Northeast Agriculture: 2015 Insights and Perspectives

NORTHEAST AGRICULTURE INSIGHTS AND

2015PERSPECTIVES ECONOMIC ANALYSIS AND PAPERS ON AGRICULTURE, COMMERCIAL FISHING AND THE FOREST PRODUCTS INDUSTRY

Farm Credit East

2015NORTHEAST PERSPECTIVES Dear Farm Credit East Customer: The success of American agriculture is undeniable. Our country is fortunate to have strong farming, forest products and commercial fishing industries that successfully compete in a global marketplace. As I noted in our first Insights and Perspectives report last year, these industries are knowledge-based businesses.

To be successful, our customers must constantly utilize information from various sources to make the best management decisions, improve productivity, enhance product quality, market effectively and increase sustainability.

To provide more value to Farm Credit East customers, we developed a Knowledge Exchange program so we could share beneficial information. This helps create an ever stronger business relationship while allowing us to learn from you. As part of this effort, we continue to expand our webinar series and successful business benchmarking programs. Through our ongoing Knowledge Exchange Partner e-newsletter, we address two or three key topics of interest each month.

I think you will find this Insights and Perspectives report to be insightful and helpful as you consider the issues and challenges that you face in your business.

In this report, we provide perspectives from internal Farm Credit East staff and insights from outside experts.

This report is part of our value proposition. We share knowledge that will help your business navigate the challenges of the coming year and become more successful in the long term.

Thank you for being part of Farm Credit East. I hope you enjoy this report.

NORTHEAST AGRICULTURE 2015 INSIGHTS AND PERSPECTIVES

1

Contents 3 B USINESS PLANNING 401

Moving Beyond Annual Business Planning Basics Scott Herring, Farm Credit East, president and COO

6 TOP BUSINESS ISSUES FOR 2015

18 ECONOMIC IMPACTS OF AGRICULTURE IN EIGHT NORTHEASTERN STATES

Three top researchers consider agriculture’s contributions to the Northeast economy.

Similarities may outweigh differences across industries Five Farm Credit East branch manager roundtable

24 FOREST PRODUCTS OUTLOOK

9 THE NORTHEAST FARM ECONOMY

28 WHAT FARMERS CAN LEARN FROM FUTURES MARKETS

The performance of top agricultural industries in the Northeast Chris Laughton, Farm Credit East, director of Knowledge Exchange

14 APPLIED RESEARCH IN SPECIALTY CROPS: WHAT’S HAPPENING IN THE FIELD Jim Bittner explains what’s going on at the New York Farm Viability Institute

16 ECONOMIC OUTLOOK FOR 2015

Dr. Michael Goodman looks at the U.S. economy in the first quarter of 2015

2

Dr. Jack Lutz looks at the economics of the forest products industry.

Dr. Mark Stephenson considers commodity futures markets and what dairy farmers can learn from them

30 GRAIN AND OILSEED OUTLOOK FOR 2015

Grain and oilseed prices are down from recent highs. Dr. Carl Zulauf talks about the new price-supply situation.

33 ARE YOU BETTING TO WIN OR PLAYING TO NOT LOSE?

Dr. Andrew Novakovic talks about how your philosophy and approach to farm bill programs will influence your sign-up choices.

FARMCREDITEAST.COM

BUSINESS PLANNING 401

Moving Beyond Annual Business Planning Basics

SC O T T HERRING Farm Credit East President and Chief Operating Officer

Okay. It’s the beginning of a new operating year, now what? You expect the usual advice from your Farm Credit lender: • Have a good set of records.

• Figure out cost of production.

• Do a budget for the coming year and share it with your loan officer.

• Participate in a benchmarking program to know how you compare to your peers.

This long-standing party line is still solid advice.

But we live in an ever-changing world.

In the past 10 or more years, many Northeast farm, forestry and fishing businesses have grown into more complex businesses. Expanding into value-added processing and perhaps retail has raised the bar for management teams.

They expanded into providing certain services to like businesses or perhaps moved into a nonfarm business, such as over-the-road trucking. They invested in highly specialized technology, such as packing lines, specialty wood products, energy conservation and integration or robotics. Especially in dairy and other livestock enterprises, they have been required to invest heavily in CAFO and other environmental compliance. The scale and scope of leading farm businesses has greatly expanded. It’s not uncommon to have satellite operations, and some have farm businesses in distant states.

NORTHEAST AGRICULTURE 2015 INSIGHTS AND PERSPECTIVES

This complexity calls for a more sophisticated business planning approach that goes well beyond the basics of good business management. The current softening of the dairy, cash grain or other commodity-based cycles make this an especially good time to take your management game planning to a higher level. Based on my observations of highly successful operators over many years, I recommend the following checklist for freshening up annual business planning beyond the basics.

1. Real-time financial information throughout the year. You farm because you enjoy growing and selling crops, plant materials, timber, livestock or other products. But what about good accounting, including financial monitoring and controls?

Well maybe not so much. It wasn’t that long ago, most producers kept a good enough set of records to satisfy their tax preparer at tax time.

That Schedule F and a sit-down for your loan officer-generated balance sheet, in turn, satisfied the needs of Farm Credit to approve your loans.

You knew it was a good year when you had plenty of extra cash in the checking account, and you knew times were tough when you ended the season with a pile of unpaid bills.

