Get back in the black

Written by Nancy Jorgensen on .

After several years of low commodity prices, is your financial statement showing red ink? The downturn may last a while. How can you get back in the black, or at least hang in there until things turn around? In our annual outlook report, we call on four experts to forecast the 2017 farm economy and dispense advice on how to get through tough times.

1. What do you see for grain prices in 2017?

Gerke: This year looks better than last for farmers in our area. We experienced another wet spring, but most farmers got crops in the field. Later moisture came at the right time. Yield looks good, but grain prices are expected to remain where they were last year unless some major event occurs.

Boehlje: Futures markets suggest continued weak prices. We won’t see $5 corn, and beans will not be in the teens. Historically, agriculture goes through cycles like other industries. Good times last three to fives years—sometimes up to seven. But for farmers, bad times can last twice as long. It’s not going to get better anytime soon unless bad weather someplace in the world improves our forecast.

Westhoff: Large global supplies of grain and oilseeds make it likely that corn, soybean, wheat and rice prices will continue to be under pressure in 2017. Corn and wheat prices for the 2016-17 marketing year could be the lowest in a decade. The market will be sensitive to prospects for 2017 crops in the southern hemisphere early in the year. As we saw in 2016, a short South American crop can boost the market, but if Brazilian production rebounds, it will be harder for prices to recover. If 2017 brings average global weather conditions, crops may be a bit smaller than in 2016, and prices could increase a little. But it would take a major supply problem to get us back to prices like 2010-13.

Liddell: An 87 percent year-over-year increase in soybean carry stocks, a 39 percent YOY increase in corn carry stocks and a 12 percent YOY increase in wheat carry stocks will start 2017 off in a bearish mood. Substantial supplies usually mean that any market rally will be muted by increased cash sales. Consequently, the first half of the year looks challenging from a price perspective. With no changes in supply and demand dynamics, Chicago Board of Trade prices should remain from $3.20 to $3.50 per bushel for corn, $9.25 to $10 for soybeans and $4.20 to $4.50 for wheat. Over the past three years, the best pricing opportunities have come at planting time, and 2017 is expected to be similar. Much will depend on the South American harvest.

2. What about livestock?

Boehlje: We’re not feeling as positive about a turnaround in the animal protein industry as we were six months ago. Exports aren’t growing at the pace we hoped. Demand from China hasn’t been as strong as expected for pork, and it’s not clear a turnaround will come quickly. Beef especially is recovering slowly from the demand downturn that came with the Great Recession. Feeder cattle prices are down substantially, but they’ll likely at least stabilize at today’s lower levels. On the brighter side, feed costs are down.

Westhoff: Increasing production of beef, pork and chicken in 2016 contributed to sharply reduced cattle prices, and hog and chicken prices dipped far below their 2014 peaks. Even if lower prices cause producers to slow expansion, the number of cattle in the system means beef production will probably increase again in 2017. Unless export demand is stronger than appears likely, 2017 could bring another price decline for fed and feeder cattle. Hog prices could be near break-even.

Gerke: Hog prices look weak, and cattle will trend even to down—but it depends on demand. Exports this year so far seem to be doing well despite the strong dollar. The world needs food, but how much can other nations afford?

3. How will domestic and export demand affect farmers?

Westhoff: We have seen record or near-record world production of the main grains and oilseeds for three years in a row, in part because of favorable weather in most major growing regions. Low prices will slow or reverse expansion in many countries, but as always, weather will drive yields. On the demand side, if the global economy continues to grow at a modest pace, we expect continued increases in meat and dairy consumption in 2017, especially in China and other middle-income countries. However, export growth does not appear strong enough to cause a quick and sharp commodity price recovery.

Liddell: South America acreage could still expand. This year, due to the drought of Brazil’s second crop, Brazil and possibly Argentina are likely to focus expansion on corn. Financial challenges for U.S. producers are expected to have the opposite effect, driving us away from corn and toward soybeans, which roughly carry half the cost of production. Regardless, current global production capacity is capable of maintaining the already strong global stocks positions of all major grain and oilseeds. U.S. exports are strong in the outset of the 2016-17 marketing year, partially as a result of Brazil’s drought.

