Dairy Industry Crashing in 2015

Just last year, milk prices started skyrocketing as China had poor milk production and needed to begin importing milk.  The United States Dairy Farmers were happy to help China with their milk production crisis.  However, now that exports are back to normal, milk prices are crashing.  Talking with Dairy farmers today, they mentioned their checks were going from 25 cents per hundred down to 15 cents per hundred.  Other farmers mentioned similar slides in prices.  Meanwhile, other farmers see the price slide and are being asked to pay 5 cents per hundred to pour milk down the drain.  Why would we pour milk down the drain?  To stabilize milk prices.  While customers will be happy to see the gallon of milk return to $3.00 prices, farmers will be not so appeased.

With the large cash crop Ag sector crashing also, in its second year down, Ag producers were hoping to cash in on getting more dairy farmers to buy new equipment.  Looks like the Ag equipment companies are in for a long hard year.  I expect more layoffs coming in manufacturing plants this year as well.  Last year Deere lead the way with thousands of layoffs.  I think this will be a good year for anyone looking to get new farm equipment as companies will be giving away their equipment for bottom dollar prices to maintain cash flow and minimize layoffs/downsizing.

Harvest 2014: Canadian Yields Down

Tough news to swallow this year for the Canadian small grain farmers, yields on Canola and Wheat are down around 26% after last year’s high.  This will cause a lot of Canadian farmers to pinch their pockets until next year.  Canada is a big source of ag equipment business, and could hurt an already struggling year for ag equipment producers.

Obviously the prices of Canola will begin inching up.  If farmers were prepared, they would’ve waited to lock in their prices.  Usually that is not the case.  Most farmers who lock in, lock in fairly early a decent percent of their crop.

I will be able to provide a better update on the situation come the end of September when I visit Canada for two weeks.

Here is the link to the article:  Canadian Crop Yields Down for 2014.

Harvest 2014: Advancements Continue

Well I’m currently in Charleston, Missouri helping with Corn Harvest on a 3,500 acre farm.  We are already far into the harveset season for the Mid-West.  Wheat harvest started back in June in some parts of the country.  Currently, Corn harvest is under way as well as Canadian Wheat and Canola.

Being out here in the Mid-West really brings the lyrics of “Fly Over States,” by Jason Aldean, to life.  Its long days, 12+ hours nearly everyday.  

In the midst of the harvest, we are seeing new advancements in technology for Ag Equipment to help farmers get more done and make harvest less stressful.  New advancements such as grain cart and combine syc technology to allow easy unloading of the combine on the go.  New advancements such as pivoting unload tube spouts on the combine to allow easier distribution of grain in the grain cart during the unload process.  GPS is nearly standard when you look around at the combines in the Mid-West.  With big field sections, GPS really helps to get the most out of the land and make things easier.

It will be interesting to see the advancements yet to come in the Ag Equipment realm.  With fewer and fewer farmers, we need to provide the best equipment possible to allow farmers to do their job and so that we all can have food on our tables.

Has the harvest started in your area?  Any new advancements to comment on?

Russia Blocks US Ag Imports

This week Russia announced, in an effort to put pressure back on sanctioning countries, that it would no longer import their Ag Products.  The US last year exported around $1.3 Billion in Ag goods to Russia.  Reports indicate that while this will hurt Ag prices for the US markets and others, this block could destroy what is left of Russia’s economy.  Russia has already seen 7%+ inflation this year and that could double very quickly after this block is implemented.

So what does this mean for the US?

While most reports did not specify the exact details of the block, here is some information I dug up on what Russia imports from the US.

Table 3: Russia’s main agricultural import products, average value in 2008-10
Import value Share in agro imports
million US$,  %
Bovine meat 2,399.1,  8.0
Beverages 2,203.2,  7.4
Pig meat 2,111.4,  7.0
Milk (equivalent) 1,539.9,  5.1
Tobacco 1,207.8,  4.0
Sugar and honey 1,172.6,  3.9
Poultry Meat 1,136.1,  3.8
Cheese 1,094.2,  3.7
Total agricultural imports 29,972.3,  100.0
Beverages: Beer, wine and spirits
Source: FAOSTAT

Another Ag import that was mentioned in another article I read was Farm Machinery.  If this is also banned, it could have quite an impact on the already tough year machinery manufacturers are having.

While this will have an impact on the US Ag markets, I’m interested to see just how long Russia plans to cripple its own citizens and make them pay for their leaders need for more power and control by attacking Ukraine.

What are your thoughts about how this will impact the US Ag markets?  What about Russia’s economy?

Ag Machinery Sales Sliding

Well if you have not heard yet, hear it now… companies like AGCO, Deere, CNH, and more are all cutting their forecasts for the year and projecting much lower than anticipated machinery sales.  Weak crop prices have caused producers and harvesters to reuse their equipment another year rather than trade-in and upgrade.  This does not mean that farmers are necessarily hurting, but rather taking a more conservative approach to spending this year with the weaker prices to ensure profitability.  

I think most farmers would prefer weaker prices and higher yields, as they can better forecast their harvest volumes and estimate their income for the year end.  Typically, high prices are a result of low yields at various places across the country or across the globe.  Low yields is bad for everyone, less food to go around, crop insurance companies paying out large sums, less predictability on income for the farmer, and uneasy markets.  The only people who benefit from high priced crops, are those fortunate enough to have had high yields during that same time period to capitalize.

The sliding machinery sales is not a bad thing for the farming industry as 2013 was the peak of the ag boom as of recent.  It is just like any other stock market pull back that we typically see.  I think the biggest trouble this time, is that machinery companies were not predicting this large of a pullback in sales, this quickly.  Many of the ag machinery companies just finished expanding, upgrading, enhancing their product lines.  Now, the markets have softened, fewer buyers are available, and the companies are overstocked with employees and large budgets.  

As always, money always finds its way… and eventually the machinery companies will get things balanced and be ready to capitalize on future market upswings.

Ag Equipment Industry Summary for 2014 thus far

In 2013, the Ag Equipment Industry saw its highest volumes of Combines ever sold in the United States. Coming off that peak this year, with grain prices coming back down to more normal levels, the industry is seeing a pullback in demand for the large combines this year. However, not all is lost this year for the Ag Equipment sector. In fact, timing couldn’t be better, as the Dairy Industry is having its best year on record this year with prices reaching all-time highs. For the past decade, Dairymen have barely gotten by. Today, they are stronger than ever and poised to cash in on the high prices. Flush with cash, these Dairy operations will be investing in new Hay & Forage equipment for providing for their herd’s needs. The investment from Dairymen will help offset losses in Combine sales for Ag Equipment companies. New Holland stands to see the biggest gain this year, as they command the Hay & Forage market with their Best in class equipment and patented technology.

Why are milk prices so high this year? Well, China likes Milk, and they typically get most of their milk from in the country or New Zealand, both of whom had droughts this past season. Thus, they have begun importing dairy from the United States. This has driven the price of milk to an all-time high. Will the prices remain and for how long? Well, I think by the end of the year prices will begin going back to more normal prices and that this will be a short lived extravaganza for Dairy farmers.

Overall…

Thus far, farmers seem to be happy with the steady year, average prices are good with great yields and are preferred over years with high prices but also high risk for collecting good yields. Dairy farmers have cash again, and that helps the other farmers be better able to make better marginal sales on their commodities.

Questions remain though for the future of the Ag Equipment Industry. Where will technology and testing and everything lead the industry? Will equipment keep getting larger? Will the future in low labor cost drone type equipment? Or will the industry start moving back to smaller, lighter, less compaction equipment?

What direction do you think the Industry should go in? I’d love to hear your thoughts!