The traditional approach for farm supply cooperatives is to save above-average profits when times are good (like now through the next 12 months) and then manage costs rigorously during the inevitable downturn, which we expect will begin in 2023.

Unfortunately, this approach exposes cooperatives to revenue volatility and declining earnings during down cycles, often lasting five or more years. We see an alternative path forward for ag retailers: expand their delivery of precision agronomy tools, services and processes, and earn fee income for doing so. Putting technology and information to work to help farmers manage their inputs and production is where farm supply co-ops excel. The current upturn in the crop cycle provides a timely opportunity to make the necessary investments in technology-experienced staff who can develop revenue sharing partnerships with partners across the value chain.

Farm supply cooperatives are enjoying success given current favorable U.S. farm economics

Ag retailers have enjoyed three consecutive profitable agronomy seasons and generally appear well positioned for fall 2021 amidst high grain prices and favorable farm economics (the partial risks to this outlook include weather volatility, expected shortages of certain crop production chemicals, and high fertilizer prices that may cause growers to ration purchases).

Notwithstanding the known risks, three factors support a continued favorable environment for input spending:

1. Cash corn, soybean, and wheat prices. Grain prices are currently well above the 2014-19 averages of $3.77 for corn, $9.56 for soybeans and $4.98 for wheat.
2. Strong net income. Industry sources estimate that U.S. net farm income will reach $111 billion for 2021 and $104 billion for 2022, versus average net farm income of $79 billion between 2014 and 2019 (i.e., the period prior to the recent “grain run”).
3. Favorable cash flows. Cash crop receipts, a cash flow proxy, are forecasted to reach $216 billion for 2021 and $221 billion for 2022, versus an average of $196 billion between 2014 and 2019.

Tight stocks-to-use in 2022 should support higher corn and acres and therefore, continued above-average crop prices and input demand

U.S. corn and soybean stocks remain very tight (at or near levels last seen during 2012- 14), a situation that we see continuing for the near future. What led the industry here was a combination of 1) strong domestic and export demand (especially from China) for food, feed and fuel, coupled with 2) lower production in Brazil, Argentina, and China in 2020 and 2021 resulting mainly from adverse weather (drought and freezes). What will keep the industry here is continued strong exports (see next page) and growing demand for oilseeds. Considering all factors, we see the demand imbalance in grain stocks and usage persisting until at least 2023.

Looking out several years, ag retailers will face increasing pressures from all sides

Ag retailers are facing risks that will only increase over time including the consolidation and growing market power of agro-chemical and seed suppliers and the maturation of ag tech startups. Another growing risk is the blurring of the lines between farm equipment dealers and agronomy providers as larger farmers demand advanced digitally enabled precision tools and services.

Two recent examples of this include CNH Industrial’s acquisition of Raven and Deere & Co.’s acquisition of Bear Flag Robotics. Both will help the original equipment manufacturers accelerate their offerings of autonomous and precision farming services, something that will compete with traditional agronomic advice provided by ag retailers.

The consolidation of U.S. farms into larger farming enterprises is a long-term structural risk for retailers

The number of U.S. farms continues to decline via consolidation as family and non-family farms seek greater economies of scale to boost profitability. While the total number of domestic farms dropped by 7.8% between 1997 and 2017, the number of large farms (defined as 2,000 or more acres) rose by 14.4% during this period.

We see these as the associated risks as this trend continues: 1) Retailers could lose their “agronomy edge” as the new class of commercial farming enterprises hire their own agronomy staff and demand more data-intensive precision ag services. 2) The larger the farm, the more likely the customer will demand volume-based discounts creating a double-edged sword for the local cooperative: selling at a discount depresses margins, but refusing to discount may force customers to purchase elsewhere.

So how should ag retailers increase their relevance to larger farm customers? More precision agronomy services

The 2021 CropLife magazine/Purdue University Precision Agriculture Dealership Survey confirmed that ag retailers continue to embrace data and digital tools (at some level) as part of their precision agriculture service offering to farm customers. While the survey indicated already strong adoption of certain sensing-technologies (such as grid or zone soil sampling) and variable rate technology (VRT) for fertilizer application, there are still tremendous growth opportunities for retailers for other technologies. Examples include unmanned aerial vehicle (UAV)/drone imagery sensing for crop scouting and analysis, VRT pesticide applications, and precision seed recommendations and prescriptions. Longterm, several new technologies offer exciting growth potential, such as crop inputs applied using UAV/drones, and robotic crop scouting and weeding.