4. Will profitability return?

Boehlje: Profitability will decline almost 50 percent from our peak two years ago. This is one of the most dramatic declines we’ve seen—even more than in the 1980s. Recovery will come from cost reductions. How much cushion do you have to withstand this downturn? Smart farmers stashed cash, but if you bought equipment and land, you burned up working capital and don’t have much resiliency. Grain producers won’t see profits increase from reduced production because harvested acreage has already grown up to 10 percent since 2010. Prices must drop dramatically before we back off on acres.

Westhoff: Income faces continued pressure. Low commodity prices mean crop and livestock receipts will likely remain well below recent peaks, in spite of increased production. Government payments under the new farm bill will offset only a small portion of the decline in crop receipts. On the cost side, fuel and fertilizer prices will likely remain low by recent standards. Farmers will continue to reduce costs. Still, most will struggle with tight or negative profit margins.

Liddell: Row-crop farmers face the third to fourth year of negative margins. The key question: How low can you push the cost of production without damaging the crop or the land’s long-term capacity?

5. How much are land values declining?

Gerke: Missouri land values have declined by about 10 percent. There are two reasons it’s not dropping more—low interest rates and heavy demand. Investors are trying to find a place to put their money, and real estate seems to be a good bet.

Westhoff: Reduced profitability usually translates into lower rental rates and land values. USDA confirmed a decline in rental rates in 2016 in many states, and the national average value of farm real estate declined a little after increasing by 50 percent between 2007 and 2015. Further reductions are likely in 2017 unless commodity prices recover significantly. Land values could come under additional downward pressure if the Federal Reserve carries through with plans to increase interest rates.

Liddell: Rental values are feeling pressure to decrease. As a consequence, total land value is coming under more downward pressure as well. A number of auctions report no sales, and we see a lack of interest in mid- to low-quality land in Missouri, Illinois and Iowa. In the coming year, there is an increasing chance that land will be liquidated to generate cash for farming operations. This has already started, and increased land sales can force total values down further.

6. How can renters and landlords strike deals that work for both?

Westhoff: Be realistic. Although some adjustments have already occurred, some tenants appear to be paying more for rents than current profitability justifies on the hope that commodity prices will rebound. This strategy is risky.

Boehlje: Overall we’ll see a 20 to 25 percent total decline in land values, and we’re halfway there. Rent prices come down more sluggishly. Landlords are moving away from sharing risk and toward cash rent. We will see a lot of churn. Landlords expect a certain income for their retirement. At the same time, most tenants need a downward adjustment. This is one of the toughest decisions a renter faces: at what price can I continue to rent? Some will have to walk away. Grain farmers who rent will be the most financially vulnerable. Farmers who didn’t want to pay high land prices but aggressively bid up rents will hurt the most. Some mid-career farmers bid up rents to expand—many purchased modern equipment to farm the additional acres and don’t have the cash reserves or land base to refinance. A high proportion of young and beginning farmers rent land, and they will also be affected.

My advice is to negotiate. Flex rents might present a solution, where you set a base price and share any profitability improvements later. But landlords may not accept the idea.

Gerke: Tenants should discuss revenues with landlords. Share your expenses and explain where your rent needs to be to make your cash flow work. Cash rents are high—it never got as crazy in Missouri as it did in Iowa, Indiana and Illinois, but some tenants are still bidding up rent. Many landlords are putting out their land for bid, and some are getting more for it. Some tenants try to hold onto their rental property hoping they’ll be first in line when the landowner sells. That can work if the landlord sells while he’s alive, but if the landlord dies, heirs may not be open to the concept.

Liddell: As margins will likely continue to be tight over the next two years, it is important to establish a viable value for land. You can accomplish this through transparent negotiation or a lease agreement that passes some risk to the landowner. The tenant should initiate regular communication with the landlord. The landlord needs to understand the value that land can generate. Overpriced land generally ends up with depleted nutrient levels and increased weed and pest problems. If the tenant is unable to pay higher rent, the landlord may need to farm the land himself. This will become more common as credit tightens.

