Gulke: SD Banker Says 85% Of Ag Customers Lost Money In ’14

IMG_1603Jerry Gulke tells it like it is, and that’s why the room was filled at the Soybean Expo 2015 in Fargo, N.D.

An Illinois farmer and nationally-known grain marketing consultant and analyst, Gulke doesn’t sugar-coat the current agricultural picture. “I have a friend in South Dakota at (a very large bank), their regional banker, told me that 85 percent of their farmers at the banks lost money last year in 2014 — their Schedule F, including depreciation,” he said.

Farmers have different cash flow situations, he acknowledged. Some may have grain on the farm from two years ago, Gulke says, so there’s “a lot of money sitting in grain waiting to be sold,” Gulke says. “If you think about it in your mind, you’ve already expensed it. It’s too late to recoup something you’ve already expensed. If you’ve got 10,000 bushels of $5 (per bushel) wheat or $4 (per bushel) corn in the bin, that’s pure profit.”

Gulke perceives that farmers in North Dakota may be in a bit better shape than in South Dakota. “But there seems to be a problem brewing out there somewhere.”

Here were some of his thoughts on key areas going into 2015:

Cash flow: “This thing doesn’t cash-flow real well. I look at it and say, ‘What’s the rock bottom that I can spend in actual dollars out of my pocket, not including depreciation, that I can put a crop in, and you probably want to do the same thing.”

Depreciation is a “funny number,” he says, because that’s already been spent once. “This is the year you don’t spend that depreciation on new equipment. You put it off a year to make the balance sheet look better.”

Cash  flow was the “biggest problem that got guys in trouble in the ’80s,” Gulke says. “If you use the income tax break that you’ve saved to make a down payment on land, I don’t care how much you paid down, you’ve got a $100 principal payment, you’ve got to net $130 or $140 an acre to have enough left over to pay that. Rent is expensable,  interest is expensable, but not capital payments.”

2015 soy  acreage: The price outlook for corn and soybeans is “really up to us” farmers, he said, noting that farmers will be in more trouble if they plant as many acres as they did last year. The industry now is expecting an 88 million-acre soybean planting in 2015. “I’m hoping our numbers come down to 86 million (U.S. soy acres) or somewhere that makes the market nervous,” Gulke says.

He added that a move of 2 million acres up or down doesn’t mean as much to soybean prices as it does to corn. Gulke doesn’t see a good weather year like last year for raising beans and farmers need to be ready to catch a surge in price.

Crop insurance: “If you think of it, after Feb. 28 — after one more week in February — you really have to move that price to get the average for insurance (values) up.”

If there are three weeks of prices “going nowhere” there needs to be a $5 per bushel price for a week to get the average up to $4.50 per bushel, he noted. “We will run out of time for the crop insurance to incentivize us to plant for the profit under crop insurance. Those days are gone,” he said.

“If we’re at the levels of crop insurance now that we we’re going to be at the end of February, 80 percent of $4  something  (per bushel) on corn is $3.20,” he says. “That doesn’t work” for farm profitability.”

Gulke thinks the price of corn in the fall will be around $4 an acre in October, November, December, if there are 88 million acres of soybeans and the country gets a trend-line yield. “The  corn will be worth more than it was last fall, but not a lot. Then we’ll see if we can get a rally in post-harvest.” He thinks soybeans will be at $8.50 per bushel if they get the crop planted.

If U.S. farmers plant 171 million acres of corn again in 2015, and the crop comes through in good shape,  farmers may be in trouble on per bushel prices, Gulke says.  “You may see a 2 in front of the number, who knows?”

Cutting back on fertilizer: “If you plant the acres, you discourage efficiency, you discourage production,” Gulke says. “I don’t know where we cut back. A lot of us won’t have to, maybe we’ve gotten pretty well-heeled and won’t have to. I’ve even thought about it, and I’ve fertilized a lot when prices were good. Put the plow down, start everything (with starter fertilizer) because we need to get rid of the money. Now it’s a little different. You can say to yourself I have enough reserve, I don’t need to put on any P and K (phosphorus and potassium). I can put the minimum on and still get a crop.”

Land rent: The rent in Illinois is not coming down, very fast or far.

“I don’t know where it all ends,” he says. He says he rents out farmland and is “always $50 behind” the top per-acre levels in the community. “This year we’ll drop it $50 an acre. I think we got $350 an acre and we’ll drop it to $300 an acre. I’d rent  him all of my land for $300 that I’m farming, based on cash flow now, and just take a year off.”

Gulke owns farmland and is negotiating with his own renters. He’s telling them he’ll keep the rent at the same level for the first half of the year payment but then negotiate on the second-half payment. But he says the renter must be a smart marketer. “If you have a chance at $4.25 (per bushel) corn and you don’t take it, don’t come crying to me.”

He says perhaps 2016 will be the year when land rents come down more.

Gulke often finds a way to bring laughter to an unpleasant outlook. He told  about how he chisel-plowed all of his soybean ground last fall, some of it twice, and has it ready to plant soybeans.

“I may just plant the whole farm to soybeans. I’ve got grain bins. I’ll make sure the suckers (soybeans) are dry, put them in the grain bins,” he said, and added a joking quip:  “Then only me and you guys will know that I’ve got it. My kids could dribble them out (and sell them) over the next 10 years and Obama will never know, or his kids, you know.”

There was laughter.

“If I look at them being worth 40 percent more than they really are (right now), I’m planting $14 per bushel beans.”

More laughter. And applause.

Gulke is frequent, popular speaker in the Dakotas because he relates to the culture. He was born and raised on a grain and livestock farm near Ellendale, N.D. He received electrical engineering degrees at North Dakota State University and worked in Rockford, Ill., where he started farming part-time. He earned a masters in business administration from Northern Illinois University in DeKalb, Ill. He started farming full-time in 1975 and became a contributing editor to Top Producer Magazine and writes columns on DTN, and among his many media activities.