As I look at credit packages, I see a wide (and growing wider) range in the speed with which producers react to industry downturns. Those

3

who “batten down the hatches” the quickest are almost always better able to manage their downside financial risk better than those who wait for the checking account to run dry and/ or suppliers to place them on COD before they respond. As a lender, we are always in a better position to respond to a well-thought plan for additional credit needs early on versus responding to an urgent funding crisis months into the downturn.

The scale and complexity of most businesses today coupled with the cycles in product and input prices put a premium on producing, monitoring and using real-time accounting data to manage the business throughout the year. For our many retail-focused businesses, the vagaries of weather, holiday timing and other factors on consumer traffic and spending patterns provide additional value to real-time accounting and retail information.

2. Understand your cost structure.

Knowing your cost of production for key product(s) is a prerequisite in a highly competitive and increasingly volatile commodity business. Now you need to know the drivers of fixed and variable costs to better understand cost of goods sold, gross profit margin and breakeven relationships. What are the market drivers of key variable costs, such as diesel fuel, corn/soybean meal or greenhouse plastics products?

Knowing the productive lifecycle of fixed assets that drive fixed costs will help you better understand capital investment cycles. Realistic assessments will help you balance profitability, financing structures and timing for investments to grow your business.

3. Establish and monitor key performance metrics. Every business has about six key performance metrics that collectively show trends in the business and whether it is on track toward desired year-end results or not. While past

4

performance is no guarantee of future results, monitoring some metrics from month to month and others year to year should enable you be a good CEO and provide quantitative information to: • Hold key middle managers accountable for their role in achieving business results.

• Make ongoing corrections to the business real time, before large corrections are necessary.

• Avoid surprises down the road.

It might be three or four key business metrics for some and a dozen for others, but it’s not a whole page of numbers. It’s about keeping it simple and staying laser focused on a handful of important metrics. You can revise your list at the beginning of each year to ensure these key performance indicators (KPI) work even better for you. Also, I encourage you to share them with your advisors, including your loan officer, business consultant and other trusted advisors.

4. Understand what drives changes in your net worth. This may be the most important step. I bet that you are in business to earn a profit and build wealth for the future. What drives changes to your net worth is pretty simple: it’s earnings. And in the simplest term, it’s net profit after depreciation and unexpensed draws made to you as owner.

For most of our memories, productive cropland and forestland have been very good to owners. Sure, many remember times when values overheat followed by an inevitable correction.

However, market value balance sheets in the Northeast have a large component of net worth accumulated from purchased productive land over many years that appreciated quite nicely through the last several years.

While that is impressive when viewed over time, remember appreciation of assets does not pay the bills. The only true sustainable component for building value is an asset’s ability

to provide a market return through earnings and cash flow. I have not yet met the entrepreneur who wants to pay bills or debt by selling productive assets.

Recently however, leading businesses have invested more heavily in productive assets other than land, such as greenhouses, retail facilities, packing lines, efficient sawmills, dairy complexes built around milking centers and other value-added ventures. As a result, many have had that dreaded discussion about “lost capital” with their loan officer, such as, “I spent $1 million and you are valuing it at only $500,000. How can that be?” The difference is not easy to swallow.

The driver of productive farmland and forestland prices is clear.

Sometimes it’s purely rent, but generally, at least several potential buyers perceive such land as a scarce and valuable resource and will bid in order to add to their current lower cost land base, thereby leveraging its acquisition cost.

Specialized production assets are not quite as clear since they may have few or no potential buyers. It is important for producer/investors to understand market dynamics and why anyone other than you wants to invest and operate a business in the same location with the same products.

The driver of value in these areas is the net earnings and cash flow they generate as an ongoing business. No earnings may mean little or no value.

A general rule of thumb is that such assets are worth about 7 x EBITDA (accrual earnings before interest, taxes, depreciation and amortization.

This is a common measurement of cash flow). A consistent growing earnings base could cause such assets to be worth more than this multiple, but inconsistent or volatile drops in earnings might well cause a substantial decline in their market value. Knowing this relationship to your market value (or cost basis)

FARMCREDITEAST.COM

balance sheet will help you better understand where your earnings come from, which assets have value and whether investments deliver the returns needed to stay competitive.

It’s critical that owner/investors understand their earnings potential and balance sheet/net worth drivers to plan capital investment strategy, understand borrowing capacity and ultimately to understand the farm/ business transfer and/or exit strategy when that time comes.

5. Understand the total financial impact of major investment and expansion decisions.

Partial budgeting and calculating a realistic return on investment (ROI) are critical first steps that help project and assess the impact of an investment on future earnings and cash flows.

Often a decision is based only on those findings while these same decisions also impact your total financial health well beyond the project. How much lost capital might be incurred (remember value creation) and how will that loss impact the overall strength of your balance sheet in the investment’s initial years? Are there working capital and liquidity issues? It is not uncommon to see well-planned capital investment plans that gloss over the need for substantially higher levels of working capital or, worse yet, a depletion of working capital over the course of the project. How does the proposed investment affect your overall debt capacity, i.e., your ability to borrow additional funds during the next industry downturn or when the “farm next door” unexpectedly goes on the market? Beware. Assets tend to be in more ample supply at the end of a market cycle than the beginning.

And many times the end of a cycle is marked by utter shock when news of the last record high sale circulates in the marketplace.

Beyond the balance sheet, what is the tax impact of a large new investment?