7. How can farmers manage debt?

Boehlje: Individual farmers may face challenges, but nothing like the 1980s when farmers were underwater on land borrowings. Farmers today are not as highly leveraged, land prices haven’t gone up as much, and interest rates are lower. Credit will tighten, but we won’t see widespread problems. Lenders aren’t likely to foreclose, and refinancing will be available. Still, lenders are nervous, and loan reviews will be intense. Lenders will ask more questions: What are you doing to manage risk? Have you talked to your landlord? What’s your cost of production? What’s your working capital burn rate? How will you cover losses?

Westhoff: Some farmers are experiencing repayment problems. Many operations made money between 2010 and 2014, and debt-to-asset ratios fell to favorable levels. In these cases, farmers used reserves to handle a year or two of sharply reduced returns without excessive financial stress. However, with continued low returns, pressure is building. Farmers and lenders need to be realistic—don’t rely on a quick, large rebound in commodity prices. Make small changes now to avoid drastic changes later.

Gerke: In many cases these days, your primary lender won’t loan enough for you to operate, and expects you to obtain supplier financing. MFA Incorporated provides short-term credit for inputs such as fertilizer and seed. We see an increase in demand for this type of credit. We have met the demand, in part because we send some of it along to programs such as John Deere Financing or RaboBank. If you don’t have enough cash flow to service short-term loans, ask your lender to extend loan maturities, thus lowering your payment.

Liddell: After three years of lower commodity prices and persistently high input costs, liquidity is drying up. Credit is harder to secure, and lenders are less likely to take as much risk as in the previous ten years. Repayment has been an issue over the past year and is expected to be more of a problem in 2017. To manage debt, you must understand your equity position. What assets are available to secure credit, and how much liquidity can you create by selling assets? Your business plan should take into account how you can apply valuable assets strategically. When you secure a crop loan with hard assets like land, you run the risk of losing the land’s value. Cash is king, especially in a downturn.

8. What’s your top trend for 2017?

Boehlje: Financial pressures will be top of mind. Longer term, the mergers and acquisitions in the pipeline will prove significant: Bayer and Monsanto, Dow and DuPont, Deere and Precision Planting, ChemChina and Syngenta, and the Potash and Agrium consolidation in Canada. We probably won’t see the impact until late 2017, but with less competition, what will happen with pricing and availability of products, along with new product research and development? Another trend: digital agriculture, such as the cabless automated tractor, will profoundly change how we farm.

Gerke: Lenders want to see more working capital. Long-term lenders will favor farmers who can pay real estate loans with income generated by that land. Some require 50 percent equity before they’ll finance.

Liddell: The key trend will be the farmer’s financial health. The other trend to watch: U.S. planted acres; fewer acres would be positive for farmers. Low grain prices relative to soybean prices, combined with a lower total cost to produce soybeans, are expected to drive increased soybean acres and reduced corn and wheat.

9. What’s your best advice for the coming year?

Westhoff: Don’t panic, but be realistic.

Gerke: The more cash you have, the longer you can survive the downturn.

Boehlje: One, control your costs. Two, build the financial resilience to handle the downside. Three, all downturns bring opportunities for some people. Well-positioned operators will see more opportunities to rent or buy land and to capture good deals on buying or leasing used machinery.