The business case for adding software income is financially compelling

Based on our analysis of an aggregated composite of CoBank farm supply cooperatives (FSC) in two Midwestern states, FSC margins average just 2% compared to 16% for software providers. The large variance reflects lower gross profit margins for commissions on crop inputs as well as higher fixed costs for the cooperative business model. Beyond providing farm customers with enhanced digital tools to farm more profitably, the business case for retailers’ expansion of precision agronomy services is financially compelling. The higher the margin, the more patronage the cooperative can presumably pay to its membership.

The ag retailer of the future will earn income from precision, carbon and sustainability programs in addition to traditional input product sales

The key for ag retailers is to adopt and adapt to new technology and transform the business model to generate fees for advice rather than rely on commission and rebate income from input product sales. Why should cooperatives transform? The answer is three-fold:

1. Precision agronomic services are in demand by customers.
2. These services can help cooperatives attract and retain high-value customers.
3. If retailers do not embrace changing market needs and preferences, equipment dealers and disruptive new entrants will step up and fill the void.

Conclusion

References Farm supply cooperatives are currently experiencing cyclically strong returns as the grain run enters its second year of an upturn. Growing global demand for feed grains and vegetable oil generally positions U.S. farmers and retailers for continued success over the next year (although product shortages and high fertilizer prices could cause some disruptions). The much bigger question is what does the environment for ag retailers look like after 2023?

We see several structural risks facing farm supply cooperatives in the coming years, namely: larger, more sophisticated farm customers seeking advanced technological tools, increased competition from input suppliers and equipment dealerships providing precision agronomic services, and disruption by ag tech startup companies. However, we believe the aforementioned challenges present an opportunity for cooperatives to transform their business model to survive and thrive in the future. Putting technology and information to work to help farmers manage their inputs and production is where farm supply co-ops excel.

The path forward is to expand this delivery of precision agronomy tools, services and processes, and earn fee income for doing so. The current upturn in the crop cycle provides a timely opportunity to make the necessary investments in technology-experienced staff who can develop revenue sharing partnerships with partners across the value chain.

The post What Will the Future of Precision Ag Retailing Be Like? Ken Zuckerberg Discusses New Challenges and Opportunities appeared first on North America FarmQuip Magazine.

Even as soil health practices become more widespread, farmer participation in carbon programs remains relatively low. While 72 percent of respondents are aware of carbon offerings, only three percent are enrolled in a carbon sequestration program. Many farmers indicate that they would consider a carbon program if the payout per acre reached $20; however, it isn’t until the payout per acre would reach an estimated $40 that the majority said they would commit to participation in a program. A recent Purdue study highlights that farmers need to be incentivized to adopt practices and join a carbon program.

Forty-four percent of farmers who have not already adopted these practices report increased interest in on-farm stewardship during the past five years. Lack of access to necessary equipment and services, as well as concern about return on investment, were cited as the biggest barriers to practice adoption.

“We always start with the agronomy to make sure practices are a good fit. Carbon programs can help to offset the costs of new practices to further drive farm profitability and stewardship outcomes. The data shows that many farmers are interested in these practices and will adopt them with a higher payout. As an industry, this means we must work to remove barriers to increase practice adoption and provide farmers with holistic solutions such as carbon programs to drive prices toward that $40 level and beyond,” 

said Ben Gordon, Portfolio Lead, Carbon Ecosystems and Services, Corteva Agriscience.

Other key insights from the Corteva Agriscience survey demonstrate how price points, barriers to entry and trusted advisors are important factors for farmers when considering carbon programs.

Pricing preferences

• The majority of farmers don’t believe that a carbon program sounds appealing until they can get paid at least $40/acre to participate, confirming a recent Purdue article about what farmers would need to switch from conventional tillage to no-till.

