Commodity Prices: Impact on Today s (and Tomorrow s) Farming (and Farmers)

Transcription

1 2014 Corn Belt Seed Conference Commodity Prices: Impact on Today s (and Tomorrow s) Farming (and Farmers) Jay Akridge Glenn W. Sample Dean of Agriculture February 5, 2014 Purdue University is an equal access/equal opportunity institution.

2 Purdue University is an equal access/equal opportunity institution.

3 Purdue University is an equal access/equal opportunity institution.

4 AgSEED $1.25m recurring increase in agricultural research and Extension line item (Crossroads) Invest in research and Extension to support plant and animal innovation Invest in support for rural entrepreneurs, with a focus on small farms/local food producers Purdue University is an equal access/equal opportunity institution.

5 Kentuckiana Crop Production Seminar Surviving Loss of Volume and Shrinking Margins December 15, 1999 Dr. Jay Akridge Center for Agricultural Business Purdue University

6 Times are tough... Corn prices are low Soybean prices are low Yields (in a number of places) were low Seattle trade negotiations were a bust Nobody wants GMOs

7 Times are tough... Corn prices are low Soybean prices are low Yields (in a number of places) were low Seattle trade negotiations were a bust Nobody wants GMOs KY and Purdue have mediocre basketball teams

8 F Billion $ US Net Farm Income Year Average = $74B Purdue University is an equal access/equal opportunity institution.

9 Budgeted Earnings and Losses ($'s/acre) Farm Profits Soar Budgeted Profit and Loss for High Quality Indiana Farmland, Today s budgeted profit and loss is the highest in the last 20 years! Will it last? Source: Derived from Purdue Crop Budgets, ID-166, Corn-Soybean Rotation Purdue University is an equal access/equal opportunity institution.

10 Billions 14 U.S. Corn Production Purdue University is an equal access/equal opportunity institution.

11 Corn: USDA 12/10/13 09/10 10/11 11/12 12/13 13/14 Million Bushels Carry in 1,673 1,708 1, Production 13,110 12,447 12,358 10,780 13,989 Total Supply 14,791 14,182 13,514 11,931 14,842 Feed & Residual 5,166 4,792 4,547 4,333 5,200 FSI Non-Fuel 1,370 1,406 1,426 1,396 1,450 FSI Fuel (Ethanol) 4,560 5,021 5,011 4,648 4,950 Export 1,987 1,835 1, ,450 Total Use 13,083 13,054 12,525 11, Ending Stocks 1,708 1, ,792 US Farm Price $3.55 $5.18 $6.22 $6.89 $4.40 $ $4.75 Purdue University is an equal access/equal opportunity institution.

12 Billions 4.0 U.S. Soybean Production Purdue University is an equal access/equal opportunity institution.

13 Soybeans: USDA 12/10/13 09/10 10/11 11/12 12/13 13/14 Million Bushels Carryin Production 3,359 3,329 3,094 3,034 3,258 Total Supply 3,512 3,495 3,325 3,239 3,423 Seed & Residual Crush 1,752 1,648 1,703 1,689 1,690 Exports 1,501 1,500 1,365 1,320 1,475 Total Use 3,361 3,280 3,156 3,098 3,274 Ending Stock Farm Price $9.59 $11.30 $12.50 $14.40 $12.50 $ $13.50 Purdue University is an equal access/equal opportunity institution.

14 Contribution Margin per Acre (Average Productivity Soil) Crop % Change (14 vs. 13) Continuous Corn Rotation Corn Rotation Soybeans Wheat Double-Crop Soybeans Purdue University is an equal access/equal opportunity institution.

15 Management Considerations & Strategies Managing Your Agricultural Business in 2014 webinar: December 19, 2013

16 Vulnerabilities to Continued Prosperity Margin Compression Weak Working Capital Positions Excess and/or Poorly Structured Debt Asset Value Declines Availability of Credit Managing Your Agricultural Business in 2014 webinar: December 19, 2013

17 8 Strategies To Use In This Environment 1. Lock in Margins 2. Buy Crop Insurance 3. Consider Fixing some Interest Rates 4. De-leverage Pay Down Debt 5. Hold Financial Reserves 6. Conservative Bidding & Buying 7. Slow Growth & Fund with Equity 8. Make Investments in Operational Excellence Managing Your Agricultural Business in 2014 webinar: December 19, 2013

18 Summary Crop agriculture s transitioning out of an extraordinarily profitable era Long-run future in crop agriculture is still bright, but the next several years will test managerial skills Aggressively manage all input costs Look for both cash rents and land prices to adjust downward the next several years Livestock sector will rebound and expand Managing Your Agricultural Business in 2014 webinar: December 19, 2013

19 Some Thoughts Performance matters a lot No matter core strategy, yield risk is important to manage What agronomic investments make sense with lower margins? Expect more questions on economics of fertility, weed control, fungicide application, etc. Purdue University is an equal access/equal opportunity institution.

20 Strategy Success Factors

21 Dominant Farm Strategy by Age years old Managing Production Controlling Costs Output Prices Managing Land, Equipment, and Facilities Managing People years old Managing Production Controlling Costs years old Managing Production Controlling Costs 0% 20% 40% 60% 80% 100%

22 Yields Risk Rating by Dominant Strategy Needed diversification Adequate land/resources Input Prices Adequate Human Capital Output prices Competition Society s view Regulatory Compliance Rating: 1 (Not at All Important) to 9 (Very Important)

23 Some Thoughts Don t forget/ignore differences across farms with respect to core strategy/buying preferences Not all are focused on cost Most will be more sensitive to price Purdue University is an equal access/equal opportunity institution.

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25 Demographics of Seed Buyers Performance-Relationship-Price and Performance- Price-Relationship are most college-educated (38-39%), overall the youngest, most farms with sales over $2.5 million Price-Performance-Relationship less college (34%) and older

26 Some Thoughts Pay attention to farm debt situation: Debt situation has been good, will it stay that way with lower prices? Much focus/interest on assessing financial performance Farm Futures Survey: 49% prepare budgets/budget performance reports annually 27% review key performance measures or do ratio analysis regularly Purdue University is an equal access/equal opportunity institution.

27 Some Thoughts Train, train, train: More price pushback More deals New environment for some employees Must clearly articulate and back up value proposition Must be prepared to deal with price objections Purdue University is an equal access/equal opportunity institution.

28 Farm Futures Magazine December 2013 Farmer Survey 12% start meeting with suppliers 19% start negotiating with suppliers and landlords 49% spend more time looking at alternative suppliers to reduce cost Purdue University is an equal access/equal opportunity institution.

29 Some Thoughts Time for a strategic review of accounts: Who is positioned to win in transition? Management, capital, land, equipment Are you investing time in your future customer portfolio? Time is now to start setting stage for 2015 focus and efforts Purdue University is an equal access/equal opportunity institution.

30 Upshot This is a tough market, but one that some organizations will thrive in Lots of possibilities for an organization who: considers new ways of doing business executes the fundamentals maintains a steady hand and cool head is very focused on getting better in every way

31 Purdue University is an equal access/equal opportunity institution.