The steep decline in commodity prices in 2014 was a shock to Mid-South producers, many of whom had seen their net worth double or increase by two-and-a-half times during the preceding seven to 10 years.
With prices declining by 35 percent, in some cases, and input costs not coming down by a similar amount many producers were caught “flat-footed,” says Greg Cole, president and CEO of AgHeritage Farm Credit Services in Little Rock, Ark.
“Most producers lost money on an accrual basis, even when adding back the 2014 PLC (Price Loss Coverage) payment in rice that we got a year later,” Cole said, speaking at the Mid-South Agricultural and Environmental Law Conference in Memphis, Tenn. “Revenue fell rapidly and expenses didn’t adjust quickly enough so that was a big factor.”
Cole says AgHeritage has a good sample portfolio. “So to give you a perspective here in the whole Delta of north Louisiana, west Mississippi, Arkansas and the Missouri Bootheel we probably have $3 billion of system volume. As we looked at this, we saw losses of as much as $250 an acre and profit of $100 an acre. That’s a $350 swing.”
Part of the losses is due to the change in the farm bill safety net and specifically the loss of direct payments that were eliminated in the Agricultural Act of 2015.
“We liked direct payments,” said Cole. “It was simple: the producer knew how much they were going to get; they knew when they were going to get it; and when they got paid we got paid so it was real clear. Now you don’t get a payment until a year later. It’s been said you may get a check, and the check will go to an address, but the address may not be there because the farmer has already sold out.”
Marketing is also part of the problem. Some Mid-South farmers sold rice for $6 a bushel in 2015 while others sold for $3.70 per bushel. “For a person who farms 600 acres of rice with average yield that’s a $230,000 swing on 100,000 bushels of rice,” said Cole. “So just that decision itself had a big effect on profitability.
The AgHeritage CEO says that while farmers have a new safety net the bottom line is the new safety net may not save all producers during a sustained period of low prices and profits. “We could lose the bottom 25 percent of all producers in the Delta in this cycle if it extends for the period of time that some economists would suggest.”
For now, he says, the ag economy must find some way to deal with the surplus of commodities that are depressing the farm economy. “Supply adjustments are needed, and, outside a big game-changing event like weather, the way to adjust supplies is an extended period of red ink, and that’s a long, slow and painful process.
“At least that’s the scenario we have to be looking at now – that this financial hurricane may be here for a while, and we’ve got to find a way to wait it out and try to do some things so we can have as many people survive as can.”
To learn more about the Mid-south Agricultural and Environmental Law Conference, visit http://nationalaglawcenter.org.