Farm size not always a true gauge of profitability

Kansas State University agricultural economists Greg Ibendahl and Terry Griffin have reviewed factors that contribute to a successful farm in Kansas, and determined that the size of the farm doesn’t really matter.

A new Quarterly report released by CoBank’s Knowledge Exchange division suggests the economy and rural industries will not be returning to pre-COVID conditions. Instead, there will be a burst of economic activity unparalleled since 1984, the report authors claim.

“The policy focus in Washington is shifting from crisis management to building for the future,” said Dan Kowalski, vice president of CoBank’s Knowledge Exchange division. “And the outcome of the president’s infrastructure plan will have substantial implications for rural water, power and broadband providers.

“Hundreds of billions of dollars in funding would reshape these industries and intensify the current focus on climate resilience and social equity.”

The report claims elsewhere in rural industries, agriculture “has its swagger back.” Certain sectors of the industry are experiencing the best market conditions since 2013, especially with strong exports and dwindling supplies. However, in comparison, some sectors have been severely impacted by those same shortages and demand.

“The transition to a less COVID-restricted world has begun,” the report stated. “But we’re not going back to the way things were. A transformed policy environment and awakened commodity markets are making way for a whole new operating environment.”

The report’s authors predict a growth of 7 percent in GDP for 2021, the fastest rate of expansion since 1984.

“Inflation is inevitable, however, as the 2020 price declines will widen year-over-year inflation over the next two quarters, and new upward price pressure should push headline inflation above 3 percent,” the report read.

Grain prices

The rally in grain pricing for the first quarter was driven by both strong domestic and export demand and resulting tight stocks. Accumulated exports to China for corn, soybeans, wheat and sorghum increased by 269 percent versus a 59 percent increase to all destinations, reported Kenneth Scott Zuckerberg, senior CoBank economist.

China continues to demand large quantities of feed for its recovering hog population, and local grain prices are much higher than U.S. export prices. The Chinese yuan has also been stronger than the U.S. dollar over the past year, making grain purchases from the U.S. even cheaper. This has also made it easier for China to make progress on its purchase targets under the Phase One deal signed in early 2020.

Beef demand

Demand for U.S. beef remained strong in the first quarter, despite challenges from COVID-19. Even though mid-February’s major storm caused a brief slowdown in beef processing and demand, there remains optimism for the quarters ahead, reported Will Sawyer, CoBank lead animal protein economist.

Cattle slaughter fell by nearly 10 percent in the third week of February, after beef plant operations were interrupted by extreme cold temperatures. However, positive news shows many new projects in the works to build new plants or expand current plants. COVID-19 just added to the beef industry’s already limited processing capabilities.

“While we expect only limited capacity expansion in 2021, expansion in coming years will be critical to improving profitability in the cow-calf, stocker, and cattle feeding sectors,” Sawyer said.

USDA expects beef production to decline by 3.5 percent in the latter half of 2021, which along with strong foodservice demand, has helped lift cattle prices nearly 15 percent above year-ago levels, Sawyer said.

“This should bring some much needed profitability to producers who have experienced difficult margins during the pandemic.” — Anna Miller, WLJ managing editor

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