Familiarity with carbon programs

• Seventy-two percent of survey respondents said they had heard about carbon programs but didn’t know much about them. Twenty percent are actively looking into and evaluating such programs. Three percent are currently enrolled in one.
• Almost two-thirds (66 percent) of respondents already utilize cover cropping or reduced tillage on at least some of their acres.

Barriers to adoption of soil health practices (cover crop and reduced tillage)

• The biggest barriers to planting cover crops and/or use of strip or no-till are lack of access to necessary equipment or custom applicators, as well as concern that they may not see a return on investment.

Barriers to enrollment in a carbon program

• In most cases, payment/acre as it stands today will not cover their costs to implement the required practices to become eligible for a carbon program.

Decision influencers

• The individuals who have the most influence on farmers’ decisions related to planting cover crops or implementing strip or no-till are consultants/agronomists, other farmers and family.

Interest in on-farm stewardship and conservation issues

• Fifty-eight percent of 617 survey respondents said they have become more or much more interested in on-farm stewardship and conservation in the past five years (40 percent no change, two percent less interested)
• Among non-adopters of cover crops or reduced tillage, 44 percent said they have become more or much more interested in on-farm stewardship and conservation in the past five years.

The post Over 66% U.S. Farmers Willing to Implement Soil Health Practices and Carbon Credit Program appeared first on North America FarmQuip Magazine.

Planned in close consultation with the U.S. Department of Agriculture, the first meeting of the Task Force for Reviewing Connectivity and Technology Needs of Precision Agriculture is set for Monday, December 9, at 9:30 a.m. in the Commission Meeting Room at FCC Headquarters. Chairman Pai has designated Teddy Bekele, Land O’Lakes Senior Vice President and Chief Technology Officer, to serve as Chair of the Task Force, and Catherine Moyer, Pioneer Communications Chief Executive Officer and General Manager, to serve as Vice-Chair.

“There is an urgent and growing demand for broadband from America’s farmers and ranchers” said, Chairman Pai. “As I’ve seen for myself in places like Rifle, Colorado, King Hill, Idaho, and Charles City, Virginia, farmers and ranchers are using connected technologies to collect real-time data in the field, make the most efficient use of resources like water, fuel, and seed, and increase yields, all to the benefit of American consumers. Making modern networks available from coast to coast is the FCC’s top priority.”

“The Task Force’s recommendations and reports will enable us to help America’s food producers deliver more, better, and cheaper goods to the table.”

The Task Force is a federal advisory committee and was created by the Agricultural Improvement Act of 2018, which includes provisions directing the FCC to work with the U.S. Department of Agriculture to develop policy recommendations to promote the rapid, expanded deployment of broadband Internet access service on agricultural land where service is not available. Federal advisory committees were established by Congress to provide federal agencies with outside, expert advice on policy matters.

Source: Federal Communications Commission

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A new startup, called the Farmers Business Network, was created on that idea—farmers getting transparent pricing and better information when it comes to making their decisions on seed selection, chemical purchases and other inputs.

Originally, a small group of farmers put together the idea for this network and two entrepreneurs brought it to life.

“The Farmers Business Network creates a future for farmers that is independent, data driven, transparent and fair with real competition for their business. It all boils down to more profits for independent family farms,” state’s the company’s web page. (www.fbn.com)

In the few years the FBN has been in existence, it has nearly 8,000 farmers participating as members. Those farmers work 30 million acres of cropland in the United States and Canada and are in almost every state—from Florida to Alaska, but are most heavily represented in the Corn Belt. The network has members in nearly every state, including Wisconsin. It also has 350 employees from Mississippi to Washington and into Canada with three of them covering territories in Wisconsin.

Charles Baron, a former Google program manager co-founded the network in 2014 with Amol Deshpande, a venture capitalist who had started other seed and agriculture businesses and is CEO of the FBN. Their business really launched a year later after they refined a platform to handle the increasing amounts of information from farms. The use of that data allows farmer-members to make better decisions using the network’s unbiased information.