We often assume that only good comes from additional depreciation, but your tax advisor can help you plan for tax compliance strategy rather than waiting until annual tax planning later in the year. It may be too late by then.

6. Matching management team growth with business growth (a.k.a. “getting the right people on the bus.”) There’s a great deal of discussion about “will we have enough farmers.” I am of the viewpoint that we will. I am convinced, however, that farming career paths must be managed differently than in the past. Making farm jobs and careers attractive must be a major goal of every business that intends to remain successful for the long term. Some are blessed with natural intergenerational transfer paths, others are not.

The buzzword for this concept is “talent management.” A number of years ago a management guru termed it “getting the right people on the bus.” As you take stock of your management team, consider if you have the right people for continued success over the long term, including your potential successor.

Have you sufficiently empowered and compensated middle managers to keep them engaged and valuable to you? Or are high-potential middle managers one good job offer away from working at another farm or off farm? Do you have a defined plan to give high potentials more responsibility, training and income potential?

Recently, we seem to talk about transition planning in agriculture and less about estate planning.

While estate planning and transfer of wealth to the next generation is critical, the overriding question for most farm, forest products and other closely-held businesses is “who is the logical successor to leadership when the current operator retires?”

Traditionally, we looked to children or grandchildren of the current

NORTHEAST AGRICULTURE 2015 INSIGHTS AND PERSPECTIVES

leader. A growing number of farms may not have a direct family member and that’s okay.

In either case, the issue is ensuring that someone in the business has the skills, passion and discipline to assume the role of CEO when you are ready to retire. Ensuring that a successor is ready requires years. It cannot be left to chance or genetics!

Most family businesses need to better prepare the next generation for leadership and middle management.

Job responsibilities need to be ramped up over time and senior managers need exposure to key facets of the business. They require training in people management as much as in the latest ruminant nutrition breakthrough. Production and marketing management continue to be their skills foundation, but over time they need management skills in HR, finance, risk control, strategic planning and more.

Don’t underestimate the value of weekly or regular management team meetings for developing knowledge of the total business, cultivating teamwork and passing along accumulated knowledge. At Farm Credit East, we can help this process through our GenerationNext program, webinars and onsite programs, benchmarking meetings and more. I am also a fan of outside programs, such as Lead NY, TEPAP, Dairy Executive Institute.

Finally, recognize that your retirement may need to be funded by an operating business capable of realizing “your value” through the business’s ongoing earnings stream.

It takes the right person/people to deliver that kind of value.

I’ve covered a lot of ground. With luck, these six checkpoints will help your planning. Ask questions; share your plans and objectives with your trusted advisors and … set that plan in motion.

5

BUSINESS ISSUES FOR 2015

Business Insights and Perspectives Roundtable Discussion

Northeast agriculture may be very diverse – but when it comes to the challenges for individual businesses, the similarities may outweigh the differences. That, according to five Farm Credit East vice presidents and branch managers, who work with a wide range of businesses in our seven-state territory.

1

SC O T T ANDERSEN Vice President, Bridgeton, N.J.

THE TOP CHALLENGES and how producers can meet them

Market fluctuations play havoc on PE TE HALLOWELL Vice President, Presque Isle, Maine C RA IG P OLLOCK

agricultural businesses and affect revenues as well as input prices for feed, fuel, seed and even labor. To meet this challenge: •

Lock in input costs, whenever possible.

•

Seek cooperative buying opportunities for economies of scale.

•

Contract a percentage of your crop, if feasible.

•

Negotiate price. Don’t be a price taker.

Vice President, Sangerfield, N.Y. C YNT H IA STIGLITZ Vice President, Middleboro, Mass.

E D URBANIK Vice President, Batavia, N.Y.

Weather events. Managing an agricultural business in “new normal” weather conditions of temperature swings, excessive rainfall, flooding and high winds that damage crops and impact livestock is a worrisome challenge for all agricultural businesses. To meet this challenge:

6

•

Consider crop insurance options to mitigate risk.

•

Evaluate new Farm Bill programs and watch for deadlines.

•

Think about operating in multiple locations to spread the risk of crop loss.

•

Employ sound soil conservation and drainage planning.

Increased competition. In the current economic cycle, we are seeing lower grain and milk prices at the same time as production has ramped up. In addition, as the dollar gets stronger, some farm products will grow less competitive in the export market. To manage through a down cycle, consider the following:

•

Focus on cost of production and belt tightening opportunities.

•

Continue to effectively manage liquidity and talk to your lender about liquidity concerns.

•

Grow only what you can comfortably sell. You don’t want to incur extra costs for products that either can’t be sold or have to be sold below cost.

•

Use accounting software (CenterPoint is a good example) to track costs closely so you have the data to determine and make appropriate adjustments.

FARMCREDITEAST.COM

2

THE TOP DIFFERENCES of successful business owners

Our team finds commonalities among customers who run more successful businesses. In this increasingly challenging business environment, successful owners seek new ideas from outside the farm gate. They appreciate that an outside expert can offer the advice they need to arrive at the best solution for their business. For example, during the dairy price decline in 2009, dairy producers who worked with consultants and other outside resources made more timely adjustments and came through the cycle stronger, ready to take advantage of market improvements more than those with a closed shop.

