We asked three experts to offer their thoughts on what’s in store for agriculture in 2012, and how producers can best take advantage of industry trends. 

Will good prices for corn and soybeans translate into profitability? 

Boehlje: High futures prices indicate a profit for commodities. It might be a good time to take advantage of futures markets to lock in these prices. What’s unknown is whether supply will balance with demand. If we continue to have a short supply, prices will continue to be strong. But rebuilding stocks will result in lower prices. Remember, a short crop has a long tail.

Henderson: Crop producers should enjoy strong profits in 2011, and if price levels are maintained over the next year, they should enjoy another year of strong profitability. The question for 2012 is, while crop producers may lock in current prices on the revenue side, how will they manage rising costs? Seed, fertilizer and fuel costs increased dramatically in 2011. The risk in 2012 is that higher prices will trim margins.

Oldvader: Today’s prices do not always convert into tomorrow’s profits. Profits come from positive margins. Limited stock carryover, plus reduced domestic production, multiplied by robust domestic and foreign demand, equals bull markets for major grains. Key variables that could tether this bull include the dollar’s value, export demand, trade agreements and sovereign debt outcomes. 

Will the livestock industry continue to face high feed costs?

Boehlje: In some areas, you can’t get forage at any price, and producers are liquidating herds. Beef is expected to attract decent prices for those who have anything to sell. Poultry and pork have the potential for profits in the first part of 2012. Later in the year, pork is more likely to only break even. The big unknown is the economy. If we see another recession in the U.S., it will likely become global. If so, domestic and export demand will pull back.

Henderson: Higher feed costs will trim livestock margins. While hog, beef and milk prices increased substantially in 2011, feed costs rose more dramatically. 2012 profits will depend upon global demand for protein, which will be shaped by economic conditions in the U.S. and emerging nations.

Oldvader: The livestock sector will not fare as well as its crop counterpart, but hopefully the experience will be much better than in 2009. Margins will be reduced by higher feed costs. Even now, the impact is beginning to register on the bottom line for many producers. Unlike 2009, however, global demand for animal protein is rising, which should help maintain some black ink. Additionally, recent weather extremes shaved the size of livestock and dairy herds, which favors higher prices. The current economy will make rising food prices more discernible in the supermarket—look for consumers to move down the food chain with meat purchases. 

What’s happening with farmland values?

Boehlje: In Indiana and Iowa, we’re seeing record values as a result of continuing high profits on the grain side, along with continued low interest rates. These trends may continue for 2012 and 2013, but when you buy land, you need to worry about what will happen five to 10 years from now. It’s highly unlikely that these trends are permanent—don’t become too exuberant about purchasing land.

Henderson: Farmland values are rising at a record pace—20 to 25 percent above year-ago levels. Farmers are purchasing most land. Non-farm investors are exploring the option but appear hesitant.

Oldvader: Strong grain prices continue to boost cropland values while pasture tract values have been more lethargic. Our most recent benchmark farm study for the past year revealed that better cropland increased on average 9.3 percent in our 102-county lending area, while pasture tracts decreased by 2.4 percent. The market continues to discriminate based on projected returns, but no land is deflation-proof. Farmers are purchasing most of the high-end land, with a large number of sales in cash. With low interest rates, minimal options for safe alternative investments, and positive crop margins, productive land will be in demand while marginal land prices remain volatile. Beware of prophets proclaiming, “They’re not making any more land.”     

How has volatile weather affected farm profits in our region?

Boehlje: Weather’s been a big player. In 2011, wet weather had a negative effect on the ability of farmers in the eastern Corn Belt to put in a crop. In the western Corn Belt, spring weather wasn’t a big problem. But in most of the Corn Belt, hot summer nights in July and August took away yields. In the South, the drought impacted pasture.

Henderson: Unusual weather patterns shaped profitability across the Great Plains. Severe drought slashed crop production in some states, where most income will come from crop insurance. Ample rains in the north Plains led to high crop yields, outside of flooded areas. Regions with bumper crops will enjoy strong profits as they sell into a bullish market.

Oldvader: Mother Nature left her footprint on the ledgers of many producers throughout Missouri. Floods, storms, tornados and drought played havoc throughout 2011. Crop yields in many areas were adversely impacted and livestock conditions deteriorated from extreme heat, drought-stricken pastures and reduced hay production. While higher prices and crop/livestock insurance may soften the loss, I anticipate most net farm incomes to drop from 2010 levels. The past year reinforces the need for proactive risk management strategies.