Agribusiness  March 30, 2018

Ag industry faces headwinds — again

Ag industries in Colorado remain under stress due in many cases to commodity prices. Pictured is a dairy operation in Northern Colorado. Courtesy Northern Water

Low commodity prices, scarce water supplies and a lack of workers are continuing to plague Colorado farmers as the industry moves into the spring 2018 planting season. The only thing that seems to be up is the number of regulations that add an extra burden to the task of getting food and drink to market and coming home with any kind of profit.

Overall, the forecasted 2018 agribusiness industry in Colorado looks similar to 2017. Wheat and corn, Colorado’s main field crops, are still competing in a global market that maintains a glut of grain, according to the 2018 Colorado Business Economic Outlook from the Colorado Leeds School of Business at CU Boulder. Beef, on the other hand, is showing some gain.

When cattle prices showed an upswing a couple of years ago, some ranchers decided to rebuild their herds with the expectation of a higher return on the investment in the future. Factors that helped the process included greener grass and cheaper feed corn. Since it takes about two years for cattle to make it to market, those profits are showing up in 2018, said Tom Lipetzky, Colorado Department of Agriculture director of marketing and strategic initiatives.

The projected 2018 net farm income for Colorado cattle, corn and wheat producers is expected to climb to $1.37 billion over the estimated $1.16 billion in 2017 — still a far cry from the record high of $1.8 billion for 2011.

Forecasts don’t get confirmed for any given year until the following September.

The supply and demand imbalance is still keeping Colorado grain farmers up at night.  The global overabundance of grain continues to make the cost of doing business generally higher than the revenue earned from doing business. 

“Wheat is grown all over the world, and about one quarter of what’s needed for this year is already in,” Lipetzky said. 

Likewise, corn production and supply has well-exceeded global demand.

As a result, Colorado wheat prices for 2018 are predicted to weigh in at half the amount they brought in for the years of 2012 through 2014. Corn is also expected to make less than half the amount it did in 2012.

Grain supply in the developed world is so abundant that it is nearly as cheap for flour millers in the U.S. to import it from the Black Sea area as it is for them to use U.S. supplies, according to the economic outlook report from CU.

One of the factors that feeds this comes from what Lipetzky calls “the cost of government regulations” in the U.S.  “In the U.S. we have technology that helps us produce a lot but that technology is also global,” he said.  Those other countries, however, don’t have the added costs that come from requirements that include food safety and unemployment taxes.

“Because of labor issues and food safety regulations, Sakata Farms just made the big decision to get out (of some of its business),” Lipetzky added.

For 72 years, Sakata, located in Brighton, has supplied sweet corn to local grocers.  As one of the premier vegetable growers in Colorado and the last large sweet corn grower on the Front Range, the farm will no longer grow corn or cabbage. The cost of regulations combined with the lack of available seasonal help has tipped the scales too far from profit to loss.

“The Food Safety Modernization Act requires the FDA to inspect farms,” Lipetzky said, referring to water quality standards. “Farmers are saying they can’t meet the standards where irrigation water needs to be cleaner than the water that’s used to wash the end product.

“Most are using water that comes from irrigation ditches so they don’t even control it,” he said.  “The FDA is still working with it but as it is, it just costs too much for some farmers.”

In addition to water quality, water availability could also be an issue for farmers. A lot of Colorado is experiencing at least moderate drought conditions with some seeing severe drought, according to National Integrated Drought Information System. Although the snow pack across the state is down, the good news is that reservoir storage is high because of previous years snowfall.

“If we have to go into a drier year, this is a pretty good one to do it,” said Brian Werner, public information officer for the Northern Colorado Water Conservancy District. “The past four to five years have been wet years so we didn’t have to pull from storage.”

As a result, the Colorado-Big Thompson Project, which collects and delivers more than 200,000 acre-feet of water each year, is currently 20 percent above normal levels.

Farmers with water rights will pull from storage earlier. “If they are relying only on snow melt, they’ll have a hard time,” Werner said.

Every two years the Colorado Department of Agriculture surveys stakeholders to get a sense of the challenges and opportunities. The 2018 survey showed that 40 percent of Colorado’s farmers believe they’re worse off this year, and 30 percent believe the state agriculture industry will be worse next year.

“A couple of hours ago I visited with a farmer who’s been with a lender for 18 years,”  Lipetzky said.  “The lender said ‘I can’t cover your operating expenses anymore because you’re still behind from last year.’”

Some farmers are still doing OK, however.  “It all comes down to their balance sheets and that they’ve timed their markets well.”

Looking forward, the industry is looking for alternative markets such as quinoa, hemp and more drought-resistant crops that can flourish in Colorado.  Places like Colorado State University’s agriculture program continues to research possibilities.

The short-term fix would be a crop failure somewhere in the world, unfortunately, which would increase commodity prices for those producing that crop, said Lipetzky.

“The last couple of years have been a lot of downs,” he said. “It’s a business but it’s also a family business. It’s a family’s culture so that means there is more willingness to ride the ups and downs than there is for other businesses.  For some, farming is a tradition that’s been their family’s history for 100 years.”

Ag industries in Colorado remain under stress due in many cases to commodity prices. Pictured is a dairy operation in Northern Colorado. Courtesy Northern Water

Low commodity prices, scarce water supplies and a lack of workers are continuing to plague Colorado farmers as the industry moves into the spring 2018 planting season. The only thing that seems to be up is the number of regulations that add an extra burden to the task of getting food and drink to market and coming home with any kind…

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