“The debt to asset ratio for farmers is the best in History. It has been a remarkable year in agriculture for 2006.” Secretary of Agriculture Mike Johann on This Week In Agribusiness.
The Secretary could learn a thing or two about the realities of agriculture with a visit to the Texas Rolling Plains where Texas Extension economist Stan Bevers and Extension agronomist Todd Baughman see farmers' attitudes the most negative of anytime in the last two decades.
“I've been here for 18 years,” Bevers says, “and I've never seen it this bad.”
He and Baughman work out of the Texas A&M Research and Extension Center at Vernon. Bevers helps producers analyze risk management. Baughman helps with production issues on cotton, wheat and peanuts.
They say several factors contribute to farmers' frustrations as they prepare for the 2007 crop. Back-to-back droughts in 2005 and 2006 hammered the area, zeroing two crops, wheat and cotton, in one year. Drought also hurt one of the area's best profit opportunities, stocker cattle. A dry fall in 2005 prevented farmers from making enough wheat or other forage crops to carry cattle to spring.
Last fall high grain prices made wheat a promising option but ruined the cattle market.
Lower cotton prices and higher input costs add to producer woes as they search for some crop mixture that will cash flow for 2007.
“Higher input costs have hurt our growers,” Bevers says. “Fuel and fertilizer costs are up but people may not realize the effect of higher interest rates.”
He says interest rate increases seem relatively minor but “we're paying higher interest on higher production costs.”
He says cotton holds top spot as highest input crop. “And the price is down. Cotton depends on positive political support and has not received that since the WTO decision in favor of Brazil.”
Losing the Step 2 program, he says, cost cotton farmers about 5 cents a pound. “This year Rolling Plains farmers may question whether to continue with cotton. Wheat production costs are 50 percent to 60 percent of cotton. This year, we anticipate a negative return from cotton in this area.”
He says recent increases in corn prices have helped the wheat market. “Growers are more excited about the 2007 wheat crop.”
The wheat/cattle option is less appealing.Thinking drought
“Our farmers are still thinking about drought,” Bevers says. “The last 40 days (before the new year) brought rain and better prospects for wheat. But cow/calf producers sent a lot of their calves to the feedlots last summer, so there were fewer stockers available to put on pasture last fall. Calves rarely come back from the feedlot to this area.”
He says the run-up in corn and wheat prices also hurt stocker opportunities. “With potential for $5 wheat at harvest, farmers don't want to jeopardize yield by grazing stockers.
“Farmers are looking for other things. I'm asking why not milo.”
Low yield, says Baughman.
“We don't get the yield from milo, even under irrigation,” he says. “High nighttime temperatures prevent currently available milo hybrids from reaching yield potential.
“Farmers have considered milo before with price increases only to see a quick decline. If we see $6 or $7 milo in April, though, we'll see acreage go in. If that price holds into the summer, we'll have some late-planted milo.”
He and Bevers agree that a good pricing opportunity for milo may be one positive alternative for Rolling Plains farmers looking for cash flow in 2007. “I don't ever expect a big acreage increase of milo,” Baughman says.
They say even the increased interest in milo spurred by ethanol demand doesn't help Rolling Plains farmers. Farmers in the area are not in a position to take advantage of the increase in grain prices, Baughman says.
“Ethanol has probably hurt us,” Bevers says. Cattle prices plunged with recent up ticks in the grain markets.
He says stocker operators who bought calves early to run on wheat pasture could pencil in a $25 to $35 a head profit. They had moisture to grow the wheat. “But within 60 days the feeder cattle market dropped by $150 a head. Numbers that had worked before now show almost a $200 a head loss.”Few alternatives
Baughman says Rolling Plains growers have little in the way of a fall back alternative this year. Wheat seems to offer the best opportunity for lower inputs and positive price but a good wheat crop will not go as far as cotton to offset drought losses.
“Cotton used to be the crop that could heal wounds,” Baughman says. “A good cotton crop could make up a lot of loss. In 1994 the crop we made in 2005 would have paid off a lot of loans. Now the price is too low to do that.”
Bevers says for years a combination of a domestic industry, a good export opportunity and the Step 2 program made cotton a good bet. “Now two of those three no longer exist.”
They say trade agreements “hammered cotton.” Agreements have been better for cattle.
“Opening markets is basically a good thing,” Bevers says. “Trade agreements should improve market efficiency, but they have not always opened markets” for U.S. agriculture.
He says trade negotiations play across industries. “We probably get something else (electronics, for instance,) cheaper.”
Baughman says area farmers couldn't take advantage of wheat prices last year because they made no wheat.
“If they contracted early they had no wheat to sell and some had to buy more expensive wheat to fill their contracts. That's part of the reason for the depressed attitudes we see in 2007. We can have a great year and still be behind.”
“Some farmers are just looking for cash flow this year,” Bevers says. “Wheat may the key. It requires limited inputs and they can make a little money with it.”
“That seems to be the most positive option now,” Baughman says. “At 30 bushels per acre and $4 a bushel, wheat will work.”
Bevers and Baughman admit to their own frustrations at not having better answers to grower questions about crop mixes that might work for 2007.
“It's hard for us,” Baughman says. “We simply don't have concrete answers.”
“The Rolling Plains is a unique microcosm of agriculture,” Bevers says. The area doesn't have the water resources of the High Plains or Southwest Oklahoma. It doesn't get the rainfall of the Texas Coastal Bend or have the deep soils of the Blacklands.
“And we have not had a really wet year since about 1997,” Baughman says. “That's one reason many farmers have lost optimism. Drought comes on quickly.”Run numbers
Bevers says farmers “need to run some numbers at least,” instead of simply relying on the crop mixes they've always grown. “Look at the possibilities.”
“Most of our farmers are more diversified that we might think,” Baughman says. “They have wheat and cattle, cotton and wheat. Some have hay, peanuts and grain. Some lease wheat pastures and some lease none. They all have different management techniques.”
Baughman and Bevers are concerned about growing farm debts following the 2006 drought.
“After it started getting dry it took about 12 months to see the effects,” Bevers says. “This year, we're seeing more farmers rolling over notes. The cattle deal was working well for a long time. But last year we knew the cattle option would get bad. If we had not had a saving rain in August (2006) we would have lost a lot of cow/calf operations.”
Bevers says the area received about 9 inches of rain from October 2005 through October 2006. “We lost two crops, cotton and wheat, the same year.”
The drought, coupled with a scorching hot summer — more than 40 days above 100 degrees and many topping 106 — devastated cropland.
Bevers and Baughman say farmers may find limited options to begin recovery from the combination of drought, high costs, and poor cotton markets but they offer the following recommendations:
Minimize input costs. Wheat looks as good as anything if it's already in the ground or can be planted quickly.
Take advantage of pricing opportunities. At $5 a bushel wheat looks pretty good. Bevers says farm gate receipts would be $4.50 to $4.60. “That's much better than $2.50.”
Run the numbers. Consider all available options.
Reducing tillage operations cut fuel and labor expenses.
For 2007, switching to a crop that provides cash flow could be the best option.
Bevers says Rolling Plains farmers are feeling down after coming out of a brutal summer in 2006 and two consecutive years of drought. He and Baughman say they are frustrated at the limited number of options they can provide but say farmers should make realistic analyses of each farm enterprise to develop the best chance to make a profit in 2007.