While good returns in recent years will help crop farmers overcome the effects of the 2012 drought, some established ranchers are thinking this might be a good time to leave the business.
The USDA Crop Progress report released Monday showed yet another decline in conditions. With over 50% of the nation’s corn crop in Poor or Very Poor condition, it appears unlikely that anything now can be done to change the anticipated decline in yields. Despite widespread, yet limited, moisture in the Corn Belt this week, conditions continued to deteriorate. In fact, many analysts have begun to compare 2012 to 1988, and year-to-year comparisons actually do show this year’s crop is equal to, or in worse condition, than 1988.
Closer Look: State-by-state breakdown of USDA Crop Report
Of course, if it turns out to only be the worst yield in 30 years, that could be considered a plus, as we are in the worst drought since 1956. We know yields have been severely hurt, but the real question has become how many acres will be harvested, as a lot of corn in the Corn Belt is being chopped for silage.
In the more marginal areas, the dryland corn is practically a total loss. Anecdotally, in my area in eastern Colorado, producers started baling the corn as soon as it was released by the insurance companies. However, the nitrate levels were so high after the initial tests that most have given up trying to utilize it as a forage, as it was too “hot” to even make it practical to mix.
Despite the short-term setback, however, many grain producers will actually exceed per-acre revenue projections. And, in those cases where the drought impact will move some into negative return territory, most are still very optimistic about the future, and in good shape financially given the record returns of the last few years.
While there may be mostly long-term optimism relative to grain production, the attitudes in the cattle industry haven’t survived the last several years of drought nearly as well. The last several cattlemen’s meetings I’ve attended have been disconcerting, as long-term, well-established and successful producers have talked openly about considering getting out of the cattle business.
The common refrain is that the land they own has increased in value by a considerable margin. Meanwhile, the cattle have been break even at best and the thought is that perhaps it’s time to cash in that value appreciation and live without the stress. Most of these folks were expecting the reduction in cow numbers to boost profitability; instead, balance sheets have taken a hit, and cash flow has moved sharply negative.
The wonderment at the beginning of 2012 was whether this was the year that expansion would begin. Today, the question is how small will the cowherd have to get to trigger expansion?