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12 CapitalPress.com June 12, 2015 ‘The period we’ve come out of was almost unprecedented’ exports. As the value of the dollar increases compared with other currencies, makes it more expensive for other countries to buy U.S. products and crops. But there are key differ- ences between now and then. UI Extension economist Chris McIntosh notes increased pro- duction has decreased petro- leum prices, and interest rates remain at record lows. SQUEEZE from Page 1 40 years,” Patterson said. “We’re going back to a more normal situation. (Farmers) have got to focus on their financial management and business management skills to stay in business when they’re going through the cost-price squeeze.” By the numbers Between 2009 and 2014, U.S. farm commodity pric- es increased by 33 percent, reaching record highs. “The period we’ve come out of was almost unprece- dented in terms of extended high commodity prices,” Pat- terson said. However, operating ex- penses have also jumped dra- matically, increasing by 30 percent. In Idaho, demand for land drove cash rental rates from $98.50 per acre in 2008 to $151 per acre by 2014. From 2004 to 2014, fertilizer costs increased by 123 percent and farm chemical costs increased 33 percent. But during 2014 and the first few months of 2015, prices received by growers have dropped by 8.3 percent. At the same time, operating costs have decreased by only 1.8 percent. “It’s a pretty wide gap starting to form again, and it’s even more substantial when you start looking just at crops versus all agricultural prod- ucts,” Patterson said. When viewed over a long time frame, the cost-price squeeze has been even more marked. Over the past two decades, commodity prices have risen 74 percent, ver- sus a 115 percent increase in farm operating costs. So how have farmers stayed in business? Bart Eleveld, an agricul- tural economist at Oregon State University, explained that big operations have be- come more efficient and ex- panded. “The small, one-fam- ily farm is sort of dying as a model for agriculture,” Eleveld said. “What we’re seeing are more of these super farms that are con- glomerations of many small farms, oftentimes supporting more than one family.” On the opposite end of the spectrum, he said, the local food movement has fueled the growth of small, niche operations that sell di- rectly to customers and set their own prices. “There’s a real burgeon- ing of producers,” Eleveld said. “Many of these are beginners who haven’t been farming before, and they’re getting into small, specialty product farms.” Efficient farming Behrend Farms in Aber- deen, Idaho, had 1,500 acres when Nic Behrend joined his father, Paul, in 1993. ‘Clean balance sheets’ John O’Connell/Capital Press Aberdeen, Idaho, grower Nic Behrend, standing in a potato field, says specializing in Russet Burbank potatoes and constantly working to make his farm more efficient have been successful strategies for his farm. Dan Wheat/Capital Press Denny Hayden looks at freeze damage to Sweetheart cherries at his orchard north of Pasco, Wash., in May 2011. Hayden said his industry has gone to planting on trellis blocks at higher densities to become more efficient. Since then, his broth- er-in-law has also come on board, and the farm has grown to nearly 5,000 acres, as they bought out other family members who had land in the area. Despite the growth, Beh- rend insists a culture of im- proving efficiency has been the key to his farm’s suc- cess. Behrend says potatoes are his focal point, and his farm specializes in a single variety, Russet Burbank. “One of the keys to our efficiency is we’re do- ing one variety,” he said. “When we go to plant and harvest it really streamlines the operation.” He’s also focused on up- grading his irrigation sys- tems to conserve power and water and has gone to vari- able-rate fertilizer applica- tion, adjusting nutrient rates based on differing condi- tions in a field. Denny Hayden, a tree fruit farmer north of Pasco, Wash., said his industry has been maximizing efficiency by planting trees on trellis- es at much higher densities than traditional orchards. Hayden said his farm’s strength lies in its diversifi- cation. Though apple grow- ers produced a bumper 2014 crop and prices have been down, he can also fall back on his cherry crop. Eleveld said farm equip- ment with GPS technolo- gy has helped large farms conserve fuel, fertilizer and chemicals. He predicts drone-based crop monitor- ing will drive future farm efficiencies. “I see the really large farms finding a way to suc- ceed,” Eleveld said. “They continue to adopt improving technology to lower their costs, even though the price squeeze is going on.” UI Extension economist Garth