How to get back in the black

  • Start by cutting your most significant costs—machinery and rent. These make up 35 percent or more of all costs for most grain farmers. –Boehlje
  • Lower your input costs. We expect fertilizer prices to decline, which may help. Seed prices haven’t dropped, but you might opt for lower-cost seed. Keep buying good genetics because production is what counts, but you might buy fewer traits. However, if a bug shows up, you’d better have a backup strategy. –Boehlje
  • Cut back on family expenses. Studies show that discretionary spending doubled over the last five to seven years. Don’t replace the car, and put off expensive vacations. Ask your kids to take out student loans rather than you putting up the cash—interest rates on student loans are attractive, and you may be able to pay them off in a few years. –Boehlje
  • Focus on reducing costs per unit of production, rather than cost per acre or per animal. If cutting fertilizer application by 10 percent has little impact on production, that might make sense, but if it reduces current or future yields quite a bit, it might not be smart.  –Westhoff
  • Refinance long-term interest rates—they’re extremely low now. –Gerke
  • Look for alternative financing sources. Input merchants and dealers are preparing to handle more debt. Total debt will rise on the operation and machinery side, but will not go up much on the land side except to support refinancing of losses and restore working capital. –Boehlje
  • Plan based on cash flow rather than on reducing income taxes. Don’t purchase machinery just to defer taxes. –Gerke
  • Find new sources of income. Take a job off the farm or custom harvest for neighbors. –Boehlje
  • Develop a business plan that clearly states your objectives and addresses key elements such as cost of production, available equity and cost of living. Sit down with advisors and vendors such as your banker, marketer, accountant and agronomist to strategically plan for the future. They can help execute your plan if they are included in the process. –Liddell
  • Market throughout the year to glean better prices. Stop marketing to generate cash at critical times. Utilize market “carry,” along with storage, to enhance your crop’s value. –Liddell

In this November 2016 Issue

Written by TF staff on .

Act now to manage your tax liability

Written by Nancy Jorgensen on .

“Lower crop and livestock prices mean earnings will be down,” said Joe Koenen, an agricultural business specialist for the Northeast region of the University of Missouri’s Extension Service. “Start gathering records now so you can estimate your taxable income for 2016.

If your income is greatly reduced, the easiest way to defer income is to hold on to crops or livestock and sell them in 2017.”
If you already postponed sales from 2015 to 2016, then holding onto this year’s crops or livestock until 2017 may not work. Income averaging might present another solution—this allows you to spread your income over this year and the last three years.

Koenen, who works out of Unionville, Missouri, says that farmers have more flexibility to control tax liabilities than other types of businesses.

You should make most decisions affecting your 2016 tax bite before year-end. We asked Koenen how you can prepare now for your 2016 taxes, and what to expect.

Can I sell crops or livestock in 2016 and take payment in 2017?

Yes, if you’re a cash-basis taxpayer, and you have a written contract with a particular stipulation, such as you won’t receive payment before 2017. But there’s a danger—what if the buyer’s business folds before you get paid?

What about crop insurance payments?

They count as income. If you receive crop insurance payments and typically sell that crop in the year following harvest, then you can defer non-price-related crop insurance payments into next year, but you must prove it’s your normal business practice. Also, you must report that it does not impact any government disaster payments occuring in a previous year but received in the current year—those payments must be declared this year.

What records do I need to gather now?

Pull together documents related to income and expenses as well as purchases and sales of depreciable assets such as machinery and breeding livestock. Include loan information, as you can deduct interest paid on farm business loans.

Should I purchase equipment before year-end?

Typically farmers purchase equipment in good times. I see fewer purchases this year and expect the same for a couple of years to come. That said, you should consider replacing equipment when you need it—when repair costs grow larger than payments would be for new equipment.

Are there any big changes in tax law?

For farmers, the limit of $500,000 on depreciation allowed under Section 179 of the federal tax law was made permanent—as long as Congress keeps it that way. Also, the bonus first-year depreciation was lowered from the current 50 percent for 2015 through 2017, to 40 percent in 2018 and 30 percent in 2019. Depreciation on farm buildings such as hay barns or machine sheds isn’t allowed under Section 179, but you can use the bonus depreciation.

What about employee expenses such as health insurance?

You can deduct reasonable wages, along with health and other benefit expenses you provide to your workers, but you must withhold Social Security, Medicare and income taxes from their wages. If you employ fewer than 50 people, you do not have to provide employee health insurance coverage. However, if you insure yourself or your family, you may have to cover employees. The rules are complicated, and you should see a professional. I won’t predict the election or changes that may result, but I think the Affordable Care Act is here to stay in some form or another.

Should farmers seek professional tax help?

Taxes are complex, and business taxes for farms are even more so. You need professional help, just as you do for legal and financial issues. It’s cost-effective and brings peace of mind.

What tax changes do you expect down the road?

I don’t anticipate major changes, but who knows what Congress may do? In the future, the IRS may have to clarify rules on equipment repair expenses, which many people don’t understand. Our current financial downturn could affect some producers as well.

