Looking under the topsoil
When we view the West Michigan economy over the next few quarters, it is easy to look at the projected number of new construction permits or interest rate trends, or perhaps employment projections. However, just beneath those much headlined economic indicators, when you turn over the topsoil, you find there are other important economic gauges.
These hidden financial signs consist of West Michigan’s crop yields, livestock production levels and millions of pounds of yet-to-be-harvested fruit production. As we put away our overworked snow blowers, West Michigan grain farmers, fruit growers, dairy farmers and livestock producers are viewing a very mixed bag of agricultural indictors as they start up their farm equipment and head out to work their fields and orchards and tend to their animals in 2014.
As I made my rounds meeting agricultural clients and speaking to numerous farmer cooperatives this past winter, allow me to share with you a little of what West Michigan farmers are facing in the near term.
Crop farmers are seeing low prices for their corn, soy and wheat after record yields in 2013, which compensated for the poor harvest during drought-plagued 2012. When you average them all out, these three crops are down about 25 percent a bushel from a year ago.
Not the best of times for crop farmers, but great news for livestock producers who are seeing low prices for corn down roughly 50 percent to about the mid-$4/bushel range. Lower feed prices, however, will translate into larger herds of cattle and pigs as livestock producers replenish their stock from the big sell-off of 2012.
Hog producers are seeing record high prices due to the death losses in their nurseries. The National Animal Health Laboratory Network reported in February the total number of positive tests for porcine epidemic diarrhea virus, or PEDV, was at 3,873, roughly double the number at the end of 2013. This virus will impact production of piglets across the country and most definitely will be at the top of mind for all hog farmers in 2014.
In general, beef, chicken, turkey and hog prices will provide good to excellent margins for livestock producers for the coming months. Fruit tree farmers, on the other hand, are much more weather dependent. The amount of snowmelt could spell trouble if spring rains aremuch above average. The fruit growers had to deal with very cold, harsh weather, but oddly enough, the heavy lake effect snowfall, which played havoc on city and county snowplow budgets, could be a blessing for West Michigan fruit growers. The snow hopefully protected the delicate buds from the cold.
Dairy production demand both here and abroad is predicted to support the prices of all of the dairy products. Reports indicate milk production is projected to hit an all-time high, surpassing the 2 billion pound mark. Again, lower feed costs will support a speedy increase in the number of dairy cattle, thus more milk and other dairy products will come to market.
The capital requirements for farmers are taking a new direction. As farmers set up their lines of credit, the trend is starting to move toward fixed rates rather than floating interest rates, which are tied to the prime rate. Fixed rates have climbed 0.75 percent since last year. The economy is rebounding, so higher interest rates for floating rates may be going up.
As farmers secure financing for 2014, it is apparent that some of them are using some of their loan allocation for expanding into Community Sponsored Agriculture. CSA allows farmers to sell directly to area residents through the vast network of farmers markets that handle all types of organic and traditional produce, dairy, poultry and meats.
Pre-order food delivery service is the latest way for farmers to sell door-to-door. These new POFDs, along with CSA markets, are not going to eliminate grocery stores but are, to a degree, changing the way people buy farm products.
In listening to and speaking with hundreds of area farmers these past few months, I learned that this mix of agriculture news, which is just under the topsoil of today’s headlines, will greatly impact all of us as we prepare our grocery lists, eat at local restaurants, or sit at our dining room tables this coming year.
Gary Palmitier is vice president, agriculture lending, for The Bank of Holland.