Day 3 - Tuesday
Theme: US Farm Bill; Farm cooperatives & swine production
The second day of the Midwest Crop Tour began with a presentation on the American Farm Bill, which is currently undergoing revisions by the American Congress. What better place to learn about crop insurance and subsidy policies than the state of Illinois where a large portion of producers sign up for the government programs provided by the Farm Bill. Kevin Brooks, an agricultural economist and owner of BK solutions was our guest speaker for the morning. Kevin led us through the history of the price support programs and the political forces that cause changes in policy. After crossing the border into Iowa we traveled to a small-scale, family farm which raises corn, soybean, forages, beef cattle and pigs. Here, we learned how family farms are able to able to survive and compete with large corporations in the same markets. It was interesting to see the similarities between issues related to the Farm Bill, which concerns crop production and those faced by the family-run Whetstine swine farm.
Kevin Brooks, of BK Solutions, spoke to the group in the morning. He provided us with an overview of economic, crop and other miscellaneous stats, followed by a description of the Farm Bill. Things in Illinois are not so rosy in the field and its economy. The state of Illinois is spending a third more than its current revenues. Many industries have already left Illinois. In addition to this houses worth $340,000 in 2008 would likely fetch $200,000 on the market now. A similar house in neighbouring Iowa would still be worth $340,000. To compound these issues Mother Nature has been harsh. For example in Champaign County between April and August there was only a half inch of rain. To make matters worse there were 38 degree days for an extended period of time. The USDA is predicting corn yields of 0-50 bushels/acre with some corn yielding up to 100 bushels/acre. More shockingly Kevin stated he thinks the USDA is overestimating corn yield. The lack of rain allowed spider mites to flourish further damaging soybean yields. Workable acres in Illinois are currently commanding $12,000 to $14,000 per acre on the market with rent values of $300-$500 per acre. 40% of American corn goes into ethanol production.
The next topic of discussion was the Farm Bill. The Bill outlines how money is allocated to cash crop farmers. The money is distributed to farmers in the form of subsidies. The subsidies vary from direct payments to price support. The Farm Bill is revised every five years. The changes made with each Bill are optional for farmers to use. For example most farmers are still under the 2002 program, even though they would receive more money from the 2008 program. The 2008 program is more beneficial in the long run. However many farmers do not understand the complexity of the programs and only recognize that they would receive less money in the near future. The 2008 Bill has made the program an income enhancement instead of the previous safety net. Even in highly profitable years farmers will still receive payments under the 2008 program. Due to the United States' dire economic conditions there is speculation that the new Farm Bill will not include the direct payment subsidies. The past couple years have been excellent for cash croppers. On average a 1,400 acre cash crop farmer in Illinois had a net income of $330,000. This makes it easier politically to remove the subsidies. Nothing will happen on the Farm Bill until after the election in November.
Another way the federal government provides assistance to its farmers is its crop insurance programs. It is an expensive but potentially lucrative program for farmers. Illinois has the highest acreage participation rate in the US. 44% of the acres in Illinois are not protected by any crop insurance. Three percent of Illinois farmers have the maximum coverage which covers up to 85% of historical yields. The remaining 53% have some form of crop insurance. The insurance is based on revenue not yield. This better reflects the current price of the crop.
Numerous insightful opinions were given. A large portion of the Farm Bill supports nutrition programs, such as SNAP, which provides school lunch programs across the nation. Kevin speculated that the reason this is in the Farm Bill is to ensure conventionally produced foods can maintain their dominance in these places, as opposed to emerging alternatives, like organically produced food. Many farmers boisterously oppose the Farm Bill and state that the government should stay far away from their operations. Kevin then cited a study where time and time again it was proven that when purchasing crop insurance it is most worthwhile to buy the maximum protection. Kevin's left us with some final thoughts which were not very optimistic. If the ethanol sector does not survive then the Golden Era of agriculture will cease. This has not happened yet because the most powerful lobby, the Farm Bureau, has successfully kept the agriculture sector afloat in such poor economic times. Kevin predicted the "fiscal cliff" will have to be reached for any significant changes to happen to the Farm Bill. Kevin's main point he stressed to us is "Prepare for the future." The glory days never last forever.
The tour at the Whetstine swine farm was led by brothers Ed and Larry and their son/nephew Clint. They were very open in sharing statistics about the inputs and outputs of the farm, which was very helpful for grasping the scope of the farm itself as well as the co-operative. The farm comprises approximately 1500 acres, which supports 800 acres of corn, 400 of soybean, 250 feeder cattle, 100 beef cows and 12,000 pigs per year. Infrastructure on the farm includes one weaner barn and two finisher barns, 6 months of manure storage and they recently built a new open concept cattle barn for their feedlot. The farm has a broker who manages marketing of the hogs. Hogs are generally 270 lbs when sold, but the recent high temperatures have caused a decrease in market weight. The farm is still family run and diverse in terms of cropping and livestock, and has recently become part of a co-operative of 13 family-run swine operations.
They were very proud of the co-operative that was started in 1998 and it is very beneficial to their operation. The co-operative started with 13 small family-run swine farms which were struggling on their own, didn't want to expand, but wanted to continue farming. With the formation of the co-op, they built a $2 million farrowing facility, which has a full time manager. Each of the farms hold shares in the co-operative. One share entitles the owner to 500 weaners every 9 weeks at $33 per piglet. The owners of the cooperative are not involved in daily operations of the farrowing facility; in fact, most of the shareholders haven't been to the facility since it was built. This is beneficial for the operation as a whole, as it limits conflicts and increases efficiency in management of the co-operative. The design of this co-op also helps to decrease the labour and risk on the individual shareholders' farms. It has allowed the farms to remain relatively small and family owned where otherwise, they likely wouldn't have survived.
Aside from the financial aspects of the farm and co-operative, it was interesting to see the way that the younger member of the family (Clint) had been integrated into the farm management. Since the two brothers were of the older generation, they had left the integration of new technologies into the farm operation to Clint. They commented that the best way to maintain a working relationship with family members was for each person to have their own niche, and to not comment too much on the other person's responsibilities. This includes the women of the family, who are generally concerned with the finances. The business model as a whole runs smoothly with each member of the family understanding their role and maintaining effective lines of communication. With the age of Ed and Larry the long term goal for the operation will be for Clint to take over the full managemant of the farm, however the two brothers are in good health and are not ready to slow down, even in their seventies. The Whetstine are fortunate to have a member of the next generation willing to continue the family farm since many operations of similar size are facing issues with succuession. There are not many younger men and women interested in staying on family farms in the United States. This is further complicated by the taxation policies surrounding the transfer of farm land from one generation to the next. Clearly, the Whetstine Family is quite happy with where their farm is postioned today, however, these external forces such as the issues with inheritance tax make planning for the future very difficult.
So what can we take home from today? Being able to add value to a business can create better returns and lower your risk. This can be attained in many ways, such as the formation of co-operatives like the one the Whetstines are part of, or, as Kevin Brooks pointed out the cooperation between land owners who rent out their fields and the tenant farmer. The Whetstines are also a great example of how diversification, as a method of increasing the value of the farm is important, especially on smaller farms. Agriculture is also a great model for other businesses and for life strategies. In the words of Kevin and Ed: plan for the future, minimize risk, go for your goals and never be afraid to make mistakes.