Drought impacting ag businesses in Nebraska

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August 23, 2012 - 2:42pm

It’s a six hour drive from O’Neill, in north central Nebraska, to the north Kansas community of Oberlin.  Those are the northern and southern borders of Ryan Winberg’s territory, land he travels as the western region sales manager for Plains Equipment Group.  As he traverses the area this summer, the farm fields all look the same, “Well it’s no surprise the dry land crops are looking pretty tough. Very little dry land is going to be harvestable as far as the grain crop.” 

On a warm sunny August afternoon, a slight breeze ripples through a Nebraska corn field.  Many years these plants would be bright green.  This year, they’re brown and dry, and scratch against one another like leaves in late fall.  

Many corn fields have already been harvested anticipating little or no grain yield.

Nebraska’s agricultural-based economy has helped it avoid many of the effects of the national economic recession.  But with the state now experiencing significant drought conditions, the agricultural security blanket may be slipping away … and it’s already showing an impact on ag businesses, including implement dealers and service centers like Plains Equipment Group.   Winberg described what’s happening: “When they are tightening up their belts, instead of buying it new, they want to fix it used, and in that case, our service centers are busier and our parts counters are busier,” he said.  “Or they are fixing it themselves which means our parts counters are busy. And they may be buying a smaller tractor instead of the two bigger ones.”

While Winberg sees for himself what the drought is doing across the state, Brad Lubben sees the picture in a different way.  He types quickly updating a state drought disaster map.  It had become nearly a daily task for Lubben, an ag economist at the University of Nebraska-Lincoln, but that’s over now - the entire state is designated a drought area.

 “The impact throughout hit rather quickly,” Lubben said. “We went from looking good in June to looking like a disaster in August.”

Lubben said he hears from around the state farm equipment transactions are slow.  That’s backed up by statistics from the Rural Mainstreet Index compiled by economist Ernie Goss at Creighton University in Omaha.   Where 50 on a scale of 0 to 100 is growth-neutral, the farm-equipment sales index sank to 38.3, its lowest level since October 2008. The overall Rural Mainstreet Index fell for the third straight month to 47.1, its lowest in more than three years.  Lubben said farmers are also holding off on things like future fertilizer and seed sales that are typically common this time of year.   

“We still have a harvest to get through, we still have strong prices,” he said.  “We’ll find out how much cash flow there is before the end of the year, and some of those purchases will still happen. But the level of uncertainty is probably the biggest factor that says, ‘I’m going to slow down on those plans because I’m not exactly sure how much cash is going to roll in this fall.’”

Around the state, Winberg said he’s already seeing harvested corn fields, but the crop isn’t going to the elevator like most years.

“The drought is impacting feed sources so much that people are turning to the corn crop as an alternate feed source to feed the cows through the winter.”

While Winberg sees corn being harvested for livestock feed, Lubben said the anticipated low yields have producers selling off cattle so they won’t have as many to feed this winter.

Brad Lubben, University of Nebraska-Lincoln

“That’s actually, perversely, in the short-run, hurting beef prices, because larger numbers of cattle going to slaughter  is increasing supplies at the moment, particularly ground beef supplies,” he said. “And so you have a little bit of pressure on commodity prices exactly at the time when people are being forced into liquidation.  But those reduced numbers mean the herd’s going to be smaller next year.”

Lubben expects some assistance will be put in place by the federal government and crop insurance will help producers too.

“Chances are when they (Congress) reconvene in September they have very few days but they have an opportunity to at least pass disaster assistance,” he said.  “Expectations are they won’t pass an overall farm bill in September, but even then they’ll have to pass a short-term extension so they can continue that debate through the end of the year.  “That suggests a short-term extension plus disaster assistance as a likely product in September.” 

“Relative to crop expectations at the beginning of the year a short crop multiplied by a higher price plus crop insurance indemnities to help cover those losses will help those producers out,” Lubben continued. “Nobody’s going to be made whole or better off than they are but it helps.”

While the snapshot of this year’s ag economy looks bleak, the good news is it comes off several years of better conditions.   Lubben said most producers are in a position to make it through.

“(They) still have balance sheet capacity to borrow funds if necessary so we are in great position to handle a hit and this is clearly a hit,” he said.  “Cash flow will impact some of (their) purchasing decisions, but Nebraska is well positioned to at least handle this hit.  We also will pray for recovery and rain, and hopefully one hit doesn’t turn into a multi-year drought or multi-year stress.”

Ryan Winberg, Plains Equipment Group

Winberg said the adjustments he sees farmers making are good for the short term management of their farms.  Instead of buying new equipment, they are keeping what they have in good repair. But another year like this one would have a significant impact on ag businesses.

“The last couple years have been good enough that they are still planning in that direction and some of them have been tightening their belts and plan for future because you don’t know what the next year brings.  Another dry year like this year would really change the market.”

 

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