With about 35,000 farms, Colorado does its fair share of feeding the world. The state generates $41 billion worth of economic activity as a result of its agricultural industry, which employs more than 170,000.
For 2017, however, the numbers are dropping. The 2017 forecast for Colorado’s net farm and ranch income shows a drop from $444 million in 2016 to $392 million. The 2016 numbers were already down from the $1.3 billion in 2015, according to the Colorado Department of Agriculture estimating team. The record high came in 2011, with a net farm income of $1.8 billion.
Colorado’s top agricultural commodities include cattle, corn, wheat and milk. The supply-and-demand quotient is recalibrating, with scales tipping on the supply side of production for 2017. Simply put: “As people eat more, people produce more,” said Tom Lipetzky, Colorado Department of Agriculture director of marketing and strategic initiatives. “About 25 percent of wheat produced is already in storage globally.”
How a business manages its inventory can have a tremendous impact on the financial health of the company. Managed properly, inventory can be a great source of increased margins, higher revenue, or a combination of the two.
A few factors are feeding into the current glut of certain agriculture commodities. One is good weather. When states experienced droughts in 2013 and 2014, the price increased for beef because some ranchers had to sell their cows. When the rains started, more cattle were brought back into the market. Now the price for beef is in decline because of that increased supply.
“Chicago Mercantile Exchange futures have fallen from $1.71 per pound in November of 2014 to $1.26 per pound this week — a 26 percent decrease,” Lipetzky said, referring to live cattle prices in the first week of April 2017.
Profits in cattle and small grains are lower than they have been in years, according to Lipetzky’s team. Although some costs associated with production such as fuel and fertilizer are lower, they aren’t low enough to balance out the costs.
“Chicago Board of Trade futures have fallen from $8.43 a bushel in August 2012 to $3.60 a bushel this week — a 57 percent decrease,” he explained, referring to corn. The reduced price brings benefit to cattle ranchers but certainly not to corn producers. The prices gave ranchers the opportunity to grow their herd numbers, but now the increased number of cattle in the market is reducing the take-home revenue for them as well.
“About 90 percent of the corn crop in Colorado is harvested for grain to be used mainly for livestock, feed and ethanol production,” said Eric Brown, communications director with Colorado Corn. “There’s not much ethanol production in Colorado — just about all corn grown here goes to a local livestock operation.”
In fact, about 70 percent of Colorado’s agricultural production focuses on livestock and livestock products — driven by the cattle industry. More than 60 percent of the state’s agricultural revenues are attributed to the growth of cattle and calves.
“The existence of large carryover stocks from 2016 is the biggest drag on the market,” Lipetzky said, talking about the over-production and under-selling price for corn. “USDA is reporting about 4 percent fewer acres will be planted to corn in the U.S. this year, so that is a positive for prices.”
Wheat is taking a similar downward dip. Kansas City Board of Trade futures fell from $9.50 per bushel in September 2012 to $4.20 this week — a 56 percent decrease. Local Colorado prices can be lower than this national price because of transportation to delivery, according to Lipetzky, who said Colorado farmers are bringing in $1 to $1.25 less for that reason.
USDA recently reported a possible 8 percent reduction in the number of acres planted with wheat in the U.S. this year. “That could put some upward pressure on prices, but still global stock remain very high, and if other wheat-producing regions of the world continue to have good crops, it would be hard to see prices increasing significantly,” he added.
For milk, Chicago Mercantile Exchange futures have fallen from $24.50 per hundred pounds in September 2014 to $15.18 per hundred pounds this week, a decrease of about 38 percent. Colorado milk producers are doing marginally better than these national numbers thanks to local demand from LePrino Foods Co. and Aurora Organic Dairy.
The overall decrease in cash receipts for farmers and ranchers causes everyone in the agriculture industry to tighten their belts. “We’re seeing farmers not buying as much equipment, and some equipment dealers have shut down,” Lipetzky said. “It’s one of the ways farmers and ranchers deal with these prices — managing their expenses.”
Agritourism, where farmers and ranchers bring people onto their land for activities such as bird watching and dude ranching, is a sidestep that some are taking to get through the squeeze.
Looking into the future, there’s a movement to develop export markets, Lipetzky said. “We’ve seen Colorado’s export market quadruple from $450 million 20 years ago to $1.8 billion now.
“Producers are looking to the Trump administration to protect gains made under NAFTA, Korea FTA and to jump-start bilateral negotiations with Japan to achieve the tariff reductions that would have been part of TPP,” he added. “Also key will be Trump’s talks with China’s leaders about beef access.”
Chris Wagner, a farmer in Mead since 1981, has seen a lot of highs and lows in his career. He currently plants about 300 acres of what, 200 acres of barley, 200 acres of sugar beets and 400 acres of corn.
Growing up on the family farm in the 70s, Wagner cut his teeth on the good days of high prices and good yields. When the cycle changed in the ’80s, a lot of farmers fell hard.
“We’re in another cycle now, and hopefully farmers have socked money away instead of going hog wild,” he said.
Wagner sells malting barley to Coors, which he uses as an example to describe market prices. The company looks at wheat and corn commodity prices, which are low, to get an idea of barley prices. It then adds that into its own bottom-line sales to determine the price it will offer for his product.
“A farmer says ‘if that’s what you’re going to pay, then that’s what we’re going to do.’”
With all four of his commodities being down, Wagner said he’d seen worse times “but this is darned near what it was in the ’80s and ’90s.”
His driving attitude is that supply and demand as well as expenses and income are always in flux. “The reality is that as a business person, you have to take the good with the bad. We get up earlier these days, though, because we’re not sleeping very well — we’re anxious.”