How can I make the process easier?

It’s best to keep records up to date on an ongoing basis so you don’t fall behind. Since most farmers log financial records on a computer, it’s easier to do than in the past.

What’s your top advice?

You are responsible for the accuracy of your taxes, so you need to know the laws. Keep up with rules and regulations by taking classes from University Extension and by reviewing the IRS Farmer’s Tax Guide, Publication 225, which you can find online. Don’t cheat—penalties get worse every year!

Paul Neiffer, a CPA and a principal at the agribusiness practice of CliftonLarsonAllen in Yakima, Washington, offers these suggestions as you prepare your 2016 taxes.

  1. Work up a tax plan before year-end. Summarize your income and cash expenses, calculate depreciation and see what your tax situation looks like. Review the results with your tax adviser to determine if you need to prepay farm expenses or defer income.
  2. Pay your children for working on the farm. If the child is under age 18, this tax deduction is not subject to payroll taxes, assuming you file a Schedule F or husband/wife partnership. Your child might consider investing the earnings in a Roth IRA, which defers income taxes on the earnings.
  3. Pay employees with grain or other commodities. These wages are not subject to payroll taxes, which could benefit you and your employees. However, employees need to understand how this works.
  4. Set up a retirement plan. Farmers who invest in a retirement plan throughout their career have a much easier time of transitioning their operation to their successors than if they simply rely on land rents.
  5. Take advantage of a fuel tax credit. Review your fuel records to see if you qualify for a fuel tax credit on your tax return. Dyed diesel does not qualify, but other purchases may. For example, if you drive your pickup on the farm a lot, those gallons used qualify.
  6. Take advantage of deferred payment contracts. This allows you to sell grain this year and record income next year if that’s when you receive the cash. However, if your income looks to be too low, you can report the income in the current year on a contract-by-contract basis.
  7. Make grain gifts to a charity. This reduces your taxable income, and you do not need to report the gift on your tax return. If you are self-employed, it reduces your self-employment tax as well.
  8. Make sure you pay enough tax. Many farmers want to pay zero taxes. However, consider “soaking,” which means paying at least some tax—say up to the 15 percent bracket. If not, you face paying a tax rate of 35 percent or more when you retire. Keep in mind, working capital that has been taxed is yours. If it hasn’t been taxed, then it could belong to the bank or the IRS.

These articles provide general suggestions, but you must follow specific IRS rules to avoid penalties. Consult a professional tax preparer for advice on your situation.

Have you applied for conservation funding?

Written by Nancy Jorgensen on .

Have you applied for conservation funding?

For more than a decade, federal farm programs have evolved from rewarding production to encouraging conservation. USDA conservation spending grew over the past 10 years, but based on the 2014 Farm Bill, USDA projects the spending will level off. Since 2010, USDA conservation spending has averaged about $6 billion a year, and the agency forecasts it will remain stable through 2018—although spending levels could change.

In Missouri, USDA’s Natural Resources Conservation Services programs made $68 million in financial assistance available for the fiscal year ending Oct. 1, 2014, according to Curt McDaniel, NRCS assistant state conservationist. The funding covered 3,400 contracts on 1.4 million acres.

Also, Missouri has a state sales tax that dedicates $40 million a year to conservation, including cost-sharing programs available to farmers. NRCS delivers technical assistance for this program as well as for its own.

Mitch Thierry, public affairs officer for NRCS in Kansas, says that for fiscal year 2015, Kansas general EQIP had a total of 1,416 applications, of which 594 were funded for $17 million, comprising 125,089 acres. For CSP in fiscal year 2015, Kansas had 510 funded contracts for $11 million on 1 million acres.

“There’s a big demand for these programs,” McDaniel said. “Only one in four applications are accepted.” NRCS accepts applications based on merit rather than on a first-come, first-served basis. You’ll be asked to provide farm records, and explain your problems, goals and a plan for improvement. NRCS staff will evaluate your application and guide you through implementation.

NRCS accepts applications year-round, but each program carries its own annual deadlines, which vary by state. Contact your local NRCS office for more information. To find your local office, search the Web by entering “NRCS local service centers” and click on your state and county.