Taylor said biotech- nology has also played a critical role in streamlining farm operations. In Idaho, Taylor said, the switch a few years ago to genetically modified sugar beets resis- tant to glyphosate herbicide enabled the state’s farmers to cut 2,000 jobs, previously needed to control weeds. Peaks and valleys Patterson believes the di- versification of foods pro- duced in the Pacific Northwest has lessened the regional blow of past cost-price squeezes, compared with Midwestern farms that specialize in corn and soybeans. This strength was partic- ularly evident in 2014, when farmers nationwide saw their net income decrease by 22 percent but Idaho farmers saw their net income increase by 46 percent, according to Uni- versity of Idaho estimates. Though Idaho potato and barley revenue dropped in 2014, strong milk and beef sales helped the state set a gross farm revenue record for the fifth time in six years. Nationally, agriculture’s good run started around 2008, just as the rest of the economy was entering the recession. Corn inventories dwindled due to severe drought in other global production areas, and policy changes necessitated the diversion of more corn to make ethanol, leading to a tri- pling of corn prices. Soybean prices also increased as farm- ers shifted toward corn acres. A 2012 drought in the U.S. further reduced inventories of corn, pushing up prices. Simultaneously, the rising middle classes in China and India increased global food demand. In many ways, Patter- son said, the recent good years were reminiscent of the 1970s, when commodi- ty prices shot up due largely to an extremely poor wheat crop in the Soviet Union, prompting the Kremlin to re- verse its previous policy and begin buying grain from the West. At the time, U.S. Agri- cultural Secretary Earl Butz urged growers to plant from fence row to fence row and to “get big or get out.” An oil embargo drove up energy prices and land costs inflated as farmers expanded their farms, reasoning that “God isn’t making any more land.” The resulting overproduc- tion drove down commodity prices, leading to the erosion of land values, and financial- ly over-leveraged farmers went bankrupt in droves. Patterson also said the U.S. dollar is now strong, which is a drag on U.S. farm In February, USDA pro- jected net cash income for farms will drop 22.7 percent this year, with cash expenses projected to decrease by only 1 percent. Crop receipts will decrease 8 to 10 percent for farms specializing in wheat, corn and soybeans, and spe- cialty crop receipts will drop by 5 percent. Taylor is certain Idaho agriculture will set no reve- nue record in 2015. But he’s equally confident agriculture won’t experience the wide- spread bankruptcies of the 1980s. In recent years, farmers such as Behrend have priori- tized eliminating debt and refi- nancing at lower interest rates. “We’ve tried to clean up some of the notes we had coming forward and make sure the financial house is in order while we can, not know- ing what the future is going to bring,” Behrend said. Taylor said growers are en- tering the cost-price squeeze with solid debt-to-asset ra- tios, and they’re generally not borrowing against their land values. “Nationally, we have really clean balance sheets — record clean balance sheets,” Taylor said. “Even though we have high land prices, those have been financed out of cash.” Patterson won’t predict how long the squeeze will continue. Ultimately, he an- ticipates it will take an unex- pected event, such as political upheaval overseas or another drought, to reverse the current trend. Gordon Wankier, branch manager with Zions Bank in Blackfoot, Idaho, said the farmers who have come into his office this year have had solid finances and gotten their loans. When he started at the bank 26 years ago, Wankier said, there were 10 times more po- tato farmers in his community. He envisions the trend of farms getting bigger will continue. In the meantime, he’s seen sim- ilar cycles in the past and ex- pects operating costs and com- modity prices will soon find a better equilibrium. “Farmers are going to have a tight year this year, but they’ve had some good years that will see them through, and I think those commodity prices versus input prices will adjust, and they’ll return to better profitability,” Wankier said. Oregon’s drought situation isn’t as severe as California’s WATER from Page 1 Oregon Gov. Kate Brown has already declared a drought state of emergency for Klamath, Lake, Mal- heur, Harney, Crook, Baker, Wheeler, Josephine, Jack- son, Lane, Deschutes, Was- co, Grant, Morrow and Uma- tilla counties. The southeast corner of the state is consid- ered an “extreme” drought area by the USDA. Oregon’s situation isn’t as severe as California’s, where