•

Planning. It has been said, “If you

don’t plan where you want to go, you’ll probably end up somewhere else.” And that “somewhere else” is, most likely, exactly where you do not want to be. Create a longterm plan for all aspects of your business, including budgeting and capital expenses for one year, five years and more. And then stick to it. Budgeting in November and buying an unplanned capital item in April wreaks havoc on your cash flow. Stick with the plan.

•

Lead by example. As the CEO of

your business, your responsibility is to guide your employees. Clearly communicate your business goals and then inspire your employees to help achieve those goals. They look to you for guidance, so it is your responsibility to lead them with your own actions as well as your ability to execute those goals.

3

INVESTMENT DO’S AND DON’TS for 2015

Mechanize to reduce labor costs and improve production.

Labor can account for 25 percent or more of a business’s total expenses.

Quality equipment can improve your bottom line by reducing labor costs and improving product quality. For

example, automated sorters can improve grading and a better quality product that appeals to today’s finicky consumers.

Robotics may make sense for some farms and allow your workforce to focus on other opportunities. GPS cuts down on utilization of fertilizer and lime, and irrigation systems can reduce compaction.

If you have no younger generation to take ownership of your farm, consider opening the door for an unrelated young farmer. Some states have

FarmLink programs to help match farmers with aspiring young farmers.

5

Don’t expand your business ahead of customer demand or beyond your capacity to produce. Expand

at a measured and realistic pace.

4

4 IMPORTANT STEPS FOR YOUNG FARMERS entering a family business or starting their own

Ask for help! Farm Credit East helps

“YBSV” young, beginning and small as well as veteran farmers get started in agriculture with a number of incentives. Plus FarmStart provides up to a $50,000 investment for a five-year period and also helps young farmers with business planning, management and record-keeping.

When starting off, work to develop or improve your basic knowledge of

Today’s farm balance sheets are generally strong. Producers who manage price risk well know that a weak working capital position is their worst enemy during a downturn in commodity prices. Businesses with staying power have cash reserves and lines of credit to rely on during downturns, even ones that last for extended periods. Those who survive downturns follow similar management choices: •

Work closely with your lender throughout downturns to determine how it will impact your business and how to get through it, such as rescheduling certain payments.

•

Proactively cut costs or sell assets that aren’t creating earnings in order to preserve cash flow.

Some farmers may consider farmland preservation.

•

Keep an eye on the end game so when you come out of the downturn you’re in a strong position to take advantage of improving market conditions.

•

Use information systems to make better adjustments and faster decisions.

•

Seek potential avenues to diversify the business in order to generate additional profits.

•

Collaborate with similar businesses to find synergies and economies of scale between the two operations, such as sharing expensive equipment.

•

With interest rates still at historically low levels, this is a good time to assess the financial impact of higher interest rates and perhaps consider moving some debt to a fixed interest rate product.

numbers, planning, budgeting and goal setting. Participating in our

GenerationNext program series gives depth to young farmers’ knowledge base and can help hone management skills. Held in three one-day sessions over three months, GenerationNext prepares farmers from the ages of 20 to 35 to manage employees, finances and risk to their business more effectively.

When working on business transfers within families, compare the plans and goals of both generations. When we work on transfers, we listen to the current owner’s plan, learn what the younger generation expects and ask what both generations expect from us.

For example, if one generation plans to double the size of the operation, we can help you break the goal down in terms of a multiyear plan first, then help set stepping stones over the next 12 months and each year leading up to the goal.

NORTHEAST AGRICULTURE 2015 INSIGHTS AND PERSPECTIVES

TIPS FOR SURVIVING SHARP DROPS in commodity prices

7

Vice presidents from five Farm Credit East branch offices got together to consider top issues facing producers in 2015: Craig Pollock, Cynthia Stiglitz, Scott Andersen, Pete Hallowell and Ed Urbanik.

6

FROM A PRACTICAL PERSPECTIVE, how can Farm Credit East services help you?

Stop trying to do everything yourself.

Farm Credit East payroll service is growing because customers understand than we can help with their payroll needs.

We understand H-2A labor laws and the difference between 941 (non-agricultural) and 943 (agricultural) employees. We get the need for last-minute changes, too, and we know you still need your payroll delivered on time. Knowing the speed, accuracy and flexibility of our services and trusting us to handle your payroll is a game changer. When we see federal or state penalties, we know that we can save that farm from future penalties.

Use year-round tax planning. This

invaluable process takes advantage of all tax provisions that Uncle Sam and state laws allow. Given the constant flux in the agricultural economy and changes in tax laws that affect ag businesses, year-round

8

tax planning over multiple years keeps a businesses operating more effectively and prepares businesses to weather a downturn or benefit from an economic recovery. With tax planning, you work one-on-one with a Farm Credit East tax expert to determine which tactics make sense for your situation and to ensure that your tax bill is just right. You receive updated year-to-date records and an early start on tax preparation. Our tax specialists also set up businesses for the long haul so succession and transfers across the generations occur in an orderly way.

Put your financial reports to use. Our

record-keeping specialists provide reliable financial records to help you make sound business decisions and have continual access key financial reports. In today’s ag business environment, accurate, up-todate financial records are more important than ever. Without them, it’s all too easy to lose track of key data or fail to spot potential problems and opportunities.

When this happens, profits suffer.

FARMCREDITEAST.COM

THE NORTHEAST FARM ECONOMY The pace of U.S. economic growth accelerated in the second half of 2014.

