Wall Street Could Learn Something from Farmers

Alex Tiller - Thursday, September 18, 2008

Anybody following the recent news in the financial markets could perhaps be forgiven for a bit of panic – between bailouts and bankruptcies, it’s a troubling time for our financial sector. However, farmers should recall that farming is the one occupation guaranteed to be in demand no matter what happens in the rest of the economy. The world needs food, feed and fuel, and always will, regardless of how crazy things might get on Wall Street.

Folks who have been in the agriculture business for a while will remember that back in the 1980s farmers learned the lessons that Wall Street is being taught: a little bit of leverage is a good thing, but too much leverage leads to disaster. That lesson was brought home hard for farmers (and I have to tell you, I don’t seem to remember any huge government bailouts of farmers who couldn’t make their mortgage payments) – keep your debt to equity ratio low enough that you can pay off your loans even if everything else goes south.

The USDA’s Economic Research Service backs up my gut feeling that farmers learned this lesson well – farmers have been reducing their effective level of debt almost every year for the last twenty years. Now, that doesn’t mean that farmers don’t carry debt – they do, it’s just part of farming. The nominal amount of debt has gone up tremendously over the same period – but the equity that the farmers have in reserve against that debt has gone up much faster. There’s nothing wrong with having a million-dollar loan outstanding – if you have a ten-million dollar farm. It’s when your loan is worth 105% of your assets that you’ve got a problem!

The Street could learn a lesson from the farmers of today, who have steadily decreased their debt-to-equity ratios and established some financial stability for the agriculture industry’s land holdings. Whether they actually learn that lesson is something we’ll all have to observe in the next few months.

Soil Testing On The Farm

Alex Tiller - Monday, September 15, 2008

Fall is upon us, and this is the time of year to consider soil tests and the fertility of your cropland.

To maximize yield of corn and soybeans, your soil has to have the proper pH level and adequate levels of P and K. For corn and soybean growth to reach optimum levels, agronomists recommend a soil pH between 6.0 and 6.5. Soil pH declines when basic compounds are removed by crops, leaching, and acid residues left from nitrogen fertilizing. Low pH can lead to reduced availability of calcium, magnesium, and molybdenum in the soil, and can increase the risk that imidazolinone-based herbicides will carry over between seasons. Low pH also reduces the rate of nitrogen fixation. Fortunately, low pH is relatively easy to fix – just add lime.

If your soil pH is too high, there’s not really much you can do to lower it in an economical fashion, but knowing the level allows you to manage the problems created by high pH. High pH reduces bioavailability of iron, manganese, copper, boron, and zinc, and increases the risk of herbicide carryover for sulfonylurea-based herbicides.

P and K are removed from the soil each year by your crop. Each bushel per acre of corn harvested removes about 0.43 pounds of P2O5, and 0.28 pounds of K2O. It’s important to track your yield across fields so that you know how much maintenance fertilizer each field will need to replace this intrinsic loss. Remember that the loss will be much higher on acreage that was cut for silage – the above figures assume that the crop residue is staying on the field for reabsorption!

Agronomists recommend soil tests at least every four years – and more often if there is a concern about fertility. Sample fields at the same time of year each year, so that seasonal variations don’t throw off your results. The best time to test is after harvest but before the ground freezes. Soil cores should be taken in the top six or seven inches of soil. If you are using no-till or reduced tillage, be aware that nutrients can become stratified, and run a separate test on the top two inches of your soil cores.

Remember that almost any soil deficit can be remedied – but you have to know about the problem to be able to implement a solution. Don’t be afraid to test – it’s a lot better to find out about a soil issue before you plant than after you harvest.

2008 Farm Bill Review

Alex Tiller - Saturday, September 13, 2008

As though it wasn’t hard enough to know how to run your farm, these days you almost have to be a political scientist to figure out just how the government is going to help, hinder, or meddle with your farm operations. Understanding the annual farm bill out of Congress is one such ongoing timesink, and this year’s bill makes a lot of changes. Luckily, there are a lot of smart guys out there who make this kind of stuff their business – and one of them has very kindly summed up the major changes in the farm bill this year. Here are some of the highlights – but if you have a lot of dealings with the federals, you should definitely read the whole thing.

There’s a limitation on payments of $40,000 per person, and a limit on counter-cyclical payments of $65,000, for those not participating in the ACRE (average crop revenue election) program. The good news is, there’s no limit on marketing assistance benefits.

One big change: “person” now refers only to natural persons, i.e., you or me. Companies, marketing cooperatives, partnerships, corporations – these entities can all still receive direct payments, but the limit will be based on the number of natural persons who have direct or indirect ownership interest in the entity.

Government entities, whether local, state, or federal, are no longer eligible for any payments, benefits or loans under Title I or Title XII. This does not mean that farmers operating on government land are ineligible – any lessees on government land may still receive payments.

The gross income limit on payments has been adjusted – you’re not eligible to receive any farm program benefits if your three-year average adjusted non-farm income exceeds $500,000. Also, nobody will be eligible for direct payments in a crop year if their average farm income exceeds $750,000. (I guess Ted Turner will be crying himself to sleep this week.)

Finally, conservation benefits are restricted to those whose average adjusted nonfarm income is less than $1,000,000, unless two-thirds of that income is farm-based. However, there’s a waffle clause in there that says owners of “environmentally sensitive land of special significance” can get a waiver on this limit – now Ted just needs to convince someone in the Department of Agriculture that his ranch is very special indeed. This one seems a little off-base to me; I can certainly see limiting direct payments for farmers who are wealthy, but we make conservation payments to encourage good land practice. That encouragement shouldn’t go away just because you’re doing well; otherwise we’ll end up with a bunch of poor farmers doing good land practice on their tiny farms, and the rich guys not practicing good land stewardship on their huge acreage.

Optimizing Silage Management

Alex Tiller - Thursday, September 11, 2008

To optimize silage management, it’s critically important to stay on top of the moisture level in the silage feedstock. The key is the timing of your corn harvest, because timing controls the moisture level in the silage – and the moisture level is the key to the highest quality feed.

The moisture of the corn you chop for silage needs to be between 60% and 70% - on the lower end if you’re silaging in an upright silo, on the higher end for a bunker. Your chopped pieces should be 3/8” to ½” in size to optimize the pack. You can determine the moisture level of the corn with a simple hand test – squeeze the chopped silage into a ball and hold it for 30 seconds. If the ball contains more than 75% moisture, it will hold its shape entirely – too wet! If the ball falls apart quickly, it’s under 60% - too dry! If the ball starts to fall apart and produces some juice, but holds together somewhat, it’s right in that 60 to 70% sweet spot.

Silage that’s too moist will lose nutrients, and can even do damage to your silo. It takes longer to ferment, as well. Overdry silage will not pack well and will have too many air pockets, and will take a long time to go anaerobic. The extended period of aerobic fermentation raises the silage temperature, increasing the chance of a burn and lowering the quality.

To detect moisture levels before chopping the corn, you can check the kernel milk line. Break open an ear and examine the developing kernels, and find the milk line. A line that’s between halfway and two-thirds of the way down from the crown is at the 60 to 70% moisture level. You can also use a microwave oven or commercial forage moisture tester, if you get inconsistent results from these hand tests.