Crop budgets reveal uncertain times

When comparing crop budgets for 2009, there just aren’t any clear winners, says Nathan Smith, University of Georgia Extension economist. “There isn’t a clear winner when looking at the budgets because we just don’t know what prices will do,” says Smith.

“From a strictly cost-of-production standpoint, soybeans are getting a hard look. Full-season soybeans clearly are a winner, but most of the soybeans planted in Georgia are double-cropped.”

Peanut prices, he adds, are headed downward, and this is much different from last year. “We might not see any peanut contracts until planting time. Looking at dryland crops, cotton, peanuts and corn all are possibilities, depending on yield prospects. Of course, the irrigated budgets look better because the improved yields associated with irrigation consistently help in terms of per-unit costs,” says Smith.

Farmers will make their crop decisions for 2009 based on several factors, he says. Some growers primarily will be looking at which crop will help to minimize their loss of profit. Others might make their final decision based primarily on agronomic factors, such as maintaining their crop rotation, he notes.

Smith says he didn’t think he’d be saying this at this time last year, but government farm programs could play a major role in any crop decisions growers will make for 2009.

“If prices stay this low, cotton and peanuts will stand a better chance of triggering the farm program’s safety net. All of the markets are off now, and there’s a lot of uncertainty about where they will be this year,” says Smith.

Another factor in crop selection will be insurance, and how that’ll be affected by what the market does in terms of cotton, corn and soybean prices, he says. Revenue insurance was attractive last year at deadline time, but if the market rallies in January, it might change the entire picture, he adds.

It won’t come as a surprise to farmers that profit margins are tighter in 2009 budgets, says Smith. “Margins are tighter making it more difficult from a budget and credit standpoint. Overall, costs in the new budgets have increased by about 20 to 30 percent. Chemical and seed prices may stay the same or increase slightly. Our budgets for fuel are probably too high. If the economy continues to weaken, crude oil may reach for a bottom. There should be a softening of demand for fertilizer, so that might bring down fertilizer prices to some extent,” he says.

In the past, the state Extension budgets haven’t required much tweaking from year to year, says Smith, but all of that changed last year. “Now, things can change on a weekly basis. This is the most uncertainty I’ve seen in crop budgets since I’ve been working with them. Corn, wheat and soybeans dropped in price by 50 to 60 percent this past spring and summer, and fuel prices skyrocketed, though they’re starting to come back down now. But these kinds of wild swings are not sustainable.”

All of these factors together will probably make it more difficult than ever for farmers to make a choice about which crop or crops to plant in 2009, says the economist.

“Some growers will drag out their decisions later this year. For financing purposes, decisions might be made earlier as banks want to get operating loans completed. Of course, there will be some alterations to these loans as time goes on. Seed availability may be a concern for some growers, and for those who want crop insurance, they’ll have to make decisions by Feb. 28.”

Taking current factors into consideration, Smith says there will be some changes in Georgia’s crop acreages for 2009. “Wheat harvested for grain certainly will be down. And if I had to say right now, I’d guess that peanuts will make a major shift backwards in 2009, possibly back to 2007 levels, which would be a reduction of 25 to 30 percent. We might see a few more soybean acres in the state, but it’s difficult to tell this early,” he says.

It’s also too early to tell whether or not the nationwide credit crunch will have any effect on the ability of growers to obtain lending for this year.

“I don’t think we’ve seen any real evidence of it yet. There’s certainly the potential for problems, considering the nationwide credit situation. The demand for Farm Service Agency guaranteed loans will be higher, but I don’t know if those will be limited. I’m sure bankers will be more cautious in their lending practices. And growers are looking at budgets that are in some cases double what they were in previous years. The risks are larger this year for both lenders and growers.”

For some farmers, lending guidelines will be more stringent, says Smith, depending on their current positions. “Lending on cash flow will be a tough proposition.”

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TAGS: Outlook
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