Although the first quarter showed a decline in GDP, second-, third- and fourth-quarter results came in at annualized rates of growth of 4.6, 5.0 and 2.6 percent, respectively, higher numbers than we have seen for most of the last decade. Inflation remained subdued, coming in at 1.3 percent for the year through November. Lower oil prices should help keep inflation in check and boost the U.S. economy.

The Federal Reserve projects U.S. GDP growth at around 3.1 percent for 2015. For comparison, the average annual growth rate during the 20032007 expansion was 2.8 percent.

They also project a continued low rate of inflation at 1.8 percent.

The job market, which has been one of the weakest areas in the current economy, showed marked improvement in 2014. The unemployment rate declined substantially over the course of the year, falling from 6.6 percent to 5.6 percent.1 The United States posted its strongest year of job growth in 15 years, adding nearly three million jobs over the course of the year.

Nonetheless, labor-force participation rates remained low; December’s rate was 62.7 percent, a 36-year low. Wages have also been slow to rise. Over the past year, hourly earnings are up only 1.7 percent, barely ahead of inflation.

While overall wages have been slow to increase, several government policies may increase labor costs for employers.

Implementation of the Affordable Care Act continues, with the employer mandate taking effect for certain businesses in 2015. Several states have also raised minimum wage rates.

The Federal Reserve maintained its policy of low interest rates last year, keeping the Federal Funds rate near zero, while ending its bond buying program known as quantitative easing. The prime rate remains at 3.25 percent, unchanged since 2008.

The Fed is transitioning away from the highly accommodative policies of the recent past, moving beyond quantitative easing, and toward more normalized monetary policy. However, while interest rate increases may occur later in the year, they are likely to be cautious, and signs of weakness in the economy could easily delay their action.

The housing market showed modest improvement in 2014. The S&P CaseSchiller home price index for October 2014 was up 4.5 percent over one year earlier, though it remains significantly below its 2006 peak. Housing starts averaged 990,000 for the first 11 months of 2014, the highest level since 2007. Rising interest rates may limit growth in this sector later in 2015.

Consumer spending is the largest part of our domestic economy. Consumer

NORTHEAST AGRICULTURE 2015 INSIGHTS AND PERSPECTIVES

C H R I S L A U GH T ON Farm Credit East Director of Knowledge Exchange

confidence levels were much higher in 2014 than in 2013, with an average index value of 86.9 compared to 73.3.

The U.S. dollar gained strength against foreign currencies in 2014. The strengthening dollar will hamper efforts to increase exports, including agricultural products, going forward. Improving economic conditions in the United States relative to other nations will likely cause the dollar to strengthen further.

Looking ahead Looking ahead, several underlying fundamentals are bullish for the American economy. The recent sharp decline in oil prices is expected to boost growth.

While gains will be partially offset by declines in U.S. energy revenues, savings by businesses and consumers will far outweigh any downside. The improving job market is likely to bring people back into the labor force, and boost workers’ earnings. Consumer spending should grow as disposable income increases. Business investment is poised to increase as consumers’ improved outlook encourages companies to carry out investment and expansion plans that have been deferred in recent years.

Europe remains a concern for global markets. Deflationary pressure and weak economic growth in Europe as well as Japan will hamper global growth and reduce export opportunities. China is projected to grow at close to 7 percent in the coming years solid growth, but a

9

GROSS DOMESTIC PRODUCT Percent Change from Preceding Quarter (Annualized) 10.0%

5.0%

0.0% Q1

-5.0%

Q2 Q3 Q4

-10.0%

20 0 4

20 0 5

20 0 6

20 07

20 0 8

20 0 9

2010

2011

2012

2013

2014

Source: BEA National Economic Accounts

significant slowdown from past rates.

Grain and oilseed prices fell significantly in 2014 due to record corn and soybean harvests. However, since late September, feed commodities have rallied somewhat. Meanwhile, prices in animal proteins have set record highs in many categories. This, combined with falling crop prices, led to record margins for many producers in 2014.

For dairy, the tide has already started to turn, with milk prices beginning to fall. Prices in other protein sectors, most notably beef, are high and look as if they will remain so through 2015.

Legislative and Regulatory Outlook As we entered 2015, the new session of Congress is getting underway. As a result of the November 2014 elections, Republicans control both the House and the Senate. Democrats maintain control of the executive branch. With the passage of the Agriculture Act of 2014 (farm bill), we anticipate that the focus of the agriculture committees will be on oversight of farm bill implementation and reauthorization of certain nutrition programs.

1

Farm organizations, including Farm Credit East, continue to urge Congress to act on establishing a new agricultural guest worker program. This is a major concern and limiting factor for Northeast agriculture. At the current time, major policy differences between the White House and Congress on immigrationrelated issues remain and no clear political pathway forward is apparent.

An area that we may see congressional action is with trade agreements.

Negotiations are underway on the Trans Pacific Partnership and Congress may act to approve trade promotion authority to allow approval if an agreement is reached. A number of other regulatory issues may receive oversight attention

by Congress, including efforts by the Environmental Protection Agency to expand their regulatory reach under the Clean Water Act (WOTUS - Waters of the United States rule) and regulations to implement the Food Safety and Modernization Act (FSMA).

There are also issues of interest at the state level. A number of states are in the process of increasing and/ or considering increases to the state minimum wage. In New York, discussions relating to mandatory overtime pay for farmworkers are ongoing.

The Farm Economy Dairy For dairy, 2014 was an outstanding year.

