Seed, Feed and Field - Edition 5

Balance Sheet Basics - Part II Pg. 5

The Advocacy Issue - Meet Stephanie Nash Pg. 67

SEED, FEED Supporting American Agricultural Producers

Edition Five | Spring 2022

AND FIELD

CONTENTS SEED, FEED AND FIELD - AGRIFINANCIAL A LETTER FROM OUR PRESIDENT Alan Singleton reflects on the current events and economic state impacting Americans. "Perhaps it is a good opportunity to remember that adversity creates opportunities."

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BALANCE SHEET BASICS

PART II

When piecing together an annual balance sheet for an operation, identifying an appropriate value for each item can be complex. In this edition, we move into intermediate principles valuations.

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TOP SEVEN QUESTIONS FOR FINANCING GRAIN STORAGE With high input costs and fluctuating commodity prices, a lot of customers are having discussions about adding on-farm storage.

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MORTON BUILDINGS FEATURE Many ag sectors have faced supply challenges during the pandemic. Now is the time to plan ahead in assessing your farm building needs.

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THE FEED - FARMER MAC RISING FARM INPUT COSTS TO PRESSURE PROFITS Producers are expected to see eye-popping farm expenses in 2022, but profits are still possible for many farmers and ranchers.

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RISING RETAIL PRICES MAY NOT IMPACT PRODUCER PROFITS Americans are paying more for food, but evidence suggests that these changes might not change what they purchase.

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INTERVIEW WITH DR. WENDONG ZHANG: FARMLAND VALUES IN A RISING RATE ENVIRONMENT An interview with Dr. Wendong Zhang of Iowa State University on how farmland values might respond to changes in Federal Reserve policy.

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FARM INTEREST EXPENSE EXPECTED TO MODERATELY RISE Farmers and ranchers are facing a rising rate environment, but interest expenses should remain a small share of total expenses.

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THE USDA’S FIRST FORECAST FOR 2022 PROJECTS STRONG INCOMES The USDA’s first projections for 2022 might understate potential incomes despite rising cash expenses.

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WEATHER: LA NIÑA TO DRIVE WEATHER FOR EARLY 2022 GROWING SEASON A long-tailed La Niña pattern may lead to wet conditions for Midwest farmers during the planting season and dry conditions across the South.

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GRAINS: DISRUPTION IN BLACK SEA PRODUCTION COULD INFLUENCE U.S. GRAIN PRODUCERS The conflict in one of the world’s largest wheat and corn regions will reshape global trade in the short term.

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ABOUT

SEED, FEED AND FIELD Seed, Feed and Field is a publication from AgriFinancial, dedicated to supporting American agricultural producers. This quarterly resource features information on a widerange of agricultural products raised throughout the U.S. Inside, you’ll find everything from financial tips and market data, to Farm Fresh Recipes and Farmer Features.

You will also find, as an insert and central element, Farmer Mac's The Feed, which is re-printed and included with Farmer Mac's permission as pages 12 through 59.

To subscribe to Seed, Feed and Field, or to access a digital download of this publication, please visit: www.cgb-agfi.com/seedfeedandfield For media inquiries: AgFiMarketing@cgb.com To learn more about AgriFinancial: www.cgb-agfi.com Toll-free 877-548-2622

DAIRY: DAIRY PROFITABILITY STRESSED DESPITE STRONG PRICES Milk futures are near record highs, but feed costs may consume almost all the additional revenue.

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AGRICULTURAL COMMERCIAL BANKS END 2021 ON A STRONG FOOTING STRONG PRICES Low agricultural real estate delinquencies, slow merger activity, and rising volumes suggest a sector in its strongest position in years.

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FARM FRESH RECIPE

A refreshing and healthy salad that is full of flavor and perfect for Spring entertaining.

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FARMER FEATURE Nash Family Farm and Nash Family Creamery located in Chapel Hill, Tennessee.

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BONUS FARMER FEATURE Dairy farmer, singer, songwriter, and agriculture advocate - meet rising star, Stephanie Nash.

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LETTER FROM OUR

PRESIDENT A

s I sit here at the keyboard, the situation between Russia and Ukraine tops the news every minute of the day. And now, how China and other nations might react is coming into the discussion more and more.

There are those, like me, who remember the sheltering drills in grade school and the yellow and black shelter signs on courthouses, schools, and other buildings. It’s been decades since the Cuban Missile crisis, yet here we are today, with the potential of nuclear combat mentioned in the news.

Over the past several years I have been fortunate enough to visit with many groups of farmers and ranchers.

Many times, those visits led to discussions of black swan events – instances when something unexpected enters the situation and brings with it broad changes in the marketplace, whether that be price structure, input costs, or perhaps interest rates. And here, today, we find ourselves in the midst of what I consider to be the most significant black swan in my career.

The resolution of the situation must be left to folks far closer and involved in world relations than me. However, I would like to share a few thoughts as we look to the remainder of 2022 and beyond. We’ve already seen disruption in the energy markets that has led to spikes in costs. Additionally, the significant agricultural production from Ukraine could be severely restricted.

While we can’t fully know the outcome of these issues, we can anticipate and make preparations for

volatility in commodity prices. To be sure, input costs today look totally different than ever before.

Availability is also a huge concern.

It’s already true for 2022 and may be even more so for 2023 and beyond. Perhaps it is a good opportunity to remember the old saying that “adversity creates opportunities”. I think back to the 1980’s. Interest rates skyrocketed and land values declined. For the many that managed risk, coming out of that difficult period brought opportunity for sure. Could it be that we are entering a similar time?

As you read this letter, I could understand if you might sense some fear welling up. Let’s remember that we can’t let fear determine our plans. Do we need to consider the source of the fear? Certainly. But it should not dictate our decisions. Let’s focus on risk management - pricing both the inputs and your product.

Take advantage of locking in commitments for delivery as they become available and into the future. Look at financing options that provide protection for extended periods of time, or even

blending rates that provide lower costs of financing along with longterm amortizations.

The ongoing costs and availability for chemicals, fuel, fertilizer and feed may be uncertain, but the world NEEDS U.S. agriculture.

The market will adjust, as it always does, and we must believe commodity prices will follow accordingly. But more so, farmers and ranchers need to remain optimistic considering that American producers are in a solid position, capable of delivering one of the most basic needs of humans across the globe.

At AgriFinancial, we believe in what you are doing. If you have questions or just want to visit, every one of our staff is a phone call away. We are with you.

ALAN N. SINGLETON

SEED, FEED AND FIELD - SPRING 2022

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BALANCE SHEET

BASICS

PART II

In the Winter 2021/2022 Edition of Seed, Feed and Field, we launched a three-part series on balance sheets. Beginning with the fundamental concepts of putting a balance sheet together, Balance Sheet Basics Part I focused on the structure of this essential financial statement: Assets - Liabilities = Net Worth.

You can access a digital copy of this edition by visiting https://www.cgb-agfi.com/seed-feed-field/.

For our Spring 2022 Edition, we move into Intermediate principles of the balance sheet – Valuations. When piecing together an annual balance sheet for an operation, identifying an appropriate value for each item can be complex, reflecting either a cost (what you paid for the item minus depreciation, if applicable) or marketbased value (what you could sell it for today). Which is better to use? A great place to start is by consulting your tax specialist and/or financing provider. There may be one that works better for their specific analysis.

At AgriFinancial, our team of underwriters prefer to work off of a fair market value based balance sheet. If a customer’s balance sheet is submitted using cost-basis, our team will work with the producer one-on-one to convert it into market-based.

GROWING CROPS

A producers’ balance sheet will reflect everything from bank account balances to long-term investments.

From livestock to supplies on-hand. For this article we’ll focus on four specific line items and considerations for applying a value to them.

So, what are the differentiating factors when considering placing an item under prepaid expenses or investment in growing crops?

CROP INVENTORY When calculating a value for this category, start by answering these simple questions: What is the commodity?

How much do you have, in the appropriate unit of measurement? (i.e. Bushel, ton, etc.)

Is it contracted for sale?

If your crop inventory is contracted, the value is an easy input of your contracted price. If it is not, there are a variety of resources you can access to identify the right number to apply in that column. These resources include CME or CBOT which are Designated Contract Markets and can be found online.

While these online market resources can be helpful to track futures markets fluctuation, the most accurate estimate you will get for this value is by referencing your specific local elevator.

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SEED, FEED AND FIELD - SPRING 2022

It’s important to note that a lot of the items a producer will add in this category could either be listed under Growing Crops or Supplies On Hand/Prepaid Expenses.

Since many of the inputs a farmer uses can be bought in advance (i.e. seed, chemical, fertilizer, etc) they could naturally fall under Prepaid Expenses. This is true when the input itself has not yet been applied (i.e. Chemicals purchased in December for the next growing season.

You may not even have physical possession of the asset yet). It’s important to make sure that each item listed in these categories is counted once and only once. Ensure there are no duplicates on your balance sheet.

Providing an estimated value for what you have in growing crops should be calculated as of the date of the balance sheet. This value is calculated on a per acre value, since the asset has already been applied. For example: Anhydrous may be applied in the fall for next year’s crop over 250 acres. Take the amount paid per acre multiplied by the number of acres - 250 in this case. That number will equal the investment in growing crop for the anhydrous. If you purchased more than what was applied, the excess is listed as a prepaid. Once planting is complete, it is typical to list each commodity (i.e. corn), total acres planted multiplied by the total investment (seed, chemicals, etc.) The anhydrous value mentioned previously that was applied in the fall is now included in this total value by commodity.

Again, to differentiate between the two, remember this tip: a prepaid has not yet been used/applied to the field/ acreage and an investment in growing crop has been. If you no longer have the tangible item to fill the planter, sprayer, spreader, etc. because it has been used, then it is an investment in growing crop. Any excess that was purchased but not used will still be listed as a prepaid/ supplies on hand.

Here is an example of the section for Growing Crops from the Balance Sheet we provide customers.

MACHINERY AND EQUIPMENT

REAL ESTATE

Machinery and equipment are a major asset in agricultural operations. This is where you identify the market value of the machinery itself as you’ve accounted for the operating costs in the previously-mentioned category. The market value should reflect what the machinery could be sold for today (net of selling costs), not what you bought it for.

