Archive for Wednesday, July 16, 2008

Farmers see operating costs rise

July 16, 2008

Trying to take the pulse of agriculture halfway through 2008 is as difficult as herding cats. Some producers are doing remarkably well while others are suffering.

The well-being of farmers and ranchers across Kansas is as varied as the individuals that farm the land and care for livestock. Every situation is different, and there are so many variables including weather, equity, land, marketing you name it and it impacts agriculture today.

There is one underlying concern all producers are facing across the Sunflower State, and that's increasing operating costs. In most cases these inputs are running at least twice as much as last year.

"The pulse of producers in our region of the state is a mixed bag," says Matt Engel, agricultural loan officer at the Security State Bank in Leoti. "It's hard to tell. However, most of our customers (Greeley and Wichita counties) are still feeling good after last year's tremendous wheat crop."

That said, Engel believes many of the bank's nearly 100 customers are also nervous about the amounts of money they have to borrow.

"Farmers out here will be OK as long as they can lock in higher prices for their commodities and their wheat crop is harvested," Engel says. "If they are hailed out or the crop doesn't pan out like they expected, it could be an entirely different situation."

Farmers in Greeley and Wichita counties are relying on last year's abundant snowfall to carry the '08 wheat crop. This year's crop has received little help with moisture.

Harvest started during the last week of June, and most producers are cautiously optimistic they may combine between 20 to 40 bushels per acre. Some farmers will harvest less and some may harvest more. They'll know once it's been cut and safely in the bin.

Once the farmers finish harvest and catch their breath, they'll have an opportunity to figure how this year's wheat crop will help them offset their higher input costs of fuel, fertilizer and seed.

"A handful of our producers have yet to touch their line of operating credit because they had such an outstanding year in 2007," Engel says. "Others have started digging. And a few have already borrowed their entire line of credit and are maxed out."

Ten years ago the operating expense ratio ranged from 65 to 70 percent, the Wichita County banker says. Most producers were in good shape and profitable in that range.

Today, operating expense ratios are averaging approximately 75 percent and in some cases, 80 percent, Engel says.

"These are volatile times," the banker continues. "Farming is a high-stakes business and getting higher. The rewards are greater, but so are the risks."

So much of the success in farm and ranch country depends on how well producers market their crops and how prudently they are able to buy their inputs while managing their individual businesses.

"We want producers to succeed," Engel says. "When they succeed we all do Main Street, implement and seed dealers, the local elevators, bankers, everyone."

- John Schlageck is a leading commentator on agriculture and rural Kansas.

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