For information on the Missouri Department of Natural Resources Soil and Water Conservation Program, visit www.dnr.mo.gov/env/swcp.

What's up with conservation

Written by Nancy Jorgensen on .

Meet Matt Symn...

In Kansas the Symms family shines. Matt and Stephanie Symns won the 2014 Kansas Farm Bureau Natural Resources Award for work on their farm near Atchison, Kan.

“Conservation is critical to maintaining a productive farm,” said Matt Symns. “We would rather take the time and make the effort to protect our soil, our most important natural resource, than watch it erode away.”

The Symnses raise 900 acres of corn, 850 acres of soybeans and 300 acres of hay, and graze 65 head of cattle. They operate on small field sizes with highly erodible soils on mostly upland hilly terrain with some creek bottoms. USDA’s Natural Resources Conservation Service has provided financial and technical help for many of their conservation efforts.

Matt is responsible for the day-to-day farm work. Stephanie works as a crop insurance adjuster and helps out on the farm when she can. They take their children, William, 5 and Elizabeth, seven months, along for the ride while farming when possible.

“Someday we hope to have our children working alongside us,” Matt Symns said. “Our dream is to pass on highly maintained farm ground.”

Besides protecting soil and water, conservation meshes with two other Symns values. As he says, “We try to save costs or increase efficiencies in everything we do.”

Symns began using no-till methods on row crops when he started farming 16 years ago. No-till reduces soil erosion and improves soil structure. By reducing the number of passes over the fields, no-till also reduces equipment, labor and fuel costs. Symns also saves by rotating corn and soybeans to combat chemical intolerance in weeds.

The NRCS Conservation Stewardship Program helped Symns start using variable-rate application of chemicals on his row crops. “Variable-rate  application puts nutrients where they are needed the most and doesn’t waste them on acres that may not need as much,” Symns said. He works with an agronomist to determine rates. Since he hasn’t invested in the equipment needed, he hires a contractor to apply the fertilizer.

The Symnses handle their own herbicide, fungicide and pesticide application, using low-drift nozzles to apply responsibly and avoid impacting neighboring fields.

“Chemical application has evolved, and we use new chemistries to manage herbicide tolerance in weeds,” Symns said. “While low-drift nozzles increase droplet size and keep applications on target, recently we started to use finer droplet sizes to get better coverage while still targeting applications. A set of nozzles is fairly inexpensive, so we try to keep the tools available for the right job.”

Terracing and tiling are trending here

No-till and terracing have been common practices in northeastern Kansas for years now. Variable-rate applications came later, and now cover crops are being adopted.

Local farmers started installing tile outlet terraces, both conventional and grass, in the 1970s. The Symnses are replacing old tiles as they fail with improved modern-day material. “Tile outlets increase tillable acres and eliminate the need for grassed waterways that present maintenance challenges of their own,” Symns reported.

Participating in NRCS cost-share funding, Symns installed grassed terraces. “Conventional broad-based terraces don’t work as well on our 10- to 20-percent slopes,” he explained. “This kind of conservation work is expensive, and this is where we benefit the most from cost-share programs.”

The family’s first cover crops hit the ground in 2012. “They have been an absolute priority, following terrace building and repair, ever since,” Symns said. “After bulldozers scrape away the dirt to build terraces, cover crops help replace residue and organic matter, drastically decreasing erosion of the exposed soil.” He’s experimenting with cover crops on other acreage to assess additional benefits including increased water infiltration and weed suppression.

The family has received funds from NRCS programs including its Environmental Quality Improvement Program, Missouri River Water Restorations and Protection Strategy and Kansas Water Quality Improvement. “We also help our landlords participate in the programs,” Symns said.

Making grazing sustainable

As part of CSP, the Symnses worked with an NRCS grazing specialist to implement rotational grazing for their cattle where water sources and connecting pastures allow. This year, they will try grazing cattle on stockpiled forage to reduce hay needed for winter feed.

The Symnses use prescribed burns on underused grazing land to reduce invasive species such as trees, and to help warm the soil for early growth. They also use prescribed burns on NRCS Conservation Reserve Program acres. The family owns about 20 acres enrolled in CRP, and manages another 75 CRP acres for landlords. “We reduced CRP acres where it’s more profitable to return it to tillable acres,” Symns said. “We left smaller and less accessible fields in the CRP.”

