The outlook on farmland

    The outlook on farmland

    By Denise Faris

    Dr. Gary Schnitkey, professor and farm management specialist in the Department of Agriculture and Consumer Economics at the University of Illinois, gave us an outlook on farmland for the coming year at our September meeting. He related that there are normal corn and soybean yields this year. Incomes are projected to be low, just as they were in 2005; however, many of Illinois farms are in strong financial condition. Dr. Schnitkey also noted that in 2014, intermediate assets increased. Currently, debt has not declined on farms, if anything, it has increased.

    “We are looking at going into very low net incomes, lower than during the five year period from 2000-2005,” Dr. Schnitkey observed. “While many farms are in strong financial positions, there are a number of farms that have cash problems. Part of the reason is less revenue from corn.”

    He said there is a strong need to reduce cash flow due to the commodity prices. “Due to reasonably good crops worldwide, there are not any supply problems around the world,” Dr. Schnitkey said. “Right now, I am not bullish about the short-term outlook in other countries’ economies.”

    Dr. Schnitkey also shared:

    • There are higher gross revenues than in 2005, but costs have risen
    • Non-land (fertilizer, seed, insurance, machinery) costs for corn crops has increased from $320 per acre in 2006 to a projected cost of $585 per acre this year
    • Non-land costs have to be reduced in order for gross revenues to increase
    • Machinery depreciation will come down, but very slowly over time
    • There may be some reduction in fertilizer prices
    • As long as corn is under $4 per bushel, there will be downward pressure on cash rents
    • Farmers need to initiate a $100 cost reduction for 2015
    • Those in cash rent situations might want to consider going to variable cash rents
    • Leases should be evaluated each year, most cash rents lag behind economy conditions
    • Seed prices are holding steady because share holders don’t want to see lower prices
    • The return on investment on farmland (cash rent minus property tax) is 1.5 percent – 2 percent.

    “Over time, farmland is a very good investment; on average it out performs the stock market, but you have to hold it a long time,” said Dr. Schnitkey. “If you sell your land, where do you put the proceeds? Everything is risky.”

    He went on to say, “We should hope for growth in the Far East within the next five years. We have to hope China buys soybeans and corn to feed its livestock so they can feed the Chinese population. We need that demand. We thought continued growth would come from Africa, but that is a hard case to make.”

    Water, Ag & the EPA

    Water, Ag and the EPA

    Tinka Hyde, from left, Andy Holstine and Dan Schaefer

    EPA rulings and how they affect farmers were discussed by a panel during Chicago Farmers’ October 5 meeting featuring Tinka Hyde, water division director for the U.S. EPA (Environmental Protection Agency), and Dan Schaefer, Illinois Fertilizer and Chemical Association’s director of Nutrient Stewardship, with Andy Holstine, past TCF president, as moderator.

    In opening statements, Tinka reviewed that the Clean Water Rule was issued jointly in May by the EPA and the Army Corps of Engineers. She said its aim was to clarify which waters fall under the protection of the Clean Water Act following Supreme Court cases in the past several years that created confusion. Tinka said the rule provides clarification and includes all of the previous exemptions covered in the Clean Water Act. The EPA developed an agriculture fact sheet regarding the new rule that was distributed to attendees. Additionally, the Corps of Engineers has information on its website, Tinka related.

    Dan said there was a lot of concern about the new ruling. He suggested that the Illinois Farm Bureau’s website was a good place to learn about agriculture’s thoughts on the matter.  Dan noted, for example, that there was concern about a how a pond on a farm caused by rainwater, which would eventually dry up, could be viewed. “There is concern that someone is looking at farmland on a desktop computer in Washington and making decisions, rather than someone who is onsite,” related Dan.

    In response to a question from Andy, Tinka said that the EPA works with a variety of interests—industry, municipalities and homeowners. She noted that storm water is an important component of EPA’s work with municipalities, and industry has a host of requirements. Regarding agriculture, much of the EPA’s work is confined to animal feed operations. “We view soil health as an important component of our work protecting water quality,” she said.

    She also referred to the work the EPA was involved in regarding the restoration of Lake Erie. Tinka said the EPA is leading a bi-national effort with Canada in addressing and resolving Lake Erie’s pollution problems. For example, she related that in the central part of the lake, there is not enough oxygen to sustain organisms. “Our role is to be sure that decisions that are made do not adversely affect water quality,” Tinka said.

    For the Illinois Fertilizer and Chemical Association’s part, Dan said it was looking for partners on projects that address nutrient loss reduction strategies. He said that while there is a lot of nitrates and fertilizer losses coming off of golf courses, it only accounts for two percent of the run-off. “We (farmers) have to do a lot better,” Dan commented.

    Andy asked how quickly practices are evolving and Dan responded that research had slowed due to the state sweeping funds out of the Fertilizer Research and Education Council (FREC) in 2005. However, research and development have begun again with an assessment that was established on Illinois fertilizer sales to fund nutrient research at state universities and improve our water quality. The assessment was authorized in legislation signed into law last August that had the support of both agricultural and environmental interests. 

    The bill created the Nutrient Research & Education Council (NREC), a 14-member group composed of representatives from farm, fertilizer, university and environmental organizations as well as the directors of the Illinois Department of Agriculture (IDOA) and the Illinois Environmental Protection Agency to provide leadership for the program. The council has set the assessment at 75 cents per ton.   Fertilizer dealers must remit payments on a semi-annual basis to NREC as a condition of their license to sell fertilizer in Illinois. 

    Regarding guidelines issued by the EPA, Tinka said they have to be dealt with locally. For example, there are several sources of nutrient pollution in a watershed in an area. Plans to address these sources are unique to the types of sources in each portion of the watershed of the area. She said the EPA works with NRCS to understand what agricultural practices do or don’t make a difference and so that the EPA can make more informed decisions to improve water quality while also enhancing farm productivity.  

    Regarding data collection and how it affects how the EPA operates, Tinka said that states develop water quality standards and Wisconsin and Minnesota are the only two states in this area that have done so for phosphorus. Others have narrative standards. “If we don’t have a standard, it is trickier to set limits,” she said. “The more we work together, the better off we will be in being successful.”

    Dan related that his group is looking for retail fertilizer operators to make better decisions. For example, the Illinois Fertilizer and Chemical Association is asking that farmers no longer spread fertilizer on snow because there is greater run-off in the spring than if the fertilizer is spread in the fall. “If we can do some of these things, we can be independent,” Dan said.

    Dan went on to say, “Illinois agriculture has a good relationship with the EPA. We work regularly with the group. That open relationship works out nicely.”

    For the future, Tinka said that the Climate Change Adaptation Plan has been developed. “It sets out actions to address what we are expecting from climate change. In the United States, we expect rain to fall differently; extreme storm events are expected to occur. When we get too much rain, pipes can’t hold storm water and sewage. On land, a lot of our rain management practices are for smaller events. EPA will work with agriculture to address these issues and we will look at the uses of water.

    A local upside to water regulation? Tinka said that Illinois water quality has improved, especially the Chicago River.

    Editor’s note: The Clean Water Rule was challenged by a group of 18 states and the Cincinnati-based Sixth U.S. Circuit Court of Appeals on October 10 temporarily blocked the rule, which is estimated to put about three percent more waterways throughout the United States under federal jurisdiction. That would require a federal permit to pollute those waters and could restrict access altogether. Major waterways are already under protection and aren’t affected. The appeals court ruling enjoins the regulation nationwide.