For a market-based balance sheet, one of the main areas a producer should capture costs is for this category. Identifying the original purchase price of farm and non-farm real estate on the balance sheet allows a credit analyst to better understand the earned net worth over time after deducting out appreciation that has occurred over the years.

To come up with the market value for this category, various printed and online pricing guides are available to help determine a reasonable estimate of the current market value.

Once again, the most accurate estimate will come from your local dealers or auctioneers.

As you can see from the following snippet of the Balance Sheet template we provide customers, it’s also important to note the costs of improvements you’ve made to your land as well. This can include buildings, drainage tile, fencing, etc. All of these items are factored into the estimated market value.

The current condition and operational quality of buildings and improvements should also be considered when placing a value to them. Also, remember that these items are depreciated while real estate is not. The USDA and land grant universities have a lot of resources that provide land values per county that are helpful to reference.

One of the best tips for when you are assigning values on a balance sheet is using conservative estimates. When completing this document, remember it is creating a snapshot of your operation during a specific timeframe. As you complete this at the same time each year (preferably 12/31), you’ll be able to reference it year after year to identify trends as well as growth opportunities. Using conservative estimates allows you to account for fluctuations in the market and production.

For more on balance sheet tips and guidance, connect with one of our ag finance specialists and be sure to check out the Summer 2022 Edition of Seed, Feed and Field for our third, and final, installment of this series when we introduce advanced concepts of Balance Sheets. Visit www.cgb-agfi. com to get in contact, subscribe, and access digital copies of this quarterly publication.

SEED, FEED AND FIELD - SPRING 2022

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TOP SEVEN QUESTIONS

FOR FINANCING ON-FARM GRAIN STORAGE 2.Can the payments match the cash flow on my operation?

Regardless of the commodity you raise, it’s important to make sure that your lender understands your cash flow needs and can customize the structure of your financing as well as your payment schedule to your operation.

With high input costs and fluctuating commodity prices, a lot of farm customers are having discussions about adding on-farm grain storage.

We recently sat down with AgriFinancial’s National Director of Leasing, John Witt, to identify the top seven questions to ask for financing on-farm grain storage.

1.What can I build into my financing?

Grain bin projects can be significant and complex.

When taking into consideration the various elements of the project alongside the bins themselves (i.e. concrete pad, electrical, leg(s), dryers, safety equipment, management systems, etc.), it’s important to ask what can and cannot be built into the financing. Knowing this can help you determine which extra features you want to include in your project. Witt notes that AgriFinancial’s lease financing can cover 100% of the project including anything that is permanently affixed to the structure itself.

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SEED, FEED AND FIELD - SPRING 2022

John states that AgFi’s payment options are monthly, quarterly, semi-annual, annual or can be customized to meet harvest schedules depending on what the producer needs. He also notes that these payments can be amortized for anywhere from three years, up to ten years.

3.What are the advantages of a lease vs a loan for bins?

Producers have several options when it comes to financing a grain storage project.

Producers looking for longer amortizations (up to 30 years) and have money to put down at closing may choose the route of a loan.

With a lease, there’s no money out of your pocket until construction is complete and there is added flexibility from a tax management perspective.

Witt says that at AgriFinancial, “Most often we do finance grain bin projects with a lease.”

4.If I do a lease, do you have to file a mortgage on my land?

John Witt says, “We look at what kind of money they’re currently paying for storage off-farm, if they are doing that. We look at a variety of grain prices Knowing the full impact on your real estate and we’ll just simply pencil out at what point, based is key to the decision-making process when considering financing a grain storage project. If on those scenarios, they can expect to have that project start paying them back and reaping the full a mortgage is required, there could be added benefits.” time, costs, and documentation.Witt says that their lease does not require a mortgage on the When making the decision to add grain storage customer’s real estate. facilities on your farm, there are many factors to

5.What are my all-in costs?

Know before you go! Make sure you understand, upfront, the full-scope of repayment amounts, fees, schedule of payments, as well as what happens at the end of your lease.

consider. Asking these seven questions will help get you started as you sort through your financing options.

To learn more about Bin financing and to connect with John Witt, or the AgFi representative nearest you, visit www.cgb-agfi.com/bins/.

6.Do I have to be a full-time farmer?

Regardless of whether your entire income comes from your operation, or if you have an off-farm revenue source, it’s important to confirm with your lender what is required for their financing options. Knowing what schedules you file for your taxes will help you have this conversation.

All offers to lend are subject to approval.

Partial payment down upon completion for lease financing.

No AgriFinancial content should be construed as personal tax advice.

Always consult a CPA or tax specialist regarding tax deductions.

Any ROI calculations provided by an AgriFinancial representative are for informational purposes only. AgriFinancial makes no guarantee, express or implied, of the performance of such projections.

There are financing programs available for both part-time and full-time farmers. The documents needed for applying as well as the time needed for approval are two important variables impacted by this.

7. Where’s my break-even?

Whether you’re building bins from scratch, or expanding your existing storage facilities, it’s a big project and knowing your potential Return on Investment (ROI) before you break ground is essential. Your lender should be able to help you calculate a cost-per-bushel based on your current methods for storing and selling grain, and then measure it against your storage project estimate to figure out when you might expect to start seeing a return on your investment.

SEED, FEED AND FIELD - SPRING 2022

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MORTON BUILDINGS

EVALUATING YOUR FARM BUILDING INFRASTRUCTURE

“Consider the plans they may have. Also, many operations are looking for additional revenue sources to support more personnel. And make sure you are considering the necessary infrastructure to support that.”

Many ag sectors have faced supply challenges during the pandemic.

Now’s the time to plan ahead in assessing your farm building needs.

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an Nyberg, sales trainer for Morton Buildings, says these challenges — a result of supply chain issues coupled with strong building demand — make caring for farm building infrastructure more important than ever.

The start of a new year, he says, is a good time to evaluate if any buildings need to be added, remodeled or replaced. Nyberg notes that some inadequate structures should be demolished, especially if there are drawbacks to their existing location. In some cases, older structures may be too small to meet the needs of a growing operation and therefore are no longer efficient due to the building size or height of doors.

“Expanding a door opening is one option. Adding height is usually very expensive.

And if a structure is not tall enough, it probably has too small of a footprint to work well,” he says. “Some older buildings may well be depreciated, so consult with your tax adviser about the implications for investing in rebuilds.”

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Nyberg says if planning new construction, like a farm shop, it’s important to factor in new equipment that may be planned now or in the near future to make sure adequate space is provided.

“Consider what changes will be coming in your equipment in the next five years,” he advises.

Nyberg says a successful infrastructure strategy means evaluating what has worked and what hasn’t and then giving thought to how to best address your building needs. Morton Buildings, the industry leader in post-frame construction, has over 70 years of experience designing and constructing farm buildings of all types.

Proper housing for equipment offers two benefits, he says. First are fewer breakdowns in the field with equipment that has not been exposed to the impact of weather.

Second is significantly better trade value when the time comes to upgrade.

The company focuses on providing superior, overall building strength through all conditions and innovative building methods to increase farm efficiency and productivity.

To learn more:

VISIT MORTONBUILDINGS.COM

“This is not only a question of square footage but also other factors that impact the overall efficiency of the building — such as door height and width, interior layout and energy efficiency,” Nyberg says.

Finally, he recommends planning for possible changes in your farm’s personnel, such as bringing a younger family member into the operation.

SEED, FEED AND FIELD - SPRING 2022

The Feed Farmer Mac’s Quarterly Perspective on Agriculture

Weathering Uncertainty

SPRING 2022

© 2022 Federal Agricultural Mortgage Corporation. All Rights Reserved. www.farmermac.com/thefeed

LETTER FROM THE CHIEF ECONOMIST As the saying goes, “May you live in interesting times.” Whether you read that as a blessing or a curse, farmers, ranchers, and rural Americans are indeed living in interesting times. After the COVID-19 recession and economic boom, ag and rural communities experienced tight labor markets, higher prices for energy and goods, and a largely positive outlook for commodity prices.

In February, the USDA released its first look at 2022, predicting a mix of better incomes paired with higher input costs. The report matched the mixed results we’ve grown used to in 2021: Sure, grain prices looked to hold well above profit breakevens, but fertilizer prices spiked in the fall.

Sure, economic conditions looked to support specialty crops and protein prices, but good help was and is still hard to find and costs a lot more.

Thus, the USDA’s first take on 2022 showed net cash farm incomes that looked a lot like those in 2021, with higher income from farm products and lower income from the government. In a word: steady.

We like steady! Steady is predictable. At these prices, steady makes money. Steady pays bills.

Steady builds wealth. Wages are up in rural communities, unemployment is down, inflation is taking a big bite out of income, and people were holding their breath for higher interest rates, but overall, the rural economy was humming along as the calendar turned to 2022.

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And then—Russia invaded Ukraine. Beyond the humanitarian devastation and strong emotions, markets reacted quickly and deeply to both the actions and sanctions arising from the war.

Most agricultural commodity prices spiked to historically high levels. Both Russia and Ukraine are major wheat exporters, so the conflict sent winter and spring wheat to new highs (as of March 1, you could hedge winter wheat above $9.50 per bushel out to March 2023). Ukraine is also a significant exporter of corn. Over 80% of their corn use is exported, and a big chunk of that is to China. As such, corn futures jumped up to $7.25 per bushel. These are incredibly high numbers, driven up as traders start to worry that the U.S. may be the only game in town later this year.

While some producers welcome such commodity prices, there are many consequences to these trends. First, food price inflation is likely to take another upward turn, particularly in developing countries. Second, higher grain means higher feed costs, crimping the high hopes of better profitability in the protein sectors like cattle and dairy. Third, energy-related inputs are likely to cost even more than previously expected. And that’s saying something: in many places, fertilizer costs were already up 100-200% over 2021.

