Economist offers presentation on ag, overall economy
WILLMAR -- Farmers don't have to be huge to be profitable, they just need to be "big enough." They also need to be a little less romantic about hanging onto poor farmland and instead treat it as an asset that should be sold to people who are willing to pay a lot of money for it.
Dr. Michael Swanson, an agricultural economist with Wells Fargo in Minneapolis, provided his take on the agricultural and overall U.S. economy during a presentation Thursday in Willmar.
Swanson, who grew up in Minnesota and lived in South America for several years trading grain for Cargill, provided a local and international look at the corn and soybean markets and how being "stubborn" while waiting for corn to hit $3 a bushel can mean losing profit opportunities when markets quickly plummet.
Based on a study in Illinois, he said farmers need about 1,100 to 1,400 acres of good farm land to have profitability.
Farming thousands of acres doesn't necessarily mean profitability will be greater. "There's a myth out there that bigger is always cheaper," said Swanson. "Being bigger just to be bigger" doesn't guarantee an increase in the net profit, he said, because larger, more expensive equipment and more labor costs offset the increased income.
Farms "need to be big enough to be competitive," he said.
All farmland is not equal. Swanson said 40 percent of Minnesota farmland produces 80 percent of all net farm income. The poorer the quality of land, the less profitability there is. He said 20 percent of Minnesota farmland allows farmers only to break even and another 20 percent sets farmers back.
"Marginal land is pure financial poison," said Swanson. Farmers end up "subsidizing" their bad land with profits made from good land.
Swanson said he urges farmers who resist selling marginal farmland because of an emotional attachment or because it would reduce their total acreage to consider the financial well-being of their families.
With the second largest corn crop on record harvested this year, combined with low corn prices, the balance of supply and demand will be challenging this year. "I see a lot of volatility," he said.
Current corn prices are the fourth lowest since 1997. He said there's a 96 percent chance corn prices will increase. The trick is not to pass up selling corn for $2.55 a bushel while waiting for the promise of $3 a bushel corn.
Swanson said the export market for U.S. corn is low compared to American consumption. Strong growth of ethanol is one reason for the increasing domestic corn market. He said the overall ethanol industry is "rock solid," but individual ethanol plants built in poor locations will have challenges.
Unlike corn, he said soybeans have a strong export market, especially to China. Reports of strong worldwide soybean stocks have meant mediocre prices, he said.
Kevin Skalla, ag banking manager for Wells Fargo in Owatonna, said the bank is the biggest ag lender in the United States but currently doesn't have as large a presence in Minnesota as it would like. To improve that, he said, an ag specialist will be placed at the Wells Fargo bank in Willmar to service a strong ag community. Skalla said 25 percent of Kandiyohi County's wages come from agriculture.
Swanson also spoke about the general economy and growth in business profits. He said American businesses overall are seeing record profitability and cash flow. "That means when they make money, they hire people," said Swanson, resulting in historically low unemployment levels and opportunities for people who are looking for jobs to find them. "It's not a bad economy in that sense."
Swanson said, however, it has become more difficult for businesses to find qualified employees because they lack skills, including computer skills, to do the work.
He said business growth will be the main "driver" for good economic growth for the next 12 to 18 months. Increasing government spending and debt, however, presents a negative side to that picture.