Published: October 23, 2008 04:50 pm            

Land Minds: False impressions of profitability

Originally published in the Oct. 17, 2008, print edition.

It’s about the economy.

All you have to do is watch the first 10 minutes of a newscast or read a daily newspaper above the fold and you will know that the economy is the big discussion topic.

It doesn’t matter what line of work you are in, the discussion always comes down to money.

Agriculture is not any different.

Late in September and early in this month, Minnesota Commissioner of Agriculture Gene Hugoson traversed the state for listening sessions — to hear the concerns on farmers’ minds. (He plans on holding more such sessions once harvest is wrapped up. Be sure to check our “Calendar of Events,” where these listening sessions will be posted.)

As most of you already know, this has been one roller coaster year in ag prices, and Hugoson discussed the situation with the farmers who showed up for the listening session at the state soybean growers office in Mankato.

Yes, we have seen high soybean and corn prices; records in fact. That fact made headlines across the country in the financial periodicals. One item that all too often got lost in that cloud of euphoria was what the high prices meant to others.

Those prices are great if you have grain to sell. But when you look at the prospect of feeding such high-priced grain to your livestock, then all of a sudden that picture isn’t quite so rosy. (One reader did point out to me, though, that livestock producers weren’t actually feeding the high-priced grain to their livestock, because they probably wouldn’t have sold their grain at the top of the market anyway. That may be true, but how many livestock producers have to buy their feed needs on the open market, thus they very well could have been feeding the high-priced grain.)

This other side of the equation rarely saw the ink of the headlines in the general media.

“There’s a lot of uncertainty, a lot of anxiety for producers,” Hugoson said.

The general public hears reports of high-priced grain, and gets the false impression that farmers are having a very profitable year. “Everyone has an idea what agriculture should look like, but it’s got to be sustainable financially,” Hugoson said. “Price isn’t the issue for farmers, it’s profitability.”

That profitability can go right down the toilet when another side of the ag production story is told to the general public, a side that again isn’t told often enough — what energy costs mean to farmers. Most everything the farmer does requires energy and is driven by what’s happening in the oil markets.

Hugoson talked specifically about fertilizer prices, “prices that were talked about at scary levels. ... some people locked in at those prices, and now those prices have come down.”

Or worse yet, Hugoson said in some states producers had prepaid for their 2009 inputs and “now the company that they paid the money to has gone out of business.” According to Hugoson, this has not happened in Minnesota yet.

When the general public gets the false impression that farmers are doing very well, then it may be perceived at the state level that maybe farmers can bear the brunt of more state fees. Hugoson said he will fight this, but he could use some help.

“Government is run by those who show up, so it’s important for farmers to get out and get heard,” he said. He said that when he was first elected to the House of Representatives in 1986, about a quarter of the legislators were farmers. Now that’s about a handful.

Hugoson said there needs to be a united voice from agriculture, not fractured by commodities. “The ag community needs to pull together because what affects livestock producers, also affects crop farmers.”

Renewable fuel crowd

In a room full of farmers, you know that renewable fuels are going to be discussed, and this listening session didn’t disappoint; it even shocked.

Hugoson uttered a statement that I, and many others, had been thinking for quite some time, when he said, “I hate to say this in a public setting, but we overbuilt; probably too many came on too quickly.”

Knock me over with a feather. I give Gene Hugoson credit for saying what all too many public officials have been afraid to say. In defense of the public officials, many who heartily voted to keep the renewable fuels train rolling, it’s hard to pull back on the reins of a wild horse team. To change their minds on ethanol would have been political suicide.

Hugoson went on to say that, as with most things, timing is everything. “If you got in a few years ago, you got your plant paid for. If you got in last year, it’s pretty tough going.”

Hugoson said it may get tougher for the renewable fuels industry, as it will need to survive without the subsidies it receives. “But the oil industry should also get by without their subsidies,” he added. Subsidies or not, Hugoson said renewable fuels need to remain a part of America’s fueling equation.

Economic stimulus?

I recently received this investment advice in a chain e-mail and thought it was worth passing along.

“If you had purchased $1,000 of AIG stock one year ago, you would have $42 left.

With Lehman, you would have $6.60 left. With Fannie or Freddie, you would have less than $5 left.

But if you had purchased $1,000 worth of beer (or pop) one year ago, drank all of the beverage, then turned in the cans for the aluminum recycling refund, you would have had $214.

Based on the above, the best current investment advice is to drink heavily and recycle.

It’s called the 401-Keg.”

        

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