(This week's was written by Gene Kuntz, Farm Business Management Instructor in Faribault.)
I've been reading more than one article in the past several months focusing on the world's population reaching seven billion this year. If you give it some thought it has huge implications for our industry. What I find interesting is that the each article questions how can we feed the world with our limited amount of arable acres and water currently available to all of us. The reality is that neither of these two world resources will significantly change in the future, in fact they will decrease. This is the underlying reason there is a fundamental bullish attitude supporting our industry currently and in the long term.
That fundamental bullish attitude has caught the attention of outside investors and supporters of our industry. We will pay more for our inputs to make food. Leading the way is equipment (power and machinery) with a projected 17 percent increase in cost for the year. Farmland is second with a projected increase of 15 percent. We will have an increased cost of production for the 2011 and 2012 crop. How much per acre, how much per bushel, how much per farm? Can you answer those questions? Do you really know? Are you prepared to make a reasonable bid on some farm land to purchase or rent and know how far you can go?
I am sure you all have heard of the rapid rise in land costs in the past several months. Several pieces of farmland in Minnesota have sold for over $8,000 per acre. We have also witnessed cash rents at all-time highs for the 2012 crop. Amazing! Amazing, yes but again it is reality. As stated earlier you will now have to contend with outside investors in the farmland market, not just your neighbor. Can you do it? Do you want to do it?
Speaking of your neighbor, how about livestock producers? How are they fitting into this fundamental bullish attitude surrounding grain production? Hog producers are finally getting some breathing room in recent months with finishing hogs in the $90 per CWT range. Dairy producers are operating on just a dollar per CWT margin for the past nine months. Poultry producers are struggling as well. What we must keep in mind is that $7 corn and $13 soybeans might be a bonanza for grain producers, but it's very challenging for the livestock industry in this state. It is simply amazing how the hog and dairy producers have rapidly changed rations to significantly reduce their corn and soybean meal needs. What are they switching to? Well leading the list is dried distillers grain, corn gluten meal, canola meal, and beet pulp.
What skills will it take for any farmer to compete in this industry in the next few years? I believe most would agree that identifying your cost of production is an important skill to have. What does it cost you to produce a bushel of corn or soybeans, a 100 CWT of milk, a 100 CWT of hogs. Do you know? Can you accurately calculate it? If you are student enrolled in a Farm Business Management (FBM) program you should know and you can calculate it. With the assistance of your FBM instructor you calculate it every year through the enterprise analysis, and in some cases you calculate it on a quarterly basis.
For more information contact Wayne or Rich at 507-276-5662 and 507-276-1843 respectively.