Only a few years ago, this kind of network wouldn’t have been possible—the technology just wasn’t there. Now, with more and more data from farms readily available, FBN’s computing power helps farmers make decisions.

Their aim is to build the largest farmer-to-farmer agronomic and business network in the country, based on anonymous data-sharing from farmers. Farmers putting their data into the network’s database are guaranteed anonymity.

In a telephone interview, co-founder Baron told Wisconsin State Farmer that the network operates as an independent source of information for farmers and it is powered by the data they provide. “The Farmers Business Network then creates services and technology to leverage the power of that network,” he said.

Farmers pay $700 a year to be part of the network and can participate at any level they feel comfortable with. They can buy seed, chemicals and fertilizer through the network without sharing data if that’s their comfort level. Some farmers in the network, he explained, may have high-tech equipment with yield monitors and the data that comes with that. But other farmers have smaller acreage making it difficult to justify spending the money on the newer technology.

“We have farms in the network up to 20,000 acres and we have 80- to 100-acre farms,” Baron said. “We allow farmers to participate at whatever level of sharing and technology they have and feel comfortable with.”

“We created a plan with a partner last year for health insurance since that is one of the most out-of-control expenses for a farmer; and a huge number of farmers go uninsured,” he said. “With our plan, farmers tell me they have realized savings of up to 45 percent on their health insurance.”

“When farmers start sharing information, they can cut through the marketing that comes from the industry,” Baron said. Once they had the data at their fingertips, many network farmers realized they were paying two or three times as much for their inputs as they should have been, he adds.

Source: Wisconsin State Farmers

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“The higher net farm income projection comes despite continued retaliatory tariffs on U.S. agricultural products, but largely reflects expectations for trend yields and slightly higher prices for some commodities,” said John Newton, chief economist for the American Farm Bureau Federation.

Batey Farm grows soybeans and corn, which appear poised for another bumper harvest but face considerable headwinds in international markets.

In response to tariffs that the Trump administration has imposed on goods to combat market dumping, intellectual copyright theft and other issues, the European Union and China have slapped tariffs on U.S. farm exports.

That smacks America’s farmers and consumers disproportionately, say supporters of free markets and economists who criticize the administration’s policies.

The combination of Mr. Trump’s trade policies and several years of big harvests driving down prices have produced a double whammy for America’s farmers, the farm bureau federation says.

“We don’t really know what part of price drops is attributable to the tariffs and what part to the laws of supply and demand,” said Will Rodger, the farm bureau’s director of communications.

For Glenn Brunkow, 48, a Kansas farmer of soybeans and corn as well as some livestock, “the tariffs have hit us very hard, with soybean prices being significantly lower, and that has dropped my income by a great deal.”

Mr. Brunkow said farmers can’t endure without long-term optimism, given the cyclical nature of agriculture, but U.S. policies have now warped that rotation of up and down years, bumper harvests and thin harvests.

“Recently, it has not necessarily followed those patterns, and that makes it harder to see the upside,” he said.

Farmers suffered their biggest drop in incomes long before Mr. Trump was president. Incomes plummeted from a record high in 2013 and have been volatile since 2016.

“We had a lot of goals to really grow our operation,” said Kelly Whiteman Snipes, who runs a 300-acre farm with her husband in Indiana. “But these last five years we’ve just been in maintenance mode. Our goal the last five years has really been to break even.”

‘Farmers are very resilient’

Snipes Farm specializes in oleic soybeans, a sort of niche product that has found a market with a fast-food industry looking for a lower-fat cooking oil. Ms. Whiteman Snipes, 33, and her husband hold down other jobs and, as minor farmers, have not availed themselves of the USDA’s Market Facilitation Program for the administration’s subsidies, she said.

The program, though, is helping many other farmers survive lean times.

“Thank God for Sonny Perdue as the secretary of agriculture,” Mr. Whitt said. “The MFP payments we received have made an incredible difference. It’s allowed people to hold on and given a glimmer of hope that we can ride this thing out.”

The program’s first round, announced in September, distributed some $8 billion in federal grants to more than 860,000 farmers feeling the tariffs’ pinch, according to the USDA.

