Water, profitability occupy attention of ag-industry professionals

WINDSOR — Northern Colorado ag professionals are searching for strategies to return to profitability in the face of headwinds that include water shortages, over-regulation, labor shortages and increasing costs.

In fact, the difficulty in consistently producing a profit makes selling available water shares increasingly attractive, which makes the ag industry precarious for future generations.

Ag professionals gathered Tuesday morning at Elevations Credit Union in Windsor to participate in BizWest’s CEO Roundtable. The event is sponsored by Elevations, HUB International and EKS&H.

Bill Markham, a Berthoud farmer and owner of M&M Farms, said he considers water to be a primary issue for the ag industry.

“Ag bankers are looking at commodity prices. Cash flow doesn’t look good right now, and we won’t get a January payment on sugar beets. A lot of farmers don’t own their ground; they rent from other people. And those landowners are looking at selling the water and making a lot of money instead of renting that water to the producer,” he said.

Markham said that about 30 percent of the water originally brought into the region by Northern Colorado Water Conservancy District is used for agriculture and the remainder for municipal uses.  As cities grow, there’s more pressure on water-share owners to sell.

Finding a way to mitigate that pressure from urban users of water occupies a lot of time for ag professionals. Mark Sponsler, CEO of Colorado Corn Growers, said a stopgap solution to “slow the bleeding” might be to encourage cities and farmers to work together in a way that reduces the need of farmers to sell their water rights. In a dry year, for example, it might be more advantageous for farmers to lease their water rights to cities instead of fighting drought to produce a crop. The cash payment for water in that year might enable a farmer to make improvements that would make the farm more profitable in future years. City needs could be met in the dry year without permanently drying up neighboring farms.

Sponsler called the approach a “risk-management tool” for use in dry years. He said it isn’t the ultimate answer. “We absolutely need more water storage,” to store water that would otherwise flow out of the state.

Mary Kraft, principal of Kraft Family Farm in Fort Morgan, a large dairy operation, agreed on the need for storage. She noted that Colorado water law is extremely complicated and that conservation doesn’t always produce the result that some think. She said secondary water-right owners downstream depend upon water being used upstream so there are return flows into streams and aquifers. She also said that decisions to lease water to non-agricultural uses can result in a reduction in feed grains that dairies like hers need to produce milk.

Competition for water resources, among other considerations, has resulted in Sakata Farms deciding to forego production of sweet corn and cabbage. Sakata is looking to diversity in the use of its 3,000 acres, Robert Sakata said. “We can’t sell a 4-inch ear of (sweet) corn,” he said, which can happen if there isn’t enough water to produce traditional corn ears.

And water usage is at least partially causing increased interest in hemp crops, which require less water. Morris Beegle, CEO of Colorado Hemp Co., said that Colorado hemp farmers till 9,000 of the total 25,000 acres of hemp produced in the United States. He expects the Colorado hemp acreage to double in the short term because of favorable legislation in Colorado and because some traditional farmers are looking at alternative crops that require less water.

Finding ways to “maximize crop per drop” of water is on the minds of Colorado farmers, Sponsler said. Drip technologies are advancing, but they’re expensive. “It’s like buying the farm all over again,” he said.

Yet such strategies may be necessary for the future of agriculture. Jason Brancel, CEO of Agfinity, a farm co-op, said farmers and suppliers are getting more sophisticated in how they evaluate the costs of crop inputs. “If I have an input need for diesel fuel, when is the best time to make that investment in fuel,” Brancel asked. “Last summer, there was a run-up in the price of corn. How many (farmers) took advantage of that small window of increased price?” he asked.

Bob Yost, CFO of A1 Organics, said that re-use of waste materials as compost and soil enhancements has the potential of increasing yields, saving water and decreasing costs. A1 Organics takes organic waste from farms and food manufacturers and reconditions it for use in products such as MiracleGro.

Tom Haren, CEO of AGPROfessionals, said what he’s seeing in the development of ag operations in several states across the West is that next-generation family farmers are few and far between. “We’re seeing efficient and scaled (large) operations, or specialized operations like hemp farmers” having success, he said.

Farmers also said workforce is a big issue, especially in operations that require hand labor. Kraft said her dairy operates now with about five positions unfilled because it can’t find enough labor. That means that some jobs don’t get done or some staff members work double shifts. Kraft, who said uncertainty in federal immigration law is a factor, is considering technological changes that would reduce the workforce. Yet, while a robot can accurately place a milking machine on a cow, it can’t evaluate whether that cow needs medical attention, she said.

Costs of technology plus the cost of minimum wage increases — 2018 wage increases will cost Kraft about $250,000 — come out of profit with no easy way to make it up.

A comment about potential positive impact from the new federal tax structure drew a muffled laugh from the group. “Farming should benefit (from the new law), but you have to make a profit to benefit,” said Mike Grell of accounting firm EKS&H. He said the increase in the inheritance-tax threshold — from $11 million to $22 million — could positively benefit large farmers seeking to pass their operations to the next generation.

“The catch,” Kraft said, “is that you have to die before the next administration takes office. Whoever comes in could change everything.”

BizWest’s CEO Roundtables are sponsored in Northern Colorado by Elevations Credit Union, EKS&H and HUB International. Roundtables occur several times a year on key industries affecting the business economy.

on Facebook on LinkedIn