Deer have plagued the Symns farm for years. “CSP provides financial incentives to leave deer-damaged acres around the outside of fields unharvested, which increases habitats and food for upland game birds,” Symns said. “It seems to be working.”

Learn more about the Symns family by going to www.youtube.com and searching for “Doniphan County family receives Kansas Farm Bureau Natural Resources Award.”

Meet Kenny Reichert…

Learn conservation from an award-winner 

Kenny Reichert farms near Brunswick, Mo., on hilly, hardpan, clay soils that tend to trap moisture. While he successfully raises corn, soybeans and wheat, he’s spent a lifetime figuring out how to improve his soil. By pioneering conservation practices including no-till, terracing, drainage tiling and cover crops, he’s saved input costs and increased yields.

Reichert and his wife, Julie, farm with their grown son, Justin, who represents the sixth generation of his family on the farm. “When I was a kid, Dad would say, ‘We’ve got lots of clods out there—we’d better get out there and break it up,’” said Kenny Reichert. “I got tired of plowing and disking! I want to save some of our soil for the future.”

In 2013, the National Association of Conservation Districts and the Natural Resources Conservation Service recognized Reichert with the Olin Sims Conservation Leadership Award for his work promoting and leading conservation. In announcing the award, NRCS said that Reichert played a key role in promoting conservation through Mississippi River Basin Healthy Watersheds Initiative. He’s been on the Chariton County Soil and Water Conservation District board of supervisors for 10 years and served as chairman for the last seven.

Reaping the benefits

Reichert started no-till practices 30 years ago, but no-till alone wasn’t working the way he wanted. In 2011, he began planting cover crops. Cereal rye is his mainstay, but he’s tried things like radishes, sorghum, millet, cowpeas and mung beans as well.
“No-till and cover crops go together,” said Reichert, who farms 800 of his own acres and custom farms another 400 for others. “I see more and more farmers adopting these practices.” Here’s what he sees as the benefits:

  • No-till saves fuel and labor costs since you run equipment over the field less often
  • No-till and cover crops build healthy soil
  • They keep the soil in place
  • They prevent water, nutrients and chemicals from running off
  • They improve yields
  • Cover crops naturally control weeds
  • You can graze cattle on cover crops

Leading the way on his own dime

Reichert hasn’t received much in the way of financial incentives from government conservation programs because he was already using conservation techniques when programs became available.

For starters, incentives weren’t in place when Reichert adopted no-till methods. He began terracing to protect the local watershed in 1985 and received cost-sharing for that for a while. But terracing requires heavy equipment, which gets expensive even with financial help. He installed drainage tiling on some of his land and sees more tiling coming to his area. He also grew cover crops before incentives came along.

Even without incentives, conservation has been worth it for Reichert, and he continues to reap rewards.

Building the case for cover crops

“I have never seen as much excitement as there is now with cover crops,” Reichert said in an NRCS news release issued when he won the Olin Sims award. “We’re revisiting the days of my grandfather. Farmers were using cover crops without knowing the science behind why they worked. Now we have the technology and research to back up why they make such good sense.”

When Reichert first tried cover crops, he had to take a road trip to Ohio to find the seed. A few other farmers went in on the purchase. “Now the seed’s easy to find,” Reichert said, “Back then, we had no idea what we were doing.”

Topsoil tends to be shallow on Reichert’s fields, but he makes the best of what he’s got. “After I began using no-till, I saw organic matter in the soil grow to about 3 percent, which was an improvement,” Reichert said. “After planting cover crops for a few years, I’m seeing 4 to 4.2 percent organic matter, so I know I’m improving soil health.”

The more years you plant a cover crop, the easier it is to plant, he said—the soil develops a looser texture, and doesn’t seal up on the surface as much.

“Cover crops are teaching us to look at soil in a more holistic way,” Reichert said. “We’re moving away from a generic approach with fertilizer, and looking at what works best for each soil type.” That’s where variable-rate fertilizer application comes in, which can reduce fertilizer use and costs.

