet to be finalized at press time).

Knuth believes another round of MFP payments will be made for the 2020 crop year, but is quick to advise farmers to avoid getting too dependent on them. “They can end just as quick as they get started,” he says.

Looming trade negotiations make it difficult to plan for the 2020 crop year, farmers say.

“The way we have to look at things today, wondering what’s going to happen with China or the USMCA, is a constant worry and wonder about what the next year will bring,” says Bob Plathe, a farmer and former Iowa Soybean Association board member from Irvington.

Bob Plathe

Joseph L. Murphy/Iowa Soybean Association

He farms with his son, Bobby, and works as an operator at Ag Processors biodiesel plant in Algona. He also sells Latham Seeds.

Plathe says farming is different today than when he returned to his family’s farm after graduating from ISU in 1980. Input costs are rising, weather conditions are erratic and markets are volatile.

“You don’t have much room to make a mistake today,” Plathe says. “You have to plant the right hybrids in a timely manner and use the right chemicals and the right amount of fertilizer — not too much or too little — finding that sweet spot so all those pieces of the puzzle come together in a way you can afford to get the crop sold.”

He and his son rely on off-farm employment to help support their farm business.

Taking a look at all expenses and income is essential to determining how farmers can best proceed in the years ahead, Plastina says. Deciding whether to hold on to cash rented acres is one consideration.

“Cash rents have declined only about 14% since 2013 while prices for corn and soybeans have declined 45 to 50%,” Plastina says. “Farmers need to think about how they can support cash-rented land if they are not making any money on those acres.”

Prioritizing and dedicating time to improving the farm business is the dividing line between farmers who are succeeding and those who are struggling, Knuth says. He sees that when analyzing Farm Credit’s portfolio of 57,000 customers in the upper Midwest.

We do not see production alone saving people,” Knuth says. “It’s really about how farmers manage their operation from business, financial and marketing perspectives.”

The Plathes understand their break-even levels. They know how many bushels they can sell ahead to protect their budget sheets.

“You have to spend as much time in the office as you do in the shop or in the combine,” Knuth says.

The Plathes understand that. They’re working with their lender and putting together their marketing plan. They have a plan in place — with flexibility — to weather potential market unpredictability this year.

“We’ve planned as best we can,” Plathe says. “All we can do is keep the faith and hope things will be better in 2020.”

Jim Knuth, senior vice president for Farm Credit Services of America.

Joseph L. Murphy/Iowa Soybean Association

Top 5 to-do list in 2020 from Jim Knuth

1. Seek ARC/PLC education. The decision you made in 2014 might not be the best option today. Learn from someone who really understands the options.

2. Tie ARC/PLC decision into your risk management and crop insurance decisions. Don’t wait until the March 15 deadline to decide; learn about each option and tie them together.

3. Evaluate your carry-over grain inventory from the 2019 harvest. Focus on what you don’t have sold and think about your marketing plan.

4. Meet with your lender. The sooner the better so you both understand your situation. Get your 2020 finances in place.

5. Do an interest rate evaluation. Rates have come down, especially longterm rates. If you have favorable rates, there may be nothing to do. However, there may be some opportunities to improve your interest rate situation.

Alejandro Plastina, Ph.D., assistant professor of economics at Iowa State University.

Joseph L. Murphy/Iowa Soybean Association

9 Strategies to Manage with Low Margins from Alejandro Plastina

1. Control production costs: revise production plans, especially on rented land

2. Actively manage risks: know break-even levels, design a marketing plan with price and date targets

3. Limit working capital needs: revise fixed costs

4. Diversify income: add or keep non-farm income, use farm assets

5. Revise family living expenses: postpone big-ticket purchases

6. Secure repayment capacity: extend repayment schedules

7. Revise growth strategy: align short-term needs with long-term goals

8. Choose ARC/PLC program: learn the differences, choose best option

9. Develop a Plan B: consult tax advisor to determine which assets could be sold to generate liquidity

Contact Bethany Baratta at bbaratta@iasoybeans.com.