Northwest Iowa ag outlook: Cautious optimism

Thursday, April 19, 2018
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STORM LAKE — There is reason for optimism to take root in the northwest Iowa farm industry this season.

The land market remains strong, crop prices show hope for profit, and the area is riding a streak of exceptional yields for most producers, says Rex Wilcox, a 45-year veteran with Stalcup Ag Services in Storm Lake.

“People buying land are generally optimistic. In fact, those purchases are the very definition of their view,” he mused when asked about the state of local agriculture headed into the 2018 planting season. “A lot of articles in the last six or eight months predicted softening land values and financial problems, and that hasn’t happened.”

The sales the company has followed have had good participation, with acres bringing prices steady to higher. For good land, sales around the region in recent months have mostly brought $9,000 to $12,000 per acre, topping out at $13,400 for a 160-acre farm in O’Brien County. Property values in area sales were up about 3 percent for 2017 compared to the previous year in the region.

The majority of the land is being purchased by farmers, with perhaps 20-25 percent going to investors who plan to rent it out.

Meanwhile, drought conditions in South America are giving grain markets a bit of a boost.

“This has put us in a situation where world carryovers on corn and soybeans are trending down. Until now, it has always been up,” Wilcox said. “A little bit of optimism to the grain market really rolls over into our local farm community.”

Farmers aging out

Wilcox sees little “serious distress” among the operators his firm works with. “I don’t think there have been any cases of somebody quitting (farming) who we thought would carry on. In some cases, older fellows are looking at the risk out front of them and retiring, rather than risk what they have accumulated. It’s not that the financial situation is poor, there just isn’t reason to continue taking the chances that comes with farming.”

However, he doesn’t see any influx of younger farmers coming on to pick up the slack. One local young farmer has been able to rent enough land to make a go of it, but more often, if there are younger people, they are trying to start out by adding a livestock operation to their parents’ farms, Wilcox said.

“Even if you have a million dollars, it doesn’t get you far if you are talking about starting out in farming, obtaining land and equipment. Mostly as older farmers here are retiring, we see their land being absorbed by other established operators.”

For 25 years, concern has been building that the local crop of farmers is aging out of the business — though technology that requires less hard labor has some of them pushing retirement from active farming back from the early 60s into their mid-70s. The availability of custom help for planting, fertilizing or combining helps aging producers continue.

“There is some concern that people simply aren’t interested in it any more. Technology takes less labor, but more money,” Wilcox said. “It’s harder and harder to get in.”

No crisis in late start

While farmers are desperate to get into the fields in the area as winter weather has lingered, yield potential has not yet been compromised. “People will worry about it, but we’ve seen as much as 61 percent of corn planted in a single week. Two decent weeks, and we will see a tremendous amount of progress. If the crop still isn’t in by mid-May, then we would start cutting into yields,” Wilcox said.

A string of strong harvests has helped to bring optimism to the area fields. Last summer, dry June and July conditions had expectations plunging before timely August rains saved the day for most of the area. Iowa ended up with a record 176.6 bushels per acre corn yield, and soybeans at 49.1 bushels within three bushels of the record set in 2016 and the highest total production the state has ever seen.

“We are fortunate that the weather has given us just what we needed to get the job done,” Wilcox said. “We have genetics now that seem more resistant to variations on the weather, but you still have to have rainfall — genetics need a little help.”

Market influences change

Where ethanol once spurred corn to rapid market increases, it is now just an accepted part of the market with little impact on prices. Chances are slim of any new plants going up, and the existing ones are becoming more efficient at getting more product from a bushel of corn, rather than greatly expanding corn purchases.

“The plant at Marcus is one of the top ones in the country in efficiency,” Wilcox said. “It produced close to 3 gallons for every bushel of corn coming through — and that was the goal that everyone always wondered whether it would be attainable when this was starting.”

A decision by the Chinese government to add 10 percent ethanol to its gasoline supply by 2020 could help increase export demand, along with more consumption of protein as diets change around the world.

“At this point, there is more potential to see market prices increase than to see them go to the downside,” the local expert said. “What we really need is some anxiety somewhere. To see our markets go up substantially, we need those traders to be nervous.”

One thing that could have them biting nails is less total U.S. acres planted to corn and soybeans. With cotton prices up, southern areas are replacing grain crops. And to the north, some growers are looking to move into spring wheat.

On the other hand, changes in seed variety make it possible to grow corn and soybeans in increasingly dry, cooler conditions. Wilcox recently ran into a farmer from Manitoba who is planning to switch his fields into soybeans, which in the past would never have grown in such conditions. A wider growing area could drive down prices for Iowa producers.

With a new pork plant in Sioux City built in 2017, locals may be looking to raise more animals to meet demand, and supplement crop income.

‘The heat is on’

While farmers may be optimistic, they aren’t comfortable.

“Understandably they are concerned about the rising costs of their inputs, that rent is too high, and markets too low,” Stalcup’s Wilcox said. “There is only one way out for them. The way they are squeezed on costs, they have to have a good yield. With a high yield they can still make a profit. If they only get an average to below average yield, they are going to lose money ... the heat is really on.”

As a result, growers are playing it close to the vest with their money. Three to five years ago, Wilcox says there was lots of new equipment showing up on local farms, now there is very little.

“They are working with what they have, and that’s a reflection on the profit levels,” he said. “The machinery dealers probably have more to complain about right now than the farmers.”

Ultimately, the land market is the best “barometer” of how area people feel about the future of the farm industry. “It’s like a mini Dow Jones indicator,” Wilcox said. Much of the land coming on the market is from estate sales, showing that farmers are hanging onto their land as long as they possibly can.

Predicting the future of area farming

The face of Iowa’s signature industry a generation from now may look much different than it does today, Wilcox feels.

A National Geographic report noted that in Holland, crops are largely turning from field production to predictable greenhouses. The familiar staple crops for Iowa, corn and soybeans, have endured with all research money going only into those areas.

“People always ask when Iowa is going to diversify crops. When we find something that Iowa can grow with more carbohydrates and protein, then there will be diversification going on,” Wilcox said. “And it will happen eventually. It is sure to.”

More automation in farming is already emerging. The technology already exists to build tractors that drive themselves. Wilcox predicts the time is not far off when a farmer can remote-operate a tractor and grain wagon from the seat of his combine, hauling away and unloading his crop into a truck without stopping the machine.

“There will be robotics making decisions directly from the field,” he said. “That means demand for people to design, install and fix it. Young people may end up in the tech end of farming rather than the fields themselves.”

Wilcox sees no end to farms getting bigger. “The economy of scale still applies. To afford the technology, they will have to keep getting bigger, and that means more machines to do the work. There will be less people actually working the farms.”

Though times may be challenging, Wilcox hopes people in the Buena Vista County region do not take their resource lightly.

“Our soil is just excellent,” he said. “I travel to a lot of different areas, and there is nothing in the world that could replace the soil we have here to work with. The other resource we have is the people. They are progressive, looking to improve all the time. If you give a local farmer some extra money, he will use it to figure out a better way to do things. Our farmers are never satisfied.”

One only has to look back to the foreclosure days of the 1980s to appreciate where the farm economy is today.

Wilcox added, “It’s a lot better than it was when I came here. To see the progress made has been great, but we can’t assume we’re arrived.”

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