A lot will play out over the coming months, but to summarize where we are today: input price inflation is taking a toll on production costs; grain producers are likely to have a profitable year and continue to push up land values; the protein sector may struggle under higher costs and lower prices if international markets shun high-value products like beef; specialty crops producers may move sideways with higher costs but more domestic activity like travel and leisure; rural economies will grapple with another wave of inflation and labor shortages may push wages even higher; and the Fed may adjust its path of monetary policy normalization in reaction to the impact of war on international economies. This issue highlights the rising costs of inputs, which are undoubtedly top of mind as the ground thaws and spring takes shape. We hope you enjoy our takes and that you have a happy, hearty spring.

Best,

Jackson Takach, CFA Chief Economist at Farmer Mac

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RISING FARM INPUT COSTS TO PRESSURE PROFITS 1, 2, 3, 4

Farm expenses are rising across nearly all categories. Higher grain, fertilizer, energy, and labor prices are driving the trend, and the impacts of these increases will vary by operation and commodity type. The sector operating expense ratio is likely to increase back towards a historically high level, but firm commodity and food prices leave room for farm profits this year.

A

s the saying goes, it takes two to tango.

Farm profitability is not only a function of market commodity and food prices but also the prices and costs of inputs needed to raise agricultural products. Individual expense line-items vary across operations, but the USDA provides helpful expense categories

that make it easy to track sector-level trends by expense item, including categories like feed, fertilizers, fuel, interest, labor, rent, and seed, to name a few. Total farm expenses tend to track very closely with farm incomes, as outputs from some farmers are the inputs for others (e.g., corn used for animal feed). There are also farm expenses THE FEED SPRING 2022

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that lag behind a good or bad agricultural economy, such as seed, land, and machinery costs. These expenses tend to rise after a period of strong profits and then slowly drift down after a period of stagnant profits. Finally, some expenses are uncorrelated with the annual sector changes and somewhat beyond producers’ control, such as interest, labor, and fuel costs. While every operation manages these expenses individually, the collective sector expense levels can indicate the overall amount of pressure farm profits may feel during the coming year.

The USDA released its first look at 2022 farm expenses this February, and not surprisingly, economists forecasted a significant rise in farm expenses. USDA

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economists project increases in eight out of the ten major expense categories in 2022, including a 12% increase in fertilizer expenses, a 10% increase in interest expense, and a 7% increase in animal purchase expense. These projected increases reflect recent increases in energy costs, supply chain disruptions, rising interest rates, and higher feed grain prices. The only categories forecast to either remain stable or fall were seed expense and net rent to landlords, but these expenses are small relative to the other categories. In total, the USDA expects farmers to spend approximately 5% more in cash expenses in 2022 relative to 2021.

A good way to contextualize farm expenses is their level relative to income or the operating expense ratio. This metric shows how much of every farm dollar earned is lost to operating expense, and Figure 1 shows the historical trend of operating expense ratio from 1970 to 2022 forecast. Before the commodity price increases in 2021, the operating expense ratio was operating at a historically high level of 0.70. During the last supercycle, from 2012 to 2014, the ratio was below 0.65. Current estimates of 2021 operating expenses show a return near that level of profitability. But estimates of 2022 show a reversal back toward 0.70, and if expenses end up higher than USDA estimates (i.e., at a nintieth percentile historical increase) and commodity prices don’t increase to match, the operating expense ratio could exceed 0.70 in 2022. Conversely, if commodity prices remain elevated and world supplies see continued disruption, the operating expense ratio may retract to super cycle-era levels.

Figure 1: Farm Sector Operating Expense Ratio

Source: USDA ERS Farm Income and Wealth Statistics, Author’s Calculations

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Different sectors will be impacted by different expense pressures. Figure 2 breaks down the major expense categories by the percentage of total production expenses for major crop and animal protein sectors. Corn, soybean, and wheat production have a high percentage of expenses in land, fertilizer, and machinery, so increases in any of those inputs will more adversely impact those sectors than others. Similarly, animal protein producers are highly exposed to feed, labor, and equipment expenses. According to data from Green Markets, fertilizer prices were up nearly 100% annually in December 2021 before

settling back down to 57% above 2021 levels in February 2022 (before the Russian military actions in Ukraine). These dramatic increases will impact corn and wheat producers the most, although higher land expenses could also pressure soybean producers. Dairy, cattle, and hog producers are grappling with a 13% increase in animal feed price indices between January 2021 and January 2022.

Combined with a 4.5% increase in agricultural servicer workers’ wages, animal protein producers of all sizes and scales are seeing expense levels rise at a rapid pace.

Figure 2: Expense Allocation by Crop and Protein Sector

Source: USDA Cost and Returns Data, Author’s Calculations

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Specialty crop producers are feeling the pressure as well, particularly on the cost of labor. Data from the U.S. Bureau of Labor Statistics show that agricultural unemployment rates are at their lowest levels in the 20 years the data has been released (see Figure 3). Low unemployment rates can mean there are more jobs available than workers to fill them, putting upward pressure on wages in those industries and areas. In states like California, where labor is the top expense line item, wage rates are rising even faster than the U.S. average. According to the USDA Farm Labor Survey, the average wage of California field workers increased 8.5% between October 2020 and October 2021.

Figure 3: January Agricultural Unemployment Rate (Seasonally Adjusted)

Source: Bureau of Labor Statistics, Author’s Calculations

The combined effect of these expense increases is downward pressure on profitability across agricultural sectors. It does not guarantee losses, but a tighter budget gives producers fewer chances to make mistakes and still ink the profitability levels experienced in 2021.

Researchers from Purdue University and the University of Illinois show lower expected returns

to crop producers in 2022, but the budgeted returns are still positive. Producers and lenders alike will need to approach the 2022 growing season with a careful eye to avoid buyers’ and growers’ remorse this year. Despite these challenges, commodity prices remain above breakeven levels for many, so profits can and will be inked by many.

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RISING RETAIL PRICES MAY NOT IMPACT PRODUCER PROFITS 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16

While Americans have seen a sharp rise in the cost of many foods over the last year, these increases mirror what consumers saw during the commodity supercycle. Americans often do not change their food buying habits in response to price changes, but increases in labor and energy costs in 2022 may cause headwinds for food away from the home and for proteins like beef.

O

ver the past year, Americans have noticed sharp increases in many prices at the grocery store. The USDA Economic Research Service (ERS) estimates that the consumer price index (CPI) for beef and veal rose 9.6% in 2020 and 9.3% in 2021. The rise in the price of meat has dominated coverage around food price inflation, but the broader picture is more muted. Fruits and vegetables, bakery products, fats and oils, and other non-

animal products showed growth that was closer to historic averages. Figure 4 shows the history and current 2022 projections for CPI growth for food in 2022. In historic terms, the recent growth in food costs is not unusual. Consumers saw a similar period of price growth across a wide range of commodities throughout the commodity supercycle, including double-digit annual growth for meats.

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What matters more for consumers is the cost of food relative to income. Through 2020 and 2021, robust government support helped drive American disposable income higher, lessening the impact of price increases for food. However, recent evidence suggests that recent food price increases could be outpacing wage growth. Over the second half of 2021, the Bureau of Labor

Statistics estimated that the CPI for food grew faster than average hourly earnings five out of six months. This is also not something without recent historic comparison; food cost growth outpaced wage growth during the 2008 financial crisis, and even outpaced wage growth for 18 months during the early stage of the commodity supercycle.

Figure 4: Food Cost Growth Has Historically Lagged Income Growth, but Signs Point to a Reversal in 2022

Source: USDA ERS Food Price Outlook, U.S. Bureau of Economic Analysis Personal Income and Outlays

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The question producers and lenders may be asking is whether they should anticipate more months of food price growth that eclipses wage growth. Farmers and ranchers have seen many input cost increases, as inputs like anhydrous ammonia are three times as expensive as they were in 2020. Indices for trucking costs are at historic levels. These and other sharp input cost increases seem to conflict with the relatively muted total increases in 2022 retail food price growth forecast by entities like the ERS. So, what does drive retail price increases?

Energy

The geopolitical events of early 2022 have made forecasting the net impact on retail activity difficult. An early 2022 February forecast by the U.S. Energy Information Administration forecast that energy prices would subside starting in Q1 2022 as global production of crude continued to rise. This is now out of alignment with current futures markets. Figure 5 shows the February EIA forecasts compared to the March 1 futures market for West Texas Intermediate crude oil. While there is still an unprecedented amount of uncertainty in the energy markets, the extreme increases in energy prices are likely to cause sharp upward revisions in CPI projections, especially for food consumed at home.

Literature on retail food prices finds that changes are often driven by energy-related impacts on commodity prices or higher energy costs in the food marketing system. These effects are generally more influential for food consumed at home than away from home. One analysis by the ERS found that a 10% increase in diesel prices was associated with a 2.0 to 2.8% increase in wholesale produce costs. The influence of energy is so extreme that, in their calculations of food price inflation, many of the USDA’s CPI forecasts use energy prices as the only input.

Figure 5: Energy Costs Have Surged

Source: BarChart, EIA Short-Term Energy Outlook

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Labor Despite the importance of energy in forecasting food price inflation, labor represents a far greater share of total retail food costs. Figure 6 shows the share of total costs by industry group for food consumed at and away from home in 2019.

From this, we see that farming-related costs are a negligible portion of the total cost in food production and distribution. Even transportationrelated costs make up a relatively small share of the total. Most of the costs fall during food processing or distribution to the consumer through retail outlets and food places like restaurants. The USDA estimates that in 2019, 45% of every dollar spent on food at home went towards salary and benefit costs, while 58% of food away from home did.

personnel. However, the private sector anticipates lower wage cost increases in 2022. A January survey on salary and budgets by The Conference Board found that respondents anticipated a median total salary increase of 3.5% in 2022. While this is above historic averages, this more modest growth would mean less pressure coming from labor expenses.

What this means for consumers is that changes in labor costs have a strong impact on what consumers pay at a grocery store or restaurant.

In 2021, employment cost indexes found that compensation of food service workers rose 6.6% and 5.4% for retail workers like grocery store Figure 6: Most Retail Food Costs in 2019 Stemmed From Labor, Not Production or Energy-Related Expenses

*

Source: USDA ERS Food Dollar Series. “Other” includes advertising, legal, accounting, finance, insurance, and energy industry costs.