Average milk prices in the Northeast increased more than $4.00/cwt. over 2013 levels. Expenses remained manageable, primarily due to moderate feed costs, with the result of improved profit margins for many dairy producers. There continued to be a wide range of operating results with many farms achieving record profits and others earning much less. 2015 is looking to be far less profitable, and many have expressed concerns about profitability in 2016. • Milk prices were high throughout 2014. Dairy analysts are projecting significantly lower prices for 2015, ranging from $5.75 to over $7.00/cwt. below 2014.

U.S. Department of Labor, Bureau of Labor Statistics

10

FARMCREDITEAST.COM

• Nationally, milk supply continued to increase. Total U.S. milk production averaged about 2.3 percent greater than 2013, a larger increase than recent years. New York milk production was up 1.8 percent through November 2014.

The latest NASS figures estimate the number of cows in New York up 5,000 head to 615,000.

• 2014 was consecutive record year for dairy exports, but volume was highest in the first half of the year, and by August was below 2013 levels. The United States exported about 15.7 percent of its milk production last year, compared to 16.1 percent in 2013. 2 Export markets are expected to continue to decline going into 2015.

• The MILC program has ended, leaving producers with a choice of two USDA programs: LGM-Dairy and the Dairy Margin Protection Program (MPP). Unlike MILC, both programs require a proactive decision and payment from the farmer.

Timber • Softwood / Plywood »» 2014 was a relatively strong year for softwood lumber and panel producers. Annual U.S. softwood consumption continues to increase. »» Most traders and analysts are expecting prices to remain strong in 2015. »» Housing starts averaged 990,000 for the first 11 months of 2014, the highest level since 2007. This is up from 920,000 in 2013. »» While lumber producers generally enjoyed positive log-lumber margins in 2014, log costs remain a concern for many.

• Hardwood »» Increasing demand, largely as a result of the improved housing market, allowed most hardwood sawmills to increase production in 2014. Pricing was largely stable throughout the year, and much improved over recent levels.

»» Invasive pests are a concern for certain wood species and forest health, but none are likely to deal a severe economic blow to timber growers. Emerald Ash Borer continues to spread throughout the region. »» Markets for wood pellets continue to grow, both domestically and internationally.

• Pulp and Paper »» Despite volatility and significant changes to the industry over the past few decades, pulp and paper mills remain an important market for wood in the Northeast, particularly in Maine. »» International competition, the changing paradigm of paper consumption and escalating costs of production have presented challenges for paper manufacturers and led to the shutdown of some mills and capacity reductions at others.

• Logging »» High production, multisystem producers appear to have the necessary critical mass to buy timberland and remain adequately profitable. However, profit margins remain tight for many small contractors. »» Logging is largely at the mercy of the weather. The spring and summer of 2014 made for difficult harvesting conditions as loggers struggled to get back into the woods due to wet weather.

Fall weather conditions were favorable for timber harvesting allowing for good production.

Very cold weather across the northern tier of the country in January 2015, combined with favorable fuel prices, should provide a good start to the winter logging season in many areas.

average at least 150 bu./acre to breakeven prior to family living and debt service. Soybean growers will need at least 50 bu./acre.

Considering prices and yields, 2014 was a decent year for most, with 2015 looking challenging.

• Input costs, namely fertilizer costs, have decreased slightly, which will help given the crop price situation.

• New Jersey reports an outstanding year for grain with great growing and harvest conditions. For corn, highs exceeded 200 bushels/acre in some areas, with lows of about 120 bu./acre. Soybeans ranged from 35 bu./acre to 70 bu./acre.

• Land rents vary widely, but have increased in recent years. With rents this high, at average yields, some farmers could lose money with today’s lower commodity prices.

Livestock • This is a very diverse sector ranging from beef or other protein producers, both full- and part-time, as well as equine, which itself can be broken down into racing/breeding and also boarding and training enterprises.

• Beef prices hit record levels in 2014 and are expected to carry over into 2015. U.S. beef cattle inventory is at lows not seen in decades, which will prolong the current period of high prices.

• New York is recognized as having one of the best racing and breeding incentive programs in the United States. The primary price driver is the improved general economy and the New York state bred program incentives, supported by video lottery terminals (VLTs).

• Markets in New England and parts of New Jersey and New York are supported principally by local recreational demand across a variety of equine business models.

Cash Field Crops: Grains, Oilseeds, Hay and Others • Commodity prices have significantly declined from earlier highs. This means growers will need to

NORTHEAST AGRICULTURE 2015 INSIGHTS AND PERSPECTIVES

11

Fruit For producers, weather, farm labor and rising input costs are primary concerns.

Availability of effective, legal and reasonably priced labor continues to be a concern. Many fruit growers rely on H-2A labor, which remains a challenge for them.

• Apples »» While a winter cold snap adversely impacted production for some growers, New York’s total production was estimated at approximately 12 percent above the five-year average. 3 »» Washington State’s production was up 19 percent from the five-year average. »» Overall pricing has generally been good for New York growers, but varieties such as Red Delicious and Gala are feeling downward pressure due to an abundance of West Coast product.

• Juice Grapes »» Growers had a bumper crop in 2013 and another better-thanaverage crop in 2014. Combined, growers produced three years’ worth of crop, driving down prices. »» Overall there are some concerns about juice grape markets. Supply is up, demand is steady or slightly down, and juice grape buyers are already hinting that they may further reduce allocations in 2015.