Mr. Trump authorized the second round of payments in December. Grants were made available to almond, corn, cotton, dairy, hog, sorghum, soybean, fresh sweet cherry and wheat producers. It’s not clear how much money will be handed out in the current round.

Farmers usually have crop insurance on three-fourths of their estimated harvest, but those prices were locked in last month. Prices stand at about $9.50 for a bushel for soybeans, Mr. Whitt said, which is below its historical highs and does not cover the cost of production.

The USDA program helps mitigate that hit.

“Farmers are very resilient, and these payments are helping agricultural producers meet some of the cost of disrupted markets in 2018,” USDA Undersecretary Bill Northey said in announcing the latest distributions.

Given a choice between the Market Facilitation Program and the market, however, some farmers said they much prefer the latter.

“We got MFP grants, and they helped, but we would much rather have free trade and higher commodity prices,” Mr. Brunkow said. “I don’t know of any farmer who wants to depend on government payments.”

Although prices are creeping up and bankruptcies have not swept across America’s rural landscape, the trade situation is casting a long shadow over the spring season because the global market has become as significant to the farming business as rainfall.

“While these projections suggest 2019 could be ‘better’ than 2018 for many farmers, much is up in the air,” Mr. Newton wrote. “Retaliatory tariffs are still in place, and recently both Mexico and the European Union threatened additional tariffs if [national security] tariffs on steel and aluminum are not removed, or if auto tariffs are put in place.”

Any trade deal reached this year would improve the outlook for a variety of exports, but farmers then would need to repair business relationships.

“At the end of the day, it’s not really the U.S. and China making a deal; it’s people throughout the chain making deals and using the business relationships they’ve built up over the years,” Mr. Rodger said.

With Brazil, Russia and other producers swooping in to meet demand, U.S. farmers may have to fight to regain their long-held market dominance.

“The world demand is still high, but where is the world going to get it from?” Mr. Whitt said. “We’ve got to play in a global market, and I’m afraid we might have lost a pretty valuable seat at the table.”

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“Dr. Goeser’s leadership will ensure farmers and ranchers are engaged as partners for their work as stewards, improving land, air and water resources for future generations,” said Erin Fitzgerald, U.S. Farmers & Ranchers Alliance CEO. “His science expertise and passion for supply chain engagement brings our sustainable food systems to the forefront which is a primary focus of USFRA’s new science capabilities.”

Goeser’s appointment aligns with USFRA’s “Science to Sense-Making” program, which will promote agriculture as the solution to producing specific environmental, economic and social sustainability outcomes. Goeser’s leadership will help produce new research and educational material on the science behind sustainability for farmers, ranchers, thought leaders, food retailers and other stakeholders in the food value chain.

“Science to Sense-Making will contribute to growing the science and sustainability programming and understanding from farmers and ranchers to ensure the sustainable future of our food systems,” said Goeser. “I am eager to help make agricultural science accessible, especially from the important work of farmers, ranchers, food makers, aggregators, consumer product good companies and retailers. The ability to convene and build collaboration has never been stronger at USFRA, and we aim to bring prominence to our organization as the primary center for sustainability innovation.”

In his new role, Goeser will also lead USFRA’s new Ecosystems Services Science Advisory Council, made up of world-class sustainability researchers who will help improve general understanding of agricultural science. The Council’s work will define how stewardship values are directly tied to sustainable development—and will link directly to the UN’s Sustainable Development goals’ desired outcomes focused on people, planet, prosperity, peace and partnership.

“We welcome collaboration with all scientists seeking to connect with other researchers through the World Business Council for Sustainable Development, U.S. Department of Agriculture and Foundation for Food and Agriculture Research, among others,” said Goeser. “From pollinators to economic resiliency, we’re working together to identify research, sustainability programming and communications knowledge gaps to bring science to sense-making for all food and agriculture leaders.”

Goeser previously served as Vice President of Production and Sustainability at National Corn Growers Association where he launched and led the Soil Health Partnership. His work grew partnerships with federal and state organizations through a focus on agronomic production, economic resiliency and environmental programming, and outreach to stakeholders across the food value chain.

Source: U.S. Farmers & Ranchers Alliance

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