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Elasticity These factors tell us that retail food prices are likely to feel pressure in 2022, but they do not tell us how consumers will react. If food prices increase but consumers don’t alter their purchasing behavior, the impact on producers will be muted. Prior analyses have found that periods of high commodity prices are correlated with lower meat consumption in the United States.

But the magnitude of this response is important.

If consumers do not substantially curtail their consumption in high price environments, then producers may see limited impacts on total sales.

The elasticity of food in America—the change in how much of a food consumers buy in response to a change in price—is a topic with a long body of research. In general, there is a broad consensus that most food consumption in the U.S. is not responsive to price increases (though there are differences across food groups). Figure 7 shows the mean elasticity and confidence intervals for select food groups from a meta-analysis of this research.

The analysis suggests that a 10% increase in the cost of food away from home would lead to an 8.1% decline in the quantity of that food consumed.

Conversely, it suggests that a 10% increase in the cost of eggs will only lead to a 2.7% decline in consumption. In general, beef and food away from home are more responsive to prices, while staple goods respond less to price changes.

Figure 7: Meat and Food Away From Home Are More Responsive to Price Changes Than Other Foods

Source: Andreyeva T, Long MW, Brownell KD. The impact of food prices on consumption: a systematic review of research on the price elasticity of demand for food. Am J Public Health. 2010;100(2):216-222.

While rising food costs are an important consideration for Americans, they may not be as relevant to American producers. Current projections are that food price inflation will be elevated, but in line with prior periods of food price growth. Costs of production that occur on the farm are often a negligible portion of total food costs, and projected increases in farm expenses

in 2022 are unlikely to have material impacts on consumer decision-making. Retail prices will be more sensitive to changes in energy and labor costs, but those price changes tend to have muted impacts on Americans’ buying behavior. Buying a steak sandwich might feel like a luxury purchase in 2022, but the net effect to farmers and ranchers is likely far less than the price hikes suggest.

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INTERVIEW: FARMLAND VALUES IN A RISING RATE ENVIRONMENT Editor’s note: Dr. Wendong Zhang is an associate professor within the Department of Economics at Iowa State University.

He is the leading researcher of the Iowa Land Value Survey, the Iowa Farmland Ownership and Tenure Survey, and has written extensively about the forces that influence agricultural land values. We sat down to discuss how potential interest rate increases from the Federal Reserve could influence agricultural land markets in the coming years. The interview has been edited for grammar and clarity.

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FARMER MAC: Do you expect farmland values to change in 2022 because of increases in the Federal Reserve’s interest rates?

How long after the last rate hike do you think it would take for producers to feel the full brunt of that on their land values?

Dr. Zhang: There are definitely downward pressures because of interest rate hikes. Farmland value roughly can be thought of as income divided by interest rate. Our model shows that the downward pressure imposed through the projected three hikes this year probably won’t be enough to offset all the substantial cuts over the last few years, especially the March 2020 rate cuts. For the monetary policy we are likely to see, the interest rate environment in 2022 is still a net supporting environment. But this support may not be as strong as it would have been without rate hikes, and we probably will see downward pressure starting late 2023.

Our model projects three hikes in 2022 and four more in 2023; we foresee modest downward pressure in 2023, with more in 2024 and 2025. The bigger question is agricultural incomes. When we are looking at incomes for 2022, we do predict that projected income will decline compared to 2021, especially if there are rising input costs and if ad hoc government aid slows down. Looking at the export market, there are some headwinds, especially those coming from China. So, there are some downward pressures, but we still anticipate significant profitability margins, especially if the growers take advantage of before-harvest marketing opportunities. If you look at the Iowa Land Value Survey, a lot of the respondents are expecting around 10% growth this year. But yes, the interest rate hikes definitely impose downward pressure, in two ways: they raise the cost of financing, and they make other investment alternatives, like bonds, a little more attractive due to their higher rate of return.

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Figure 8: Interest Rate Hikes in 2022 Will Not Be Enough To Offset the 2020 Cuts, but Seven or More Rate Hikes Would Lead to Negative Pressures by 2023

Source: Dr. Wendong Zhang, Iowa State University Department of Economics

Given typical fluctuations in agricultural incomes: over the next five years, will monetary policy or will agricultural incomes have a bigger influence on total land value growth or decline?

Currently, interest rates are still very low, and even with the high inflation we’re experiencing now, all the signals from the Federal Reserve seem to show that they are taking a slower and modest hike pace. Fluctuation in farm incomes probably will play a bigger role. In general, when there is a 10% change in gross income, you will see the farmland market move four or five percent in the same direction over the following two years.

Suppose we see an increase in farming income of 20%. Then, two years later, we’ll see about a 10% increase in land values. Another interesting point looking at this is that the farmland supply is tight,

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but farmland of different quality and land with alternative characteristics could fare differently.

So, I would expect the higher quality land will hold fairly strong and probably show strengths while non-tillable land, especially if lacking hunting and recreational potential, probably will feel more downward pressure.

Are the changes in land values from agricultural income over the last two years greater than potential impacts from the proposed interest rate hikes in your model?

In the immediate short term, this is probably true. We’re seeing farm income starting to show significant increases since 2020, but land markets didn’t respond drastically until the middle of 2021.

That’s a lagged response to the income surge, but we anticipate those gains to be capitalized into 2022 land values. Monetary policy is very important, but it takes over a decade to be fully absorbed in the market. It’s often the unexpected, drastic move that will cause significant movement in the real estate market.

Why is it that monetary policy takes so long to be absorbed in farmland markets?

It’s not the case that everyone goes out to get a farmland loan at the same time, so you don’t feel the rate changes immediately. You don’t necessarily feel even the rent changes because those are negotiated only once or twice a year.

You could also have a flex lease or some other arrangement that takes some time to be fully absorbed into the market. In general, monetary policy will need a long time to be realized in competing asset returns to be fully felt by the general economy and the agricultural economy.

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Your previous work shows that some states, like Illinois, Indiana, and Iowa, absorb changes in monetary policy more quickly than some other regions. What drives differences in how quickly regions respond to interest rate changes?

As I mentioned before, we think of land values as income divided by interest rate. The

relative significance of the interest rate is different. If you’re looking at the Dakotas, whether you have energy development potential matters a lot. If you’re in the western U.S. and have water rates, that will be much more important than monetary policy movement. When you have more sources of income beyond just crop income it’s harder for producers and investors to figure out how much these effects should be in the market. If we look at the states you mention, the more significant impact is because when people think about farmland, they think

about these states. When you have less complicated income sources, the capitalization is easy to think about. When you have diverse values coming from urbanization, energy, water rights, and other factors (like pasture or recreational potential), that makes it harder to figure out exactly how much should be reflected in values.

Does that mean that farmingdependent counties will see changes in monetary policy absorbed more quickly into farmland values?1 Not necessarily. For my dissertation, I looked at western Ohio farmland values, so we looked to see how urban influence impacted nearby farm values. You see that nonfarm factors, such as urban influence, matter a lot. During the 2007 residential housing market bust, the farmland market dropped significantly for these para-urban parcels. This wasn’t because their productivity value dropped, but because their urban premiums were cut in half. So, to the extent that the residential housing market responds quicker to interest rate hikes, that will be reflected in nearby farmland parcels where a portion of their value is due to urban premiums.

The USDA Economic Research Service defines a farming-dependent county as a non-metropolitan county where either at least 15% of average annual labor and proprietors’ earnings came from farming, or where at least 15% of employed residents worked in farm occupations.

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Is there anything that you think is missing or under-covered from the national conversation around farmland values?

We’ve noticed in the recent land value surge is not only due to producers; it’s also due to investors. How the interest rates affect returns on alternative assets such as stock and bonds will affect the demand from investors for farmland. The more direct and volatile impact of interest rate changes on stocks and bonds could have unique pressures on investor interest for farmland.

Another thing impacting investor influence is state-level variations in corporate land ownership. There are statelevel variations in foreign land ownership and registration requirements. These variations can help explain why certain regions have more investor activity than others. It’s also important to understand that these investors view land as part of an investment portfolio in addition to the agricultural returns. In the Midwest, a quarter to a third of land is bought by these types of buyers. This is a broad definition that includes people like retired farmers. In the Iowa Land Ownership Survey, 19% of these individuals owned the land for long-term investment, 29% for family and sentimental reasons, and about half owned for its agricultural income.

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Second, another astonishing statistic from the survey is that 81 to 82% of the land in Iowa is fully paid for. A lot of the lenders who went through the 1980 farm crisis have started to worry about the farmland market collapsing.

The current signal doesn’t point to this alarming future, in

part because the interest rate levels are still low and the steps indicated now are not as drastic as in the 1980s. On top of that, the sector overall is far less leveraged compared to the late 70s and early 80s. On a broad spectrum, I think it’s way less risky compared to what we saw during the 1980s.

FARM INTEREST EXPENSE EXPECTED TO MODERATELY RISE 17, 18, 19

Farm interest expense remains at a healthy level relative to farm earnings. It would take significant declines in farm income or significant increases in interest rates or debt levels to systemically stress farm financials.

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f all farm expenses, interest on debt is far from the top of the list. Many producers carry little or no financial leverage, reducing the average farm sector interest expense to just over 5% of total production expenses. But, as any student of agricultural finance knows, excessive leverage and interest rate risk can weigh down the farm economy to the brink of disaster. The 1980s farm financial crisis may be 40 years in the rearview, but its memory still echoes across the rural landscape.

As the Federal Reserve considers the future of U.S. monetary policy and the cost of agricultural production continues to rise, sector interest rate risk is once again becoming a talking point among analysts and economists.

Fortunately, the U.S. ag sector is entering 2022 with a strong financial footing. According to the USDA’s farm income and wealth data series,

farmers are expected to pay just under $23 billion in interest expense in 2022 on $467 billion in total farm debt. In total, the USDA forecasts the farm sector to take home $186 billion in earnings before interest, taxes, and capital expenditures (EBITC). Thus, sector interest expense represents only 12% of total earnings, a very manageable level and below the 50-year average of 16% (see Figure 9). Current levels pale in comparison to the 1980s peak of 33%, when variable interest rate loans dominated balance sheets, interest rates skyrocketed in response to the 1970s stagflation, and farm income plummeted following the collapse of grain prices in 1980. While operations with debt routinely operate between 0.35 and 0.45 interest to EBITC, a value of 0.20 for the overall sector is a healthy threshold. If the sector interest to EBITC ratio stays below 0.20, a repeat of the 1980s farm financial crisis is unlikely.