• Wine »» A hard 2013-2014 winter curbed production of wine grapes in some parts of the Finger Lakes and other northern wine growing regions. A spectrum of results includes complete loss of crop to slightly above average production. »» The 2014 harvest supplied ample grapes for making wine and the bulk wine carryover from 2013 resulted in full tanks again this year.

»» Prices for wine grapes remained steady compared to 2013 in most regions, but depending on type of grape and local supply, prices could drastically differ. »» Long Island has had back-to-back harvests of above-average quality after a run of several bad years.

This will help raise the quality and reputation of Long Island wines in general, hopefully leading to positive press and greater future demand.

Greenhouse & Nursery • Greenhouse growers throughout the region generally reported a very good year, setting records for some producers. Nearly perfect weekend weather from Easter through June is largely credited for this. Fall sales varied by region, but were generally above 2013.

• Financial results for greenhouses have been highly variable in recent years: 2011 was a disaster due to a very wet spring; 2012 and 2013 was about average; and 2014 was outstanding. A similar outcome cannot be relied on for 2015, and weather will have a major influence on sales.

• A growing segment of customers is asking questions about pesticides used in production, particularly neonicotinoids, or “neonics,” and their effect on pollinator insects.

• Falling energy costs have resulted in cost savings for growers, both in production and shipping.

• Big box chains continue to dominate the retail market. Suppliers must be efficient and manage tight margins in order to survive. These major retailers are increasingly demanding more services from vendors, raising the cost to producers.

• Many independents saw their best year since 2008, both in gross sales as well as customer counts.

• There is growing interest in nontraditional greenhouses, primarily for vegetable production, rooftop structures, vertical greenhouses, etc., particularly in the more metropolitan areas. While not a heavy presence within the region at this time, this is a trend to watch.

Aquatic/Fishing • Lobster »» The lobster catch continues at near-record levels. »» Demand for lobster remained light through 2014, but prices increased due to later emergence of soft shell lobsters than was seen 2013. »» Higher costs of production related to fuel, bait and boat repairs squeezed margins for lobstermen over the past several years.

• Scallops »» Prices were high in 2014 averaging $13.63/lb. at the New Bedford auction. This is an increase of $1.45 from 2013 and almost $3.00 over 2012. Price is expected to remain stable in 2015. »» For the 2014 fishing year (March 2014-February 2015), full-time scallopers were allocated 31 open area days-at-sea (DAS) and two closed area trips, specifically assigned to each vessel. The National Marine Fisheries Service (NMFS) has not indicated yet what may be ahead for the 2015 fishing year, but the industry anticipates similar open area DAS and an increase in allowable catch for closed areas. »» The stock remains strong, considered by NMFS and the National Oceanic and Atmospheric Administration (NOAA) to be sustainable and we do not anticipate severe regulatory changes in the near future.

• Vegetable plants continue to become a larger component of sales versus traditional flowering bedding plants.

2

U.S. Dairy Export Council

3

U.S. Apple Association 2014 Production & Utilization Analysis

12

FARMCREDITEAST.COM

• Groundfish (draggers): »» Although the stocks of many protected species of groundfish are rebuilt, regulations remain limiting for the industry. »» Trading of permits picked up slightly in 2014, with specific species quota trading, but not in large volumes. Boat sales were practically nonexistent.

Many within the industry are pessimistic. The groundfish fleet in the Northeast is aging and with stringent regulations and an unclear future, reinvestment is difficult. »» 2014 continued with drastic cuts, this time to Gulf of Maine cod and haddock, bringing the allowable catch close to zero. The positive for the industry is that the average price per pound remained stable at $2.30/ lb., down $0.02 from 2013, but still above $2.27 in 2012 (New Bedford auction prices). The effect that regulations will have on domestic supply remains to be seen. There are concerns that this may cause an increase in imports, which could put downward pressure on prices.

Vegetables Substantial diversity within the vegetable market segment as a wide range of crops is grown by a broad mix of farms.

Producers range from large-scale farms growing for processing markets in New York and New Jersey, to smaller CSA operations in New England. Primary drivers for the wholesale markets are weather and production volume from competing regions during their market window(s). For the more retail/local market oriented growers, primary drivers are weekend weather during the sales season, production weather and consumer spending patterns.

• In the New York processing market, acreage will be up for peas, green beans and lima beans, while sweet corn and carrots are likely to be unchanged. Prices are projected to remain steady.

• In New Jersey, the 2014 growing season was exceptional with favorable weather conditions in most areas.

Overall, yields and quality exceeded historic averages with market prices for most items at or above average.

• New England growers report an average-to-good year both in terms of crop quality and price.

• Farmers’ markets in many urban areas continue to do well. CSA (community supported agriculture) farms continue to gain popularity in Southern New England. Some reports show that this market is beginning to mature due to multiple growers competing for a limited number of consumers who wish to buy produce in this way.

• Interest from local buyers and restaurants continues to increase for locally grown products of all kinds. However, this does not necessarily translate into a willingness to pay higher prices.

• Availability (and affordability) of good farmland in key areas is limiting expansion. Labor availability and cost for planting and harvest remains a concern.

Potato The majority of potato production within the region is in northern and central Maine, with a lesser amount in New York State and a modest amount in Massachusetts.

• 2014 saw much better growing conditions due to favorable weather.

