Three Factors Impacting Profitability for Farm Supply in 2019
DENVER (April 03, 2019) — The agronomy and farm supply sector will be stressed through 2019, and profitability for ag retailers could face a multi-pronged threat. Poor weather last fall and so far this spring combined with stressed farm financials to pressure ag retailer margins and impact farmer decisions that could reduce sales volumes, according to a new report from CoBank’s Knowledge Exchange Division.
Increased costs in the form of operating expenses for ag retailers, including labor, equipment and other expenses, will potentially rise due to a compressed or hard-hitting spring planting season.
The near-term outlook for ag retailers and agronomy departments does raise some concern,” said Will Secor, grain and farm supply economist at CoBank. “As always, there’s a lot riding on spring weather. If farmers and ag retailers have ample time to get in the fields and make up time that was lost last fall, that will ease the pressure. However, a compressed spring will increase costs and could have impacts that last throughout the growing season.”
Three Drivers Impacting Farm Supply Outlook
Poor Weather – Bad weather throughout much of the Midwest last fall kept farmers and applicators out of the fields, pushing much of that fieldwork to spring. And now with flooding throughout much of the Midwest, that fieldwork will be pushed further into the year. As a result, ag retailers will likely be stretched to fulfill service requests. To meet the needs in their areas, some ag retailers may rent additional equipment, hire more seasonal labor or pay additional overtime hours. On the other hand, ag retailers that have significant capacity in labor or equipment may welcome a compressed, hard-hitting spring.
Stressed Farm Financials
As commodity prices have declined, farmers are increasingly price shopping and looking to cut costs. Variable costs like fertilizer, seed and crop protection products are key targets. Fertilizer volume and seed choices are becoming more constrained by farm finances. Farmers may pull back on macronutrient fertilizers and are less likely to apply micronutrients or try biologicals. Delayed farmer decisions can also be linked to weak farm financials. Combined with a decrease in prepays, ag retailers are facing greater inventory risk and more difficult inventory decisions. Accounts receivable risk for ag retailers will likely increase as cash farm income dropped nearly ten percent in 2018.
Fertilizer prices are expected to increase as the spring application season kicks into high gear. This should provide a good margin opportunity for ag retailers who purchased product before the run-up in prices last fall. Ag retailers who purchased inventory at high prices last fall that are still unpriced going into the spring, face uncertainty. If retail prices do not increase to meet the prices paid, margins will shrink.
Profitability will be pressured for most ag retailers and agronomy departments in 2019,” said Secor. “The USDA is predicting higher farm income in 2019, which we could see the effects of in 2020. However, many farmers will be cash-strapped for the current planting season and that will certainly impact ag retailers.”
A video synopsis and the full report, “Agronomy Outlook: Not the Spring Ag Retailers Hoped For,” are available at cobank.com.
CoBank is a $139 billion cooperative bank serving vital industries across rural America. The bank provides loans, leases, export financing and other financial services to agribusinesses and rural power, water and communications providers in all 50 states. The bank also provides wholesale loans and other financial services to affiliated Farm Credit associations serving more than 70,000 farmers, ranchers and other rural borrowers in 23 states around the country.
CoBank is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture, rural infrastructure and rural communities. Headquartered outside Denver, Colorado, CoBank serves customers from regional banking centers across the U.S. and also maintains an international representative office in Singapore.
For more information about CoBank, visit the bank's website at cobank.com.
Certain of the statements contained in this news release that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our actual future business may differ materially and adversely from our expectations expressed in any forward-looking statements. Forward-looking statements are typically identified by words such as “believe,” “expect,” “anticipate,” “intend,” “estimate,” “plan,” “project,” “target,” “may,” “will,” “should,” “would,” “could,” or similar expressions. Although we believe that the information expressed or implied in such forward-looking statements is reasonable, we can give no assurance that such projections and expectations will be realized or the extent to which a particular plan, projection or expectation may be realized. These forward-looking statements are based on current knowledge and subject to risks and uncertainties. We encourage you to read our Annual Report and Quarterly Reports located on the bank’s website at www.cobank.com. We undertake no obligation to revise or publicly update our forward-looking statements for any reason.
Corporate Communications Manager, CoBank
CoBank Renews “No Barriers Warriors” Program Sponsorship for Rural Veterans With Disabilities In 2020
January 13, 2020CoBank partners with the Colorado-based No Barriers organization, to support the nonprofit’s Warriors program.
Conflicting Trends in Agricultural Irrigation Set to Drive Demand for Energy
New research by CoBank provides insights into the evolving drivers of electricity consumption for agricultural irrigationThe sale of electricity used to power agricultural irrigation equipment is a significant source of revenue today for many electric cooperatives and other utilities serving the rural U.S.
CoBank Board Approves Special All-Cash Patronage Distribution
Approximately $40 Million In Additional Patronage Will Be Paid To Eligible Customer-Owners In March 2020