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Figure 9: Farm Interest Expense to Earnings Before Interest, Taxes, and Capex

Note: shaded area represents recessions

Source: USDA ERS Farm Income and Wealth Statistics, Author’s Calculations

The logical next question is, “What could push the ratio up above that threshold?” Stress-testing the three components of the ratio (earnings, interest rates, and debt levels), it is exceedingly difficult to breach the threshold with any single variable. For example, leaving earnings and debt levels alone, it would take a 300 basis point increase in farmerpaid interest rates to shift the interest expense high enough to create systemic financial strain. As Figure 10 demonstrates, even with an aggressive rate policy correction, the U.S. Federal Reserve is unlikely to raise short-term rates by more than 250 basis points. Paths charted by the U.S. Fed in 1994 and 2004 showed 300 basis points of tightening, but the increases were spread over multiple years, giving borrowers time to lock in interest rates and mitigate future increases. Additionally, more farm

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debt is secured by real estate today than in the 1970s, when many operators used variable- and adjustable-rate products on real estate loans to manage and mitigate interest rate risk. Similarly, farm net cash income would need to fall by 38% to put the sector at risk. Even with higher production expenses, we are unlikely to see this level of earnings degradation. Only in 2002 was farm earning power at that level; not even during the 1980s did farm earnings hit the level that would be required to push the interest to EBITC ratio to 0.20 today. Finally, debt levels would have to rise by a massive 62% to push interest expenses at these rates. Even assuming a 125 basis point increase in average farm rates, debt levels would have to rise by 30% to push into caution levels.

Figure 10: Farm Interest Expense to Earnings Before Interest, Taxes, and Capex

Source: Bloomberg Survey of Economists, Feb 22; FRB of St. Louis FRED Database

It may be difficult to shock any single component of interest-to-EBITC enough to create strain, but if all components move against the sector, the ratio can rise quickly. For example, a 10% decline in net cash income combined with a 125 basis point increase in rates and a 15% increase in debt loans would be enough to push the sector to 0.20.

While that scenario is a very bleak and unlikely one for producers, it’s not out of the realm of possibility. Operators and lenders must continue to be vigilant with interest rate risk management, and locking in today’s low interest rates to protect against future increases might be a good strategy to protect lenders’ and borrowers’ balance sheets.

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THE USDA’S FIRST FORECAST FOR 2022 PROJECTS STRONG INCOMES 20, 21, 22, 23, 24

The USDA released their first forecast for incomes in February, forecasting record net cash incomes for 2022. While production expenses are forecast to increase and government payments are expected to fall, rising cash receipts should offset those changes, with recent commodity price data suggesting that even stronger incomes are possible.

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n early February, the USDA released its first forecast for national farm incomes in 2022.

If realized, these forecasts indicate that the sector would earn record net cash income (NCI) this year. Unlike the strong incomes of 2021, this year’s income is forecast to come from strong cash receipt incomes, and not from high government payments. While new ad-hoc program payments were not created in 2021, many producers received payments from programs like the Coronavirus Food Assistance Program in early 2021. These significant spillover payments are why incomes are only forecast to be modestly higher in 2022, despite a much stronger underlying agricultural economy.

In inflation-adjusted terms, the release was not as positive, but still painted a picture of a strong forecast for agricultural incomes in 2022. Figure 11 shows the breakout of income from governmentrelated sources and farming-related income between 2008 and the 2022 forecast. NCI in 2022 is forecast to be 15% above its average since 2000.

These incomes are suggestive of an economy that may not be matching the peaks of the 2011 to 2015 supercycle, but that likely is in a far better position than it was over the last several years.

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Figure 11: Underlying Agricultural Sector Health is Forecast at Its Strongest Point Since the Last Supercycle

Source: USDA ERS Farm Income and Wealth Statistics

Despite this positive news, some of the immediate coverage of the USDA’s release had a bearish sentiment. There were some questions around whether the USDA forecasts accurately captured the rapidly changing costs observed within the last part of 2021 and first part of 2022. Producers in some regions have seen prices for certain fertilizers rise to almost triple prior year costs, while animal producers have seen feed costs that could eliminate profitability despite the high farm prices received. Meanwhile, geopolitical tensions have led to sharp increases in energy costs and have placed even greater strain on feed costs.

In other words, there have been many recent changed to farm expenses that could lead to a potential underestimation of farm expenses in the first USDA forecast. However, there are also reasons to believe that the final 2022 figures could be even higher than this robust first forecast.

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Production Expenses One missing component from the current discussion around production expenses is the historic context for prices paid. Figure 12 shows select indices for prices paid and received by producers, using the same inflation-adjustment technique used by the Farm Income and Wealth Statistics. While the USDA National Agricultural Statistics Service (NASS) has observed a sharp rise in fertilizer costs through December 2021, costs in real terms are still below the 2011 – 2015 supercycle era. Fertilizer prices have historically been aligned with prices received, something that is also true for other farm-origin expenses like feed and seed. What this means for the USDA’s forecast is that a rise in estimates for farm origin expenses is likely to be accompanied by an offsetting rise in cash receipts.

Figure 12: The USDA’s December Data Show Manufactured Input Expenses Below Supercycle Peaks, Though Further Increases Are Expected

Source: USDA NASS Prices Paid Survey and Indexes

Recent evidence does find producers paying more for fertilizers than even supercycle peaks.

The USDA Agricultural Marketing Service’s (AMS) production cost reports for Illinois in late February have seen average bids for anhydrous ammonia at a record $1,500 per ton, though some fertilizer indices remain below supercycle peaks. Recent energy price spikes may also concern producers looking at rising prices for farm diesel. However, even these recent rises do not significantly exceed the supercycle input prices, and in some cases are still below supercycle peaks. During the height of the supercycle, inflation-adjusted anhydrous prices were as high as $1,200 per ton. Diesel prices during the supercycle were well above today’s level in inflation-adjusted terms. These inputs may continue to climb, depending on what happens with major fertilizer and energy exporters in 2022.

However, cost and returns reports suggest that these high input prices will diminish, but not eliminate, profitability for cash grain producers in the 2022/23 crop marketing year.

Other production expenses that are less aligned with the agricultural cycle may be more cause for concern. Expenses like labor are challenging because they have shown consistent appreciation that does not correspond with agricultural cycles.

For example, labor prices at the end of 2019 were on average 20% above their 2011 levels, while commodity prices were still well below those supercycle peaks. This has downstream impacts on other costs, such as storage and transportation.

Some costs, like cash rents, also take years to be factored into farm expenses, as these costs react slower than prices received. In 2015, the NASS index for cash rents hit a high mark, even as the farm economy showed signs of slowing. Cash rents data also are updated once yearly, and a sharp rise in cash rents for this growing season might not have been captured in the USDA’s latest forecast for this year.

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Cash Receipts Still, it’s possible to tell a more bullish story for farm incomes in 2022. While production expenses are rising, so are market prices. The USDA’s forecast for 2022 includes some nonpublic data, but many data points for the forecast

can be found in the USDA’s baseline projections from late December 2021. Figure 13 shows the difference in prices and production between the USDA’s baseline projection and the February World Agricultural Supply and Demand Estimates (WASDE). For almost all commodities, season average prices for 2022 were raised, while there were no limited forecast changes to production.

Figure 13: Prices in the February WASDE Were Far Higher Than the Inputs That May Have Been Used for the USDA’s Income Forecasts.

Source: USDA Baseline Projections, USDA February WASDE. Crops refer to the 21/22 CMY season-average-price and total use. Animal proteins refer to calendar year 2022 and total production.

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Even these strong price gains are underselling the potential cash receipts producers could see in 2022. The USDA’s February WASDE estimated a season average price for wheat of $7.30. With May futures contracts exceeding $10.00 as of early March, the final season average price is likely to far exceed even the strong February numbers.

While farmers are unlikely to capture the full value of these price increases due to rising input costs, the price increases provide a substantial buffer to increases in labor, fuel, and fertilizer.

The net effect of these findings is that it is reasonable to assume that the net cash income projections for 2022 will hold, and there are reasons to believe that the final figure could be even higher. Research on the accuracy of the income projections has found that the USDA’s

first forecast for net cash income is, on average, 11% below its final estimate. While the study found that the first forecast has historically underestimated production expenses by 1.4% on average, this was more than offset by average underestimation in crop and livestock receipts of between 3% and 4%. There are many signals that this year could follow the same pattern. Incomes are not reliant on government support, and prices have risen since the USDA’s first estimate.

Meanwhile, indications show that most expense increases should be offset by rising cash receipts.

While the uncertainty caused by geopolitical tensions could strain profitability in unanticipated ways, it is also possible that farmers will look back on 2022 as one of their strongest years in recent memory.

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LA NIÑA TO DRIVE WEATHER FOR EARLY 2022 GROWING SEASON 25, 26, 27, 28

La Niña conditions are likely to drive weather patterns through May, leading to wetter conditions in the Northwest and Midwest and drier conditions across the South. Longer term projections forecast dryer than usual conditions across the Plains states and in parts of the Rocky Mountains.

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a Niña conditions continue to dominate near-term weather outlooks, with the National Weather Service Climate Prediction Center estimating that it will persist through May before transitioning to a neutral weather pattern. Current estimates suggest that the pattern will retain its current strength through May, rather than subsiding gradually. Near-term outlooks continue to reflect this pattern; wetter than normal conditions in the Pacific Northwest and around the Great Lakes, colder than normal temperatures in the northern Plains states, and drier conditions across the Southwest.