Reichert watches for soil texture and color, and when he sees earthworms, he knows the soil is happy. “Happy soil produces better crops and higher yields,” he said. He’s learned a lot but continues to work with NRCS, agronomists and other experts to analyze soil needs.

Cows like it too

Reichert also raises about 60 cow/calf pairs. His momma cows give birth in the spring. The calves are weaned by the first of September. Reichert begins planting cover crops on his harvested wheat fields around the first of August as well as after corn harvest later in the fall. The mommas graze on the cover crops for a couple of months once the cover crops come up. He raises hay to get the cows through the winter, but when the ground isn’t too wet, he puts cattle back on the cover crops occasionally through the colder months.

“Cover crops extend our grazing season and let us keep the cows off our pasture longer, allowing it to recover,” Reichert said. He’d like to use rotational grazing techniques to preserve pasture further, but they don’t work on his farm because it’s divided up by some roads.

Showing other farmers how it works

Under Reichert’s leadership, the Chariton County Soil and Water Conservation District worked with the Missouri Department of Natural Resources to develop a pilot project to test cover crops. The program helped alleviate fears of his fellow farmers who were concerned with the costs and effectiveness of changing their practices. “The program went statewide last year, and we’re pretty proud of that,” Reichert said. A Missouri state sales tax dedicated to conservation funds the program.

Reichert also helped bring a University of Missouri conservation demonstration farm to Salisbury, in Chariton County about 25 miles from his farm. Associated Electric Cooperative owns and contributes use of the ground where the farm is located, near an Associated power plant.

So far, conservation programs have been voluntary across the U.S., and Reichert would like to keep it that way. “If farmers don’t take the lead on conservation on a voluntary basis, I’m afraid someone will start telling us what to do.” He cites a case near Des Moines, where a lawsuit is brewing over watershed damage.

As for the future, “We’ll continue to make conservation advances,” Reichert said. “Just when you think you’ve got it figured out, the soil tells you something different. There’s always something new coming down the road.”

Missouri farmers face special challenges

Water quality, soil health, forestland conditions and wildlife habitat are Missouri’s main conservation concerns, according to Dwaine Gelnar, Missouri state resource conservationist for NRCS.

“Agriculture has come under greater scrutiny over the past few years due to hypoxia in the Gulf of Mexico created by agricultural runoff, and due to the costs of treating water from drinking water supply reservoirs,” Gelnar said. “Limiting runoff of nutrients and sediment is a primary concern.”

More than 50,000 acres of Missouri grassland were converted to row crops in recent years, he said. “Fertilizer consumption in the state increased and nutrient and sediment loss increased in some areas.”

However, he added, significant progress is being made in addressing water quality through the efforts of farmers, USDA, and soil and water conservation districts in conjunction with the Missouri Department of Natural Resources’ Soil and Water Conservation Program. Terraces have helped keep sediment out of streams and lakes, and most farmers are managing fertilizer application more efficiently, which limits the loss of nutrients to streams and lakes.

The agency’s second priority is soil quality. “Intensive use of cropland has significantly impacted the health of Missouri soils,” Gelnar said. “Over the years, intensive tillage, harvesting and erosion have degraded our soils to the point where production may be less sustainable. Organic matter has deteriorated significantly, and it’s affecting the soil’s capacity to absorb and retain nutrients and water.”

Fortunately, farmers are doing something about it. “The soil health movement is one of the most significant conservation efforts in decades,” Gelnar said. “Many farmers are planting cover crops, and federal, state and local agencies have provided extensive resources.”

As for forestland, Gelnar reported that Missouri suffers from overstocked stands of hardwoods, as well as erosion caused by logging. Also, wildlife habitat has been adversely affected by row-crop production and intensive grazing of cool season pastures. The state has made significant strides in restoring and establishing wildlife habitat, especially for grassland birds and waterfowl.

Gelnar expects NRCS to focus more on climate issues in the future. “In Missouri, we are experiencing more occurrences of prolonged drought and intense rainfall,” he said. “The result is reduced water infiltration into the soil, and greater surface water runoff.”


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