2009 Kansas Agriculture Outlook

Let's Play A Game

“You got to know when to hold 'em, know when to fold 'em, know when to walk away and know when to run.” These well known lyrics of Kenny Rogers, The Gambler don’t just apply to a game of cards anymore.

As producers look down the road to 2009 a lot of questions come to mind. Hold out for better prices or take the money and run? The stakes are high and the winnings are uncertain.

But every hand’s a winner and every hand’s a loser – it’s all in how you play your cards. Before laying your chips on the table, consider the inside advice of Kansas agriculture leaders.

Kansas Secretary of Agriculture, Adrian Polansky sees 2009 as a year with challenges that will push for sound decision making. “One area we really need to focus on is risk management,” Polansky said. “For production agriculture the volatility that we’ve seen on the input side whether it’s diesel fuel, fertilizer or other inputs; it appears that we are likely to continue to experience volatility. There will certainly be some market dynamics that we will have to pay attention to in order to be successful.”

Polansky also mentions the uncertainty that lies ahead with a new administration on the federal level. “There is certainly interest in some of the critical appointments, we also have much of the Farm Bill yet to be worked through and there are still many unanswered questions in regard to how the Farm Bill will be delivered, which is very significant to all producers.”

In terms of crop agriculture decisions, Polansky says that policy in terms of biofuels could have significant impact on potential profitability. “For agriculture and the rural economy it’s important that we work towards policy decisions to enhance biofuels and bio-refineries that have positive impact.”

To better prepare for the risks ahead, Polansky urges producers to take advantage by planning now. “We’ve got an opportunity to lock in some favorable diesel fuel costs, look for opportunities to purchase fertilizer and look at marketing strategies. Hopefully we’ll see some bumps up in terms of commodity prices and farmers can take advantage of those opportunities. We have some significantly higher fixed costs and the safety net of the farm bill for many people has a significant susceptibility to potential losses at the farm program levels…all years are that way but certainly 2009.”

Dusti Fritz, Kansas Wheat executive officer, echoes the same thoughts of risk management. “If I had to pick one word for what Kansas producers may face in 2009 that word would be uncertainty,” Fritz says.  “And it applies to all aspects of our industry from policy to research funding to production costs and markets -- and this is in addition to the risk that farmers face each year with mother nature.  Risk management tools are going to be a key component in producer profitability more now than ever before.”

However, even with all of the uncertainty producers are facing and will continue to face, Fritz is optimistic about the future. “There are opportunities in agriculture, particularly for wheat, in the areas of risk management, research and technology to name a few,” Fritz says. “Despite the ambiguity in our nation’s economy and financial sector, agriculture has been one of the strongest industries in our country and it has the potential to continue to be.”

Bob Gillen, Head of the Western Kansas Agricultural Research Centers says that the lack of predictability is a challenge, but that it shouldn’t push producers to cut corners. “Input production costs such as fertilizer herbicide and pesticide prices have not dropped dramatically,” Gillen says. “Grain prices have come down but input prices have not come down as much, which puts kind of a squeeze on the situation. However, farmers should try to embrace long term crop practices that conserve soil fertility and utilize soil moisture as effectively as possible.”

Gillen says to look at the long term outcomes, “Don’t cut corners now because of the tight economic situation because that will only cause more problems down the road. Keep in mind what is really important; good soil fertility, soil texture and good basic crop rotations. It’s easy to react to a moment and trends -- but that’s not as important as the long term. Obviously we have to survive in the short term, and do what we have to do but. Don’t make any decisions that will undercut long term crop and soil productivity.”

Matt Teagarden, Director of Industry Relations & Information Technology for the Kansas Livestock Association foresees international relations continuing to be a major influence on domestic production. “Markets have been volatile in 2008 and I would expect that to continue in 2009. That volatility presents both challenges and opportunities for cattle producers,” Teagarden says. “The wide swings can be overwhelming, but astute risk managers should see chances to protect their margins. The beef industry continues to face excess capacity in the feeding and processing sectors. Cow-calf producers have benefited from these circumstances, but eventually that excess capacity will be rationalized. Our ability to produce more pounds of beef with a smaller cow herd compounds the issue.”

Teagarden sees the year ahead as a progressive time. “The expected continued recovery of export markets will provide support for the beef industry,” Teagarden says. “Our ability to add value to portions of the carcass that are more desirable in foreign markets supports beef and cattle values in all segments.”

Finding ways to incorporate safety nets will be a key to success says K-State agricultural economist, Vincent Amanor-Boadu. “Producers shouldn’t try to go purchasing assets to avoid paying taxes. Pencil it out and make sure that the particular asset will provide the value you are looking for. Be careful, don’t make payments on assets not generating enough value to pay for themselves just because you didn’t want to pay taxes. All purchases must be strategic,” Amanor-Boadu says. “Farmers should be focusing on enhancing their strategic position in the market place, because the general economy is going to be fluid.”

He also says the way to manage the challenges ahead is to manage the market risk side and the production risk side. “Because farmers are good at the production risk side—it’s the marketing risk that they need to minimize price risk and make good contracts that work,” Amanor-Boadu says. “We’ve been to $12 wheat and down to $3 wheat in a very short time. People should be focusing on the strategic outcomes. If you are looking at a good price lock it in. It’s better to loose what you didn’t expect to have than to loose what you could have avoided loosing.”

Risk management, volatility and uncertainty may be the buzz words for 2009, but certainly not the only issues. Director of the Kansas Agriculture and Rural Leadership (KARL) Program, Jack Lindquist sees the growing need for leadership. “I am finding that the challenges we will face in the next year, during this unprecedented recession, are putting more emphasis on the need for articulate, ethical leadership, than we have seen in our history as an agrarian state,” Lindquist says. “The need for stellar leaders in our rural communities and in agriculture continues to be extremely important.  This is because of the challenges that are projected to confront rural communities and the agricultural sector over the next few decades. The people who lead rural communities and the agriculture industry are going to need knowledge, skills and competencies to succeed in protecting the livelihoods and lifestyles of their people.”