However, the longer-term outlook paints a picture that could compound drought issues in parts of the Pacific Northwest and Plains regions. While the La Niña pattern has led to minor improvements in soil moisture and pasture conditions in the Pacific Northwest, many of these states still face

considerable drought. Winter snow is a critical source of water in California, and December featured record-breaking snows; however, January and February were among the least snowy months in California’s history. As a result, a promising start to the water year will likely finish with below-normal moisture, which will exacerbate the longer-term drought conditions during the summer. The NASS February report for Montana indicated that 75% of farmland was short or very short. Further east, in states like South Dakota, drought conditions are leading to 15% or greater declines in forage production. States in the southern Plains are observing abnormally dry conditions, even if topsoil conditions suggest adequate water. Current projections for the growing season indicate that these states could see below-average precipitation through the summer, compounding the challenges they already face.

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The flip side of this issue is being faced by some states in the eastern Corn Belt and South. At the end of February, more than half of farmland topsoil in Ohio and Indiana had a water surplus.

The La Niña pattern has led to a mild winter in parts of the south that has helped jump-start growing conditions. But the pattern is also likely to continue to lead to wetter conditions throughout

the region, which may have implications for springtime fieldwork. Hazard predictions suggest heavy precipitation is possible throughout the South and Appalachian regions, with flooding possible along the Wabash river watershed and portions of the Mississippi River bordering Missouri and Arkansas.

Figure 14: Dry Periods Are Probable Through the Plains, Northern Rockies Starting This Spring

Source: NOAA National Weather Service Climate Prediction Center

Temperature predictions for the 2022 early growing season show less regional variation.

Following the breakup of the La Niña pattern, temperatures are likely to be above normal across most growing regions. Temperature anomalies are likeliest in the Southwest, where hot weather may exacerbate drought conditions, while the Pacific Northwest may see fewer anomalies. Recent forecasts have raised the likelihood of higher temperatures across the Rio Grande Valley and northern Plains states.

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In general, producers can expect weather to be slightly atypical to start the growing season, almost regardless of region. The likelihood of severe weather events across the Pacific Northwest and Corn Belt may be elevated in the near term. Flooding maybe more likely in some northern regions, while drought conditions may be exacerbated across the South. Current projections suggest drought impacts will be centered on cattle and winter wheat regions, suggesting additional weather-related strain for those commodities.

DISRUPTION IN BLACK SEA PRODUCTION COULD INFLUENCE U.S. GRAIN PRODUCERS 29, 30, 31, 32

Ukraine and Russia are major exporters of corn and wheat. Conflict in the region could reshape global grain trade in the short term.

Producers and lenders will react to changing demand signals and rising fertilizer costs as a result.

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ften called the “Breadbasket of Europe,” the fertile soils to the northeast of the Black Sea, spanning much of Ukraine and into Russia, make for incredibly productive farmland. According to data from the United Nations and The World Bank, Ukraine boasts over 100 million acres of production agriculture, and agriculture generates over 9% of the country’s gross domestic product each year. The Russian Federation is also an active participant in global food production, with more

than 532 million acres of agricultural land, over 300 million of which is arable. As Figure 15 shows, the U.S. has a large comparative advantage for corn production, but Ukraine’s production has been making strides in export markets. The Black Sea region is highly productive for wheat, with Russian wheat production nearly 70% higher than U.S. production. Ukrainian producers maintain astonishingly high yields, producing only 25% less than the U.S., but on 50% less land.

Figure 15: Corn and Wheat Statistics by Country

COMMODITY

Corn

Wheat

STATISTIC Area Harvested (acres) Yield (bu/acre) % Exported (4-yr Avg.) Top Trading Partner Area Harvested (acres) Yield (bu/acre) % Exported (4-yr Avg.) Top Trading Partner

UNITED STATES 85,387 177 16% Mexico 37,162 48 45% Mexico

UKRAINE 13,097 126 81% China 18,286 66 69% Egypt

Source: USDA Foreign Agricultural Service, PSD Data; United Nations Comtrade Database

In March, global markets were trying to assess the RussianUkrainian conflict’s damage to global grain supplies. Because of Ukraine’s efficiency in wheat production and Russia’s high volume of wheat exports, wheat futures prices jumped by 25% after Russia invaded Ukraine.

This increase was notable across futures contracts into early 2023, likely a function of traders’ interpretations of the immediate impacts of damage to the winter wheat crop in Ukraine but also the potential for a longer sanction period from western economies against Russia. Corn prices

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also substantially increased, as China is a major buyer of Ukrainian corn. U.S. producers sell a high percentage of corn and wheat exports to neighboring Mexico, whereas the Black Sea regional trading partners are China, Egypt, and Iran. The U.S. may witness some redrawing of trade lines in 2022 if global commodity flows are disrupted. This disruption is also highly likely to exacerbate rising global food prices, pushing against in-flight economic recoveries and increasing inflationary pressures.

RUSSIA 6,919 85 28% Iran 68,201 41 47% Egypt

Figure 16: Corn and Wheat Futures Curves (Pre/Post Russian Invasion)

Source: CME Group, Agricultural Commodity Futures Prices

U.S. producers are faced with some interesting choices this spring with all this information.

Relative grain commodity prices may heavily influence planting decisions in 2022, with acres potentially oscillating between spring wheat, corn, and soybeans. Complicating this decision are the availability, cost, and application needs for fertilizers and soil nutrients by the different commodities. International sanctions against Russia in February and March drove up energy prices, agitating an already-tight fertilizer market.

Lenders may see additional operating line activity as these prices remain high and coops struggle to meet input demand in March and April.

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DAIRY PROFITABILITY STRESSED DESPITE STRONG PRICES 33, 34, 35, 36, 37

Milk futures have risen to near-record levels, but dairy producers shouldn’t expect the high profits of late 2014. Rising feed costs will consume most of the additional revenue generated by high prices, and rising costs for other inputs, like labor and fuel, will only compound the problem.

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ver the last several months, dairy producers have seen a tale of two markets. As of the beginning of March, early 2022 futures contracts for class III milk were almost 50% above 5-year values. In 2021, the U.S. exported a record value of dairy products, herd sizes fell, and inventories of solids like butter and cheese fell precipitously. The USDA Economic Research Service (ERS) forecasts that dairy producers will see nominal record net incomes in 2022, given the current price environment. However, producers were also met with some of the highest prices for feed in history, and prices for other inputs, like labor and energy, saw significant cost increases. This rising expense environment has been suggested as a leading

cause for why herd growth has been limited, despite positive market signs.

For producers and lenders, the dairy markets of 2022 are best thought of in terms of profitability, not price. According to the 2020 USDA Agricultural Resource Management Survey (ARMS), the typical dairy business spent 75% of its gross revenue on operating expenses. This was the highest measure of any commodity measured in the survey, and it shows that dairy farms are uniquely susceptible to production cost increases. As feed costs represent almost half of all expenses for a typical dairy, the rise in feed costs represents a significant threat to profitability.

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Figure 17 shows one common measure of how feed costs impact dairy profitability: the milk-to-feed price ratio. While recent milk prices are nearing heights set during the commodity supercycle, profitability as measured by this metric remains lower than it was through the majority of 2015 – 2019, which were years in which the sector struggled. Futures data suggest even more headwinds in the coming months, as corn and soybean futures surge while dairy has seen only modest gains. While no futures market exists for alfalfa, bids data point to strong price growth. In late February, California bids for supreme quality alfalfa were as high as $380 per ton.

Figure 17: Dairy Profitability Remains Lower Despite Recent Price Increases

Source: USDA NASS Quickstats

The challenge for dairy producers is that feed expenses are only one aspect of the potential profitability concerns in 2022. According to the USDA ARMS, 12.5% of a typical dairy’s expenses were for labor costs in 2020. To date, labor costs increases have matched average national wage growth, with average farm labor wages rising from $15.87 to $16.59 between October 2020 and 2021.

Current projections for national wage growth in 2022 are for less than 2021 levels. If farm labor continues to follow national trends, this implies that wage growth pressure for dairies in 2022 will be like the prior year.

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There are several other costs that dairies are exposed to, although to a lesser degree. Many dairies grow their feed, meaning that surges in costs like fertilizers are relevant to many dairies.

Energy costs also are a small but important part of dairy income statements, meaning that recent cost increases may further chip into profitability.

In short, the caution dairy producers have exhibited in recent months is well deserved.

Strong prices and robust exports are positive signs, but the rising expense environment can quickly eat into producers’ bottom lines.

AGRICULTURAL COMMERCIAL BANKS END 2021 ON A STRONG FOOTING 38, 39, 40

Agricultural commercial banks have seen sharp declines in farmland delinquency rates over the last year, even as volumes begin to rise. The number of agricultural banks being acquired has slowed during this period of stronger credit health, though there is some regional variation due in part to local land value growth and regional commodity mixes.

W

ith the release of the Q4 commercial bank call reports in February, we can begin to assess how strong the agricultural economy looked at the end of 2021 from the perspectives of agricultural lenders. Figure 18 shows the total volume and delinquency rates for all loans secured by farmland. Two trends are immediately apparent. The overall strain on agricultural lenders, as measured by delinquencies and charge-offs, is the lowest it has been since the tail end of the 2011– 2015 supercycle, and total volumes are nearing the peak set in Q2 2019. The market has begun to resemble that robust period when rising land values and strong farm incomes led to solid credit health across the sector.

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Figure 18: Real Estate Volumes Once Again Begin To Climb As Sector Credit Health Continues To Improve

Source: FFIEC Call Report Data

Mergers and Acquisitions This credit health may be behind a decline in merger and acquisition activity among banks involved in agricultural lending. Figure 19 shows the decline in commercial banks and banks involved in agriculture relative to Q4 2019. As of Q4 2021, the FDIC reported that there were 1,121 “agricultural banks” with at least 25% of loan volume coming from farm production or farmland loans. This represents a steep decline from the 1,278 agricultural banks that were reported in Q4 2019. However, the decline in this metric occurred almost entirely in 2020, as agricultural banks saw

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periods of high delinquency rates and declining volumes. Through 2021, the number of banks considered “ag banks” increased, even as merger and acquisition activity continued across all commercial banks.

