Strategies help farmers survive by M. Jill Sundstrom As headlines scream about low prices for agriculture commodities while farmers harvest bumper crops, many questions arise regarding the future of family farming in South Dakota and throughout the nation.
"It's not a rosy situation," said Denny Everson, senior vice president and manager of the ag finance department at First Dakota National Bank, who appeared Nov. 13 on the premiere broadcast of South Dakota Public Television's public affairs program South Dakota Focus.
"For the most part, yields are good enough that even with the lousy prices, we're seeing cash flow coming in as projected, but there are problems for some farmers out there," Everson said.
With ever-changing markets, high production costs and uncertain weather conditions, agriculture is a risky business. But producers do have ways to continue their operations if they avoid farming by the seat of their pants.
"Farmers have to be their own risk managers," Everson said. "So we encourage a marketing plan for all of our producers. It's important for them to know their costs of production, their break-even point and their point of profit. Then they can set their plan in motion."
Crop insurance is also a must, he added.
"Input costs are too large for farmers to go uninsured," Everson said.
Several strategies are available to farmers as they make their marketing plans, including staying abreast of programs offered by the federal government through the Farm Service Agency, and forward contracting or the futures market.
"It used to be that a farmer would haul his grain to town right after harvest and take what was given, instead of using a strategy to improve the bottom line," said Gary Lamb, owner/operator of Commodity Services, Inc., Sioux Falls. He was in Vermillion Nov. 9 to speak to members of the Clay and Union County Farm Bureau as they gathered for their joint annual meeting.
"We're working all the time to come up with a better solution for farmers," Lamb said. "But every case is different."
The bottom line, he said, is that producers need to realize that futures marketing is just one tool they can use to improve their profit picture.
"We do all we can to eliminate the risks on paper," Lamb said. "Farmers have enough risks as it is. While we look at all the options that are available, however, we also remind them to avoid the greed factor.
"They have to be confident in taking a base hit instead of looking for that home run," he continued. "It's better to be safe than sorry — get the price locked in at a profitable level instead of waiting for the price to go an inch higher. While they wait, it might go a foot lower."
Lamb advised that producers learn what they can about using futures and forward contracting, then work with someone who can relate well to agriculture.
Still, it's not a simple process, and there are no guarantees.
"But it's important for farmers to know that they don't always have to wait until their cattle are loaded in the truck or the grain is in the bin to make a sale," Lamb said.
As wintery weather hinders the final phase of harvest in the region, farmers and related businessmen have had a chance to think about the impact of the $6 billion farm aid package passed by Congress.
Mike O'Connor, state FSA director, also appeared on South Dakota Focus, and noted that despite the FSA programs and disaster assistance, "there is a level of about 10 percent of farmers out there who will have a tough time meeting their obligations," he said. "Some of them will not continue to farm after this year."
O'Connor added that Congress needs to take another look at the 1996 Farm Bill.
"As they say, the farmer is the only one who is buying retail and selling wholesale," he said. "There's always the question of why the prices haven't followed input costs.
"Presently there isn't a farm plan that will work at today's prices," O'Connor continued. "There's not enough to sustain a reasonable return."
Everson said Congress has to work harder for the farmer — search for better global markets, research value-added commodities and revise the 1996 Farm Bill.