When RFD sneezes Main Street catches cold

Reporter’s note: In late August wheat prices in Blaine County had decreased to a point where loan deficiency payments under the 2014 Farm Bill would be available to producers selling their wheat. That was a sign that farm commodity prices were in trouble for this harvest season. Beef prices were also in a decline after several years of healthy markets.

Living in town, I wondered if this decline in prices for wheat and beef had any effect on those of us with no direct connection to agriculture. What I found, talking to several locals connected to agriculture, was that what happens in agriculture affects everyone in the area, either directly or indirectly. It seems when RFD sneezes we all catch a cold in north central Montana.

What’s the problem?

The best way to understand the decline in prices for wheat and beef, the main agricultural products in this region, is to consider a couple of examples. A cattle buyer told, “Calves to sell this fall will likely be bringing about $600 per animal below what they were selling for last year at this time. Yearlings will probably bring $800 less per animal than last year—for 300 yearlings that would be about a quarter of a million dollars below last year’s revenue.”

And wheat? A retired grain farmer explained, “I’ve heard that wheat with poor protein is selling for $2.00-2.50 a bushel, maybe less. Wheat with good protein is selling at $3.40 per bushel. All that wheat likely cost the producers about $4 bushel to produce.” Do the math and you see the problem.

Locals have commented about seeing large quantities of wheat stacked on the ground by one of the big elevators along Highway 2 west of Fort Benton. The cattle buyer said, “That will probably be shipped as animal feed.” Is there a correlation between grain prices and cattle prices? The buyer said, “My experience is that low feed costs usually also mean low cattle prices.”

How do lower commodity prices

affect ag producers and, ultimately,

the rest of us?

The obvious answer is lower commodity prices mean ag producers will have less money to spend. One retired farmer said, “Usually the farm implement dealers feel it first as farmers and ranchers will not be buying a lot of new equipment. Then other businesses will feel it as the ag community cuts back on other expenses.” He added that in prior falling markets it was the young farmers and ranchers who suffered the most, sometimes having to give up farm equipment and even, at times, land.

See Page A8 RFD Sneezes

A former farm implement salesman said, “With dropping revenues the farmers and ranchers will be tightening up with their money. Even in good times it can be challenging to sell equipment, dropping prices makes it nearly impossible to move the big ticket items.”

A retired engineer from one of the major farm equipment manufacturers was visiting north central Montana this past summer. He still does part time work for his ex-employer at state fairs and major ag shows around the country. He said, “I think my part time work may end as my friends still with the company say sales for new equipment are forecast to weaken and the factories are talking about reducing their workforce.”

There are reported incidents where farmers further east are already selling equipment to maintain their cash flow. One commentator said, “Farm equipment is like an alligator. It just keeps eating on you.” One possible outcome may be an uptick in the demand for used equipment.

Car dealerships also may feel the pain from the drop in ag prices. Pickup sales are famously connected to the vagaries of yields and prices. On the other hand, visiting with businesses that deal in repairing vehicles and selling parts, they see potential improvement. One explained, “If people begin to keep and operate vehicles for longer periods of time we could see more demand for our services and products.”

If declines continue long enough, local governments and schools could feel the effects. A retired local official said, “Some property owners in financial stress may take the option of not paying their property taxes. They have a three-year window before the county can take foreclosure action.” If a significant number of property owners decided to postpone their tax payments, it would have a direct effect on the tax income that supports schools and county functions.

Postponing paying property taxes is not without risk. Another county official described a new trend that is nationwide and showing up locally. Investment companies take assignment of taxes on properties that are delinquent on tax payments. The risk is that a property owner gets so far behind they can’t come up with the cash to pay the accrued taxes and penalties and lose their property to the investment group.

Many ag producers rely on operating loans each year to generate the available cash to farm or ranch. Bank loan officers work with ag producers to forecast what they will need to pay expenses until they can receive income from sale of livestock or grain. Depressed prices could mean some producers don’t generate enough income to pay off their current operating loans. A local loan officer said, “We have not talked to any producers who will not be able to pay off their operating loan, but I’m guessing with the prices we are seeing there are some out there who will have problems.”

When will the situation improve?

Representative Mike Conaway, the Chairman of the U.S. House Agriculture Committee, and Montana Representative Ryan Zinke were touring north central Montana recently. At a forum Conaway was asked, “How long do you see low commodity prices lasting?” Conaway responded, “They may last until 2022-2024.” Commentators have said the 2014 Farm Bill’s loan deficiency payments have not been that helpful. Conaway said work has already begun on a new 2018 Farm Bill.

Here’s another factor to consider, conditions can change. Most everyone who commented for this story said, “Anyone who watches farm markets knows that some weather or political event, here or in another part of the world, can drastically affect commodity prices.”

If RFD truly has sneezed, hopefully it was only a minor irritation and not a full blown cold. In the meantime, farmers, ranchers and the rest of us may be in for some belt tightening. To quote Red Green, the Canadian philosopher and pubic TV host, “We’re all in this together.”