A second way to measure impact to the sector is through the number of entities with sizable agricultural portfolios, even if that portfolio is small relative to their total size. By this measure, the number of commercial banks with at least $50 million in agricultural loans is largely unchanged from 827 in Q4 2019; compared to 822 as of Q4 2021.

Figure 19: The Number of Agricultural Banks Stabilized in 2021, Though the Total Number of Commercial Banks Continued To Fall

Source: Federal Reserve Bank of Kansas City Commercial Call Report Data; FFIEC Call Reports

The true impact on agricultural banks may be even less than what these data suggest. The sharp rise in Q2 2020 may be obscured by reporting of Paycheck Protection Program loans. These volumes may have caused some institutions to fall below the threshold of what defines an “agricultural bank,” despite not reducing their overall agricultural lending activity. According to the FDIC’s Business Combination data on merger and acquisition activity, 83 agricultural banks were acquired between January 2020 and December 2021—less than half the number shown above. This means that roughly half of the reduction in the number of agricultural banks between the end of 2019 and 2021 was driven by banks that fell below the 25% threshold, and not due to failures or acquisitions.

This still indicates that around 6% of all agricultural banks were acquired over the last two years. The FDIC observed no failures over that time. In almost all cases, banks that acquired agricultural banks had significant agricultural portfolios themselves. 80 of the 83 acquisitions were by institutions with at least 5% of total loans and leases in agriculture. Many of the acquisitions also occurred among smaller institutions. 60 of the acquisitions were to institutions with less than $1 billion in assets under management. The most common type of entity to purchase an agricultural bank over this time was a small bank with at least 25% of their loans in agriculture. For all mergers and acquisitions over this period, more than 80% of acquiring institutions were headquartered in the same state as the entity being acquired, with almost a third headquartered in the same county.

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Volume Changes While total real estate volumes grew 1.5% between Q4 2019 and Q4 2021, there is evidence that there was some regional variation in how loan volumes grew or contracted. Figure 20 shows a map of estimated loan volume growth across states, which we obtained by distributing commercial banks’ agricultural volumes across the counties it operates in. This is an imperfect measure, but it can help show regional patterns and trends that are not immediately apparent. As this is for commercial banking only, it does not factor in loan volumes through the Farm Credit System, nontraditional lenders, or other sources.

First, the growth of loan volumes in these periods is loosely correlated with growth in land value growth over the last year. Much of the Southeast has experienced loan volume declines, which was also the region with the slowest land value growth estimated by NASS. Volume growth was positive in the Midwest and northern Plains states, where some of the fastest land value growth was observed over the prior two-year period. The West Coast bucks this trend, with falling estimates for volumes despite some of the fastest land value growth. One potential explanation is merger and acquisition activity, as these regions saw some of the sharpest reductions in the number of unique commercial banks with agricultural portfolios.

The Southeast and West are also areas where competition from entities other than commercial banks is rising, which may be leading to variations in volumes.

Figure 20: Real Estate Volume Growth Between Q4 2019 and Q4 2021 May Have Been Driven by Land Value Growth

Volume Growth/Decline Between Q4 2019 and Q4 2021 Source: Farmer Mac calculations

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If a similar approach is used to distribute real estate delinquencies, as shown in Figure 21, patterns emerge that may be explained largely by commodity prices or profitability. States in the Midwest that are highly reliant on corn and soybean sales saw lower than average delinquency rates. Conversely, states with high

reliance on dairy incomes saw higher than average delinquency rates, which may be driven by tight profitability margins in the sector. Not all areas follow this trend; the California commodity mix was under some of the most duress in 2021, but local loan performance was likely better than most of the country.

Figure 21: State-Level Commercial Bank Delinquency Rates in Q4 2021 Were Likely Driven by Local Commodity Mixes

Q4 2021 Farmland Loan Delinquency Rate

Source: Farmer Mac calculations

While there are minor regional variations, the commercial banks that support agriculture are in a strong position. Volume growth is a welcome sign after the first true period of contraction in decades. Delinquency rates are near multidecade lows. Merger and acquisition activity of agricultural commercial banks continues, but often to commercial banks who are local are also

interested in agriculture. The one potential risk is that many areas haven’t seen loan volume growth despite the period of low-interest rates and higher land value growth. While it is unclear whether this is driven by competition or loan demand, it is something worth watching as we enter a rising rate environment.

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ABOUT THE AUTHORS

LEAD AUTHOR JACKSON TAKACH

LEAD AUTHOR GREG LYONS

Jackson Takach, Chief Economist, is a Kentucky native whose strong ties to agriculture began while growing up in the small farming town of Scottsville. He has since dedicated a career to agricultural finance where he can combine his passion for rural America with his natural curiosity of the world and his strong (and perhaps unrealistic) desire to explain how we interact within it. He joined the Farmer Mac team in 2005, and has worked in the research, credit, and underwriting departments.

Today, his focus at Farmer Mac currently includes quantitative analysis of credit, interest rate, and other marketbased risks, as well as monitoring conditions of the agricultural economy, operational information systems analysis, and statistical programming.

He holds a Bachelor’s degree in economics from Centre College, a Master’s degree in agricultural economics from Purdue University, and a Master’s of Business Administration from Indiana University’s Kelley School of Business.

Greg Lyons is an economist who joined the Farmer Mac team in 2019. Prior to joining Farmer Mac, Greg was an economist with the USDA, Economic Research Service, where he created estimates of farm sector income and researched topics related to agricultural finance, beginning farmers and farm households.

Greg’s interest in rural America stems from his time growing up in upstate New York, where he spent many hours on his family’s dairy farm. At Farmer Mac, he spends most of his time researching topics related to credit access, land values, and farm financial conditions.

Greg has a bachelor’s degree in Policy Analysis and Management from Cornell University, and a Master’s of Public Policy degree from Georgetown University.

CONTRIBUTING AUTHOR BRIAN BRINCH Brian Brinch joined Farmer Mac in 2000 as a Financial Research Associate. Since then, he has held various roles within the company and currently serves as Senior Vice President – Rural Infrastructure, where he is the business unit head of the company’s rural infrastructure division. Brian continues to follow agricultural and rural utility industry trends and risks as he regularly contributes to the company’s stress testing and strategic planning processes. Brian received both his undergraduate degree in meteorology and his master’s in Agriculture and Applied Economics from Penn State University. He is a CFA Charterholder and FRM Certified.

Riley Croghan, Editor-in-Chief Betsy Urso, Copy Editor & Design

ABOUT THE FEED The Feed is a quarterly economic outlook for current events and market conditions within agriculture.

The report is broad-based, covers multiple regions and commodities and incorporates data and analysis from numerous sources to present a mosaic of the leading industry information, with a focus on the latest information from the United States Department of Agriculture and their Economic Research Service.

There are several regularly included sections like weather and major industry segments, but the authors rotate through other industries and topics as they become relevant in the seasonal agricultural cycle. Where the report adds value to readers is through its unique synthesis of these multiple sources into a single succinct report.

We hope you’ve enjoyed this issue.

For media inquiries: Megan Pelaez Director – Marketing & Communications mpelaez@farmermac.com

For business inquiries: Patrick Kerrigan Vice President – Business Development pkerrigan@farmermac.com

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RESOURCES The information and opinions or conclusions contained herein have been compiled or arrived at from the following sources and references:

1

USDA ERS Farm Income and Wealth Statistics (https://www.ers.usda.gov/data-products/farmincome-and-wealth-statistics/)

2

USDA ERS Bioenergy Statistics (https://www.ers. usda.gov/data-products/commodity-costs-andreturns/)

3

USDA NASS Farm Labor Survey (https://www.nass. usda.gov/Surveys/Guide_to_NASS_Surveys/Farm_ Labor/)

4

U.S. Bureau of Labor Statistics Unemployment Data (https://www.bls.gov/bls/unemployment.htm)

5

6

7

13

U.S. Energy Information Administration. Short-Term Energy Outlook. https://www.eia.gov/outlooks/steo/

14

The Conference Board. U.S. Salary Increase Budgets for 2022 Interim Edition. https://www.conferenceboard.org/research/

15

FarmDoc Daily. An Overview of Meat Consumption in the United States. https://farmdocdaily.illinois. edu/

16

USDA ERS. Food Price Outlook. https://www.ers. usda.gov/data-products/food-price-outlook/

Andreyeva T, Long MW, Brownell KD. The impact of food prices on consumption: a systematic review of research on the price elasticity of demand for food.

Am J Public Health. 2010;100(2):216-222.

17

U.S. Bureau of Economic Analysis. Personal Income. https://www.bea.gov/data/income-saving/personalincome

USDA ERS Farm Income and Wealth Statistics (https://www.ers.usda.gov/data-products/farmincome-and-wealth-statistics/)

18

USDA AMS. Illinois Production Cost Report GX_GR210. https://mymarketnews.ams.usda.gov/ filerepo/reports

Bloomberg Economist Survey (Bloomberg L.P., Economist Survey Results, Retrieved February 11th, 2022 from Bloomberg Terminal)

19

Board of Gobernors of the Federal Reserve System, Federal Funds Effective Rate, Retrieved from FRED, Federal Reserve Bank of St. Louis (https://fred. stlouisfed.org/series/FEDFUNDS)

20

USDA ERS. Farm Income and Wealth Statistics. https://www.ers.usda.gov/data-products/farmincome-and-wealth-statistics/

21

USDA NASS. Prices Paid Survey and Indexes. https:// www.nass.usda.gov/Surveys/Guide_to_NASS_ Surveys/Prices_Paid_and_Prices_Paid_Indexes/

22

USDA OCE. Baseline Projections. https://www.usda. gov/oce/commodity-markets/baseline

23

USDA OCE. February World Agricultural Supply and Demand Estimates. https://www.usda.gov/oce/ commodity/wasde

8

U.S. Bureau of Labor Statistics. Producer Price Index, General Freight Trucking. https://fred.stlouisfed.org/ series/PCU484121484121

9

USDA ERS. How Transportation Costs Affect Fresh Fruit and Vegetable Prices. https://www.ers.usda. gov/webdocs/publications/45165/41077_err160. pdf?v=0

10

USDA ERS. Impacts of Higher Energy Prices on Agriculture and Rural Economies. https://www. ers.usda.gov/webdocs/publications/44894/6814_ err123_1_.pdf

11

USDA ERS. Food Dollar Series. https://www.ers.usda. gov/data-products/food-dollar-series/

12

BarChart. Crude Oil WTI Futures. https://www. barchart.com/futures/quotes/CL*0/futuresprices?viewName=main

24

Siddhartha S. Bora, Ani L. Katchova, Todd H. Kuethe, The Rationality of USDA Forecasts under Multivariate Asymmetric Loss, American Journal of Agricultural Economics, 10.1111/ajae.12142, 103, 3, (1006-1033), (2020).