a continued drought has caused farmers to leave fields fallow and touched off a well-drilling spree that was featured in a June 7 article in the New York Times. Washington Gov. Jay In- slee declared a statewide drought emergency in mid- May. In Idaho, the U.S. Drought Monitor lists vari- ous regions of the state as in extreme or severe drought, and the remainder in moder- ate drought or as “abnormal- ly dry.” NRCS allocated up to $2.5 million for Oregon farmers, ranchers and wood- land owners in drought-de- clared counties to help mit- igate the effects on their operations. Funding is avail- able through the Environ- mental Quality Incentives Program. Producers should file funding applications by June 26; details are available at USDA county service cen- ters. http://www.nrcs.usda. gov/wps/portal/nrcs/main/ or/contact/local/ Monsanto’s been on Justice Department’s radar screen for some time MERGER from Page 1 Monsanto said. Monsanto’s headquarters in St. Louis, Mo., would be maintained. Sara Miller, a Monsanto spokesperson, said the pro- posed combined company would be an even stronger part- ner to farmers. “The combination would of- fer the opportunity to accelerate innovation, putting meaning- ful technology and additional choice into the hands of farm- ers faster than what any in the industry are doing today,” she said. Syngenta, now based in Switzerland, has rejected both overtures, citing an “inadequate price” as well as the risk of reg- ulatory complications. The prospect of the U.S. De- partment of Justice objecting to the merger is realistic, said Peter Carstensen, a law professor spe- cializing in agricultural antitrust at the University of Wisconsin. “Monsanto’s been on their radar screen for some time,” he said. There has already been a lot of consolidation in the biotech- nology industry, so the loss of another source of genetically engineered seed does not bode well for growers, said Chavas. “Farmers paying higher pric- es is a likely outcome,” he said. Combining Monsanto and Syngenta could reduce costs by eliminating some redundant jobs and duplicative research expenses, but it’s unlikely those savings would be passed on to farmers, Chavas said. Farmers have been willing to pay more for biotech seed due to the reduced cost of weed and insect control, he said. The possibility of fewer competitors in the biotech field, however, raises questions about the merged company’s incentive to innovate at the same pace, said Carstensen. While Monsanto said it would sell off Syngenta’s seed business after the merger, the deal would nonetheless elimi- nate one of the major three bio- tech companies, he said. Regulators would look par- ticularly askance at an asset sale to Dupont, as this would amount to two major competi- tors “carving up” a mutual rival, Carstensen said. On the other hand, if the sale of Syngenta’s seed assets created a strong, viable compet- itor for Monsanto and Dupont, antitrust regulators would have fewer objections to the merger, he said. “It seems to me, if they do that, the chances of getting it through are reasonably good,” Carstensen said. If the government decided to file a legal complaint seeking to block the merger on antitrust grounds, it would require some “pretty gutsy enforcement,” he said. To make a strong case, reg- ulators would want to use in- ternal documents to show that Monsanto intended to destroy competition by taking over Syn- genta, he said. Such a finding would demonstrate that the anti-com- petitive effect is more than “some pointy-headed bureau- crat’s theory,” Carstensen said. It’s possible the Department of Justice would sign off on the deal based on Monsanto’s planned asset sell-off, but it’s more likely the government would take the company to court to compel additional con- cessions, he said. In that case, the company could fight the complaint, settle, or simply walk away from the merger. “We expect a thorough regu- latory process, and are commit- ted to working through the pro- cess to addressing any questions regulators might have.” Miller said. Biotech critics such as the Center for Food Safety, a non- profit involved in litigation over genetic engineering, worry that a potential merger would spur the development of more herbi- cide-resistant crops. Crops resistant to glyphosate have caused farmers to spray more of the chemical, leading to increased weed tolerance of the herbicide, said Bill Freese, the group’s science policy analyst. As a result, biotech develop- ers want to commercialize crops resistant to additional herbi- cides, he said. Syngenta is a major producer of several common herbicides, including paraquat, atrazine and metolachlor, so a merger would give Monsanto a larger footprint in the chemical market, Freese said.