In Maine, despite a decrease of 2,500 planted acres, total production was up, due to higher yield. Production averaged 305 cwt./acre in 2014, up from 295/acre the previous year.

This was 7 percent higher than the 10year average. The quality of the Maine crop was also much better than the past few growing seasons.

• A major potato buyer reduced contract levels for the 2014 crop. However, the market may recover due to increased processed demand and low frozen

NORTHEAST AGRICULTURE 2015 INSIGHTS AND PERSPECTIVES

inventory levels. Table prices are below year-earlier levels, but increasing, and product movement is favorable.

• Concern of oversupply in the seed industry is due to significant acreage increases in other states; however, this may be mitigated by Canada’s Prince Edward Island currently being quarantined from shipping seed to the United States due to a disease outbreak.

• New York fall 2014 potato production is estimated at 4.6 million cwt., which is down from the 2013 production of 5.0 million.

• Fall 2014 production in Massachusetts saw an increase in total production of 126,000 cwt. to a total of 1.1 million cwt.

Cranberries The 2014 crop is estimated at 8.1 million barrels, about 950 thousand bbl. below that of 2013 and 500 thousand below 2012.

• Despite the somewhat smaller crop, the market remains in oversupply, and spot prices are extremely low.

• A large spread remains between prices paid by independent buyers and cooperatives. Independent buyers are paying $10-12/bbl. for the 2014 crop. However, final prices will not be determined until next fall. 2013 crop prices closed between $7 and $12/bbl., significantly below the prior year.

• These differences in prices continue to affect the value of bogs.

• Very few bogs have transferred over the past four years.

• Both independent handlers and cooperatives see the effects of large crops harvested over the past five years. We have begun to see independent growers struggle financially. We expect cooperative members with weak production and other inefficiencies to begin feeling the effects of the lower price.

13

APPLIED RESEARCH in SPECIALTY CROPS: WHAT’S HAPPENING IN THE FIELD?

JIM B I TTNER Chair New York Farm Viability Institute

Jim Bittner is the chair of NYFVI and has served on its board for nearly a decade. Since its inception, NYFVI has directed more than $25 million to over 250 projects. Mr. Bittner is the owner of Bittner-Singer Orchards, a diverse fruit farm in western New York.

14

Applied research is where ideas meet reality. While agricultural researchers use knowledge and experience to find theoretical solutions to persistent problems, farmers are interested in ideas that actually work on the farm.

For 10 years, the New York Farm Viability Institute (NYFVI) has sought to bridge the gap between researchers’ ideas and farmers’ practical needs by seeking to fund applied research projects that address farmer-identified needs and have clear on-farm impacts.

Some of the most interesting and possibly the most influential applied research occur with specialty crops. This may be because research in fruits, vegetables, nurseries and floriculture is not as well-established as research within corn, soybeans, wheat, dairy, and other traditional commodities; perhaps, specialty crop researchers are freer to think outside the box? Whatever the reason, our specialty crops research proposals from the past few years point to some interesting emerging trends.

One of the most interesting trends is the growing use of biological control to combat pests. As pesticide-resistant insects become more prevalent and the public becomes increasingly wary of chemicals, researchers in integrated pest management have turned to the use of natural enemies to control harmful pests.

Led by Professor Elson Shields at Cornell, researchers are testing nematodes as a means of biological control in a variety of specialty crops, including strawberries, blueberries, raspberries, apples and sod. Nematodes are the most numerous organisms on earth, can be easily bred by farmers, will persist for years and can reduce specific pest populations by 90 percent or more. However, a great deal of research remains to be done to determine which of possibly a million species of nematodes can control which pests.

A second emerging trend is the application of precision agriculture tools to specialty crops. Increasingly prevalent in the larger commodities, technologies such as GPS,

FARMCREDITEAST.COM

NYFVI projects have helped every sector of New York agriculture. In the fruit industry, applied research has changed the way apples are grown to increase yield and lower production costs. In berries, work is underway to determine the best methods to control the spotted wing drosophila. For dairy and crop farmers, projects have shown how to improve digital monitoring tools, and unmanned aerial vehicles have equal potential to transform specialty crops agriculture.

sites to improve suitability and expand adoption of Chinese medicinal herbs as a new crop for New York growers.

At NYFVI, we have recently funded projects to bring precision technologies to the high-density apple plantings that are now the standard for the modern apple orchard in New York. These technologies promise to improve nutrient management, thinning, irrigation, harvest timing and quality, leading to potential crop value increases of 50-100 percent.

We have also recently received a proposal to bring precision pruning to Concord grape vineyards in the state. While this proposal has yet to be reviewed by our farmer review panel, it indicates a growing interest in precision agriculture among specialty crops researchers.

Funders play an essential role in applied research, not only by providing money but also by ensuring that selected projects contribute to larger goals. The mission of NYFVI is to help New York’s farmers become more profitable and to improve the long-term economic viability and sustainability of our state’s farms, the food system and the communities which they serve. This guides every step of our funding process, from our farmer-sourced barrier identification to our proposal review process that incorporates the perspectives of more than 70 farmers.

Other interesting ideas we’ve seen include the application of citizen science to pollinator research in apples, field testing of a new grape canopy management technique for Vinifera vineyards, and the creation of study

The importance of increasing the funding for applied agricultural research cannot be overstated. Through applied research, the agriculture of tomorrow can be more profitable, productive, efficient and sustainable.

To get there, we must make