25

NOAA National Weather Service Climate Prediction Center. Three-Month Outlooks. https://www.cpc. ncep.noaa.gov/products/predictions/long_range/

26

University of Nebraska-Lincoln. National Drought Mitigation Center. https://droughtmonitor.unl.edu/

27

USDA NASS. February 2022 Crop Progress – State Stories. https://downloads.usda.library.cornell.edu/ usda-esmis/files/fq977t77k/kp78hm046/8p58qg43k/ stwe0922.pdf

28

NOAA National Weather Service Climate Prediction Center. U.S. Week-2 Hazards Outlook. https://www. cpc.ncep.noaa.gov/products/predictions/threats/ threats.php

29

Food and Agriculture Organization of the United Nations, FAOSTAT (https://www.fao.org/faostat/ en/#data/RL)

30

United Nations, Comtrade Data (https://comtrade. un.org/)

31

USDA Foreign Agricultural Service, PSD Data (https://apps.fas.usda.gov/psdonline/app/index. html#/app/home)

32

CME Group, Futures Price Quotes (https://www. cmegroup.com/market-data/delayed-quotes/ agricultural.html)

33

Barchart. Class III Milk Futures. https://www. barchart.com/futures/quotes/DL*0/futuresprices?viewName=main

34

USDA ERS. Livestock, Dairy, and Poultry Outlook. https://www.ers.usda.gov/publications/pubdetails/?pubid=103283

35

USDA. Agricultural Outlook Forum Session 21, Dairy Outlook. https://events.labroots.com/event/ USDAs98thAnnualAgriculturalOutlookForum/enus#!/Auditorium

36

USDA ERS. Agricultural Resource Management Survey Tailored Reports. https://my.data.ers.usda. gov/arms/tailored-reports

37

USDA AMS. California Direct Hay Report. https:// www.ams.usda.gov/market-news/search-marketnews

38

FFIEC. Bulk Data Download. https://cdr.ffiec.gov/ public/pws/downloadbulkdata.aspx

39

Federal Reserve Bank of Kansas City. Ag Finance Updates. https://www.kansascityfed.org/agriculture/ agfinance-updates/

40

FDIC. Business Combinations. https://www.fdic.gov/ bank/statistical/

1999 K Street, N.W., Fourth Floor Washington, DC 20006 Phone: 800.879.3276 www.farmermac.com/thefeed

ISSUE NO. 25 The Feed is a publication produced by the Federal Agricultural Mortgage Corporation (“Farmer Mac”), which distributes this publication directly. The information and opinions contained herein have been compiled or arrived at from sources believed to be reliable, but no representation or warranty, express or implied, by Farmer Mac is made as to the accuracy, completeness, timeliness, or correctness of the information, opinions, or the sources from which they were derived. The information and opinions contained herein are here for general information purposes only and have been provided with the understanding that the authors and publishers are not herein engaged in rendering investment, legal, accounting, tax, or other professional advice or services. This publication may include “forward-looking statements,” which include all projections, forecasts, or expectations of future performance or results, as well as statements or expressions disclaims any liability for any errors, inaccuracies, or omissions in this publication and for any loss or damage, however arising, that may result from the use of or reliance by any person upon any information or opinions contained herein. Such information and opinions are to the purchase or sale of any security, including any Farmer Mac security. Unless stated otherwise, all views expressed herein represent distributed, or published, in whole or in part, for any purposes, without the prior written consent of Farmer Mac. All copyrights are reserved.

SUGAR SNAP PEA & BERRY SALAD INGREDIENTS

DIRECTIONS

1

8oz. bag of fresh sugar snap peas

1

Tablespoon of white distilled vinegar

1

Tablespoon olive oil

½ Teaspoon salt ¼ Teaspoon ground black pepper

1

Bunch kale and spring mix

1

Half-pint clamshell fresh raspberries

1

Half-pint clamshell fresh blueberries

1

Cup of walnuts

1

6oz. container of crumbled feta

STEP 1 Bring a pot of water to a boil. Place snap peas in pot and cook 1 to 2 minutes. Drain, rinse under cold water, and set aside.

STEP 2 Place about 1 1/2 tablespoons raspberries in a strainer over a bowl and crush with a wooden spoon. Discard pulp. Mix vinegar, olive oil, salt, and pepper with the strained raspberry juice.

STEP 3 In a large bowl, gently toss the dressing with the snap peas, remaining raspberries, and blueberries. Cover, and chill at least 30 minutes in the refrigerator. Toss with greens and walnuts just before serving. Add crumbled feta if desired.

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NASH

FAMILY FARM & CREAMERY Nash Family Creamery signage on market entry door

Chapel Hill, TN Wallace and Ida Nash began milking cows in 1929 in central California as a family farm with their three kids. Through the years, and generations of Nash family members, the dairy continued to grow. Then, in 2014, falling prices and lack of water left the future of the farm in jeopardy, so the family relocated to continue the family business in TN. Today, the Nash family sells dairy products directly to consumers through Nash Family Creamery. In addition to premium ice cream, they offer local farm products, cheeses, meats, hot grilled cheese sandwiches, and freshly baked goods all from their store surrounded by beautiful country scenery.

How many generations has your farm been in your family?

We are almost 100 years old What do you raise?

Dairy Cows

Steve Nash showcasing custom Nash Creamery cheese boxes

What is your greatest challenge on the farm right now?

Greatest challenge is weather. Coming from California we didn't see much change and bring in TN it's a bit more difficult. While we love the community and the beauty, we do notice the herd can struggle at times with sudden changes in the weather.

What is your favorite thing about being on the farm?

To come in every day and know we are all family. We have a job to take care of our cows and our products. We love being dairy farmers. *Producer featured with permission

Gift items available in the Creamery's shop

Inside Nash Family Creamery

Steve Nash with AgFi's Daniel Taylor and Barry Rager

The start of a life-long relationship

Viewing the milking parlor from the education center

Daniel discusses the farm operation with Steve

Variety of cheese curd flavors for sale

Father and daughter Steve and Stephanie Nash in their dairy cow barn

Staff preparing and packaging cheese products

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Dairy Farmer | Singer Songwriter | Agriculture Advocate

Stephanie joining AgFi in their booth at the National Farm Machinery Show in February

Stephanie Nash "I love agriculture. This is where I am meant to be. I am so proud to call this community my home" Tell us about your favorite farm memory: Weighing trucks with my papa. He was my best friend and he loved the land. Nothing can replace the little girl running down to the scale house after school to spend time with him.

What’s the greatest reward from farming?

The passion and advocacy I have built. I am a firm believer in being loud for agriculture and showing the love behind what I do. Whether that is through my farm tours, my Fox News interviews, or my music. I always want to share my life with others and show them where their food comes from.

What do you know now that you wish you did when you first started farming?

I wish I would have started my advocacy early...I have always been the cow girl of the group but I didn't truly see the importance until social media started taking over. The lies that influence and media bring to the consumers is honestly shocking. It's sad that they would rather get their information from google rather than a farmer and rancher.

I want to 100% change that. I want to be a voice for our entire industry.

www.StephanieNashMusic.com

Available On

Spotify & Apple Music

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ABOUT

AGRIFINANCIAL AgriFinancial is a premier agricultural lender, backed by decades of ag expertise and dedicated to understanding your longterm goals in the face of ever-changing markets.

As a subsidiary of CGB Enterprises, Inc. (an innovative and progressive leader in agriculture since 1969), AgFi takes a comprehensive approach to custom-tailored financial solutions.

Our sales officers are strategically located throughout the country to be able to meet customers on their farms, sit at the kitchen table, identify the producer's individual goals, and find the financial solution that works best for each unique operation.

FOLLOW AGRIFINANCIAL @AgriFinancial @AgriFinancial @cgbagfi @cgbagfi

Katie Irk, Editor Brianna Dixon, Designer

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2209 River Rd. Louisville, KY 40206 Phone: 877.548.2622 FinanceInfo@cgb.com www.cgb-agfi.com Issue No. 5 Trust Our Roots, to Grow Yours.

Seed, Feed and Field is a publication produced by CGB Agri Financial Services, Inc., (“AgriFinancial”). The information and opinions contained herein have been compiled or derived from sources believed to be reliable, but no representation or warranty, express or implied, by AgriFinancial is made as to the accuracy, completeness, timeliness, or correctness of the information, opinions, or the sources from which they were derived. This publication is provided on and with the condition that neither AgriFinancial nor anyone else is, by virtue of this publication or its contents, engaged in rendering investment, legal, accounting, tax, or other professional advice or services. This publication may include “forward-looking statements,” which include projections, forecasts, or expectations of future performance or results, as well as statements or expressions of opinion. No reliance should be placed on any forward-looking statements expressed in this publication. The content of this publication is for general information purposes only and is not to be relied upon or used for any particular purpose. AgriFinancial specifically disclaims any liability for any errors, inaccuracies, or omissions in this publication and for any loss or damage, however arising, that may result from the use of or reliance by any person upon any information or opinions contained herein. Such information and opinions are subject to change at any time without notice, and nothing contained in this publication is intended (nor shall it be construed) as an offer or solicitation with respect to the purchase or sale of any goods, services or securities, including, without limitation, the same by or of AgriFinancial. Seed, Feed and Field features publications, articles and/or reports from others unaffiliated with AgriFinancial, and the views and opinions expressed in these articles or reports do not necessarily reflect those of AgriFinancial. This document may not be reproduced, distributed, or published, in whole or in part, for any purposes, without the prior written consent of AgriFinancial. All copyrights are reserved.