Once upon a time a man planted a seed of no particular species or variety in some dirt. The dirt was no specific soil type, of course it wouldn’t matter if it was clay, sand, silt, loam, silt-loam, clay-loam or sandy-clay-loam, because the seed would still grow. The man watered it about once and never had to put any money into fertilizing or protecting the plant from pests. The weather never affected it; it could rain, snow, hail, freeze or drought and the seedling still grew. The seed flourished into a mature plant that produced leaves of one hundred-dollar bills. Every time the farmer needed money he would go harvest the leaves. The plant would keep producing and unless he wanted to the farmer never had to plant a seed again. He lived a very wealthy, long happy life. The End.
The fairy tale above is exactly that a fairy tale. Farmers and ranchers do not have an endless source money nor is any money earned with relative ease. However, all my life I have experienced this misconception about farming particularly now working as a credit officer for an agricultural lender. We are consistently receiving inquiries from people who want to start a farm because it can’t be that hard. People far removed from the farm do not understand the risks it takes to farm and how to be successful at it.
Let’s start at the beginning. A farmer needs money to plant this year’s crop, however payment for that crop will not be received until after harvest or as in the case with many seed crop farmers not until the next year. The farmer goes to his friendly farm credit bank and applies for a loan for his operating expenses to plant the seed, care for the plant and harvest the crop. He provides the loan officer with a budget for this year’s crop’s expenses and a projection of the income he will receive for the crop which is where the repayment for the loan will come from.
The expenses for the next crop year seem reasonable & feasible, if everything goes as planned in the year ahead. Now if the cost of fuel, fertilizer and chemical does not go up more than predicted the farmer should be ok. However, that also depends on if his crop avoids disease so he won’t have to apply any additional chemicals. Even if he has to spray for a disease he’ll probably still be ok. The margin or bottom line might be a little thinner, but as long as there are no major equipment breakdowns or does not have to hire additional labor he will stay above break even. However, any of the previously described things could easily happen before the crop is harvested.
The income projection. Even before the seed is planted there is speculation of the high prices this upcoming crop year will bring. The farmer contracts a few of his crops to ensure a price and hopefully a margin if his expenses stay within budget. However, he can’t contract all of his crop because some of his crops do not come with contracts are sold on the open markets, he just hopes the market and buyers holds up until after harvest time. The farmer feels confident in his projection because he has contracted some of his crop and the open market price talk is positive.
Now to get the crop to harvest. Hopefully the weather cooperates for planting the seed and conditions are not too wet, too dry, too cold or too warm but just right. Hopefully the weather cooperates when it’s time for taking care of the plant, not too windy, too wet, too dry or too cold but just right. Hopefully the weather produces enough growing degree-days for the plant to mature fully and produce a decent yielding crop. However since the farmer knows better than to fully entrust his livelihood in mother nature he takes out crop insurance to protect against any damage that may occur to his crop because of disease or weather. The crop insurance will only absorb some of the loss in revenue not fully make up for it.
The farmer made it through this crop year with a few minor break downs, a good crop yield and a decent price for his crops. After all his operating expenses are paid for he has enough left over to make his land and equipment payments. Any money left from this year crops is already invested in next year’s crop and the farmer heads back down to farm credit’s office to prepare for next year’s crops. He goes through the same cycle year after year, some years are better, some are worse all is dependent on expense management, weather and prices. The End.
Overall, prices may be good at the moment but the crop isn’t even out of the ground yet. There are a lot of factors required to make money at farming high commodity prices is just one of those factors. Not all crops can even claim the high prices that are being reported currently. Oregon produces over 220 commodities and 2 out of the top 5, nursery and grass seed, are tied to housing industry and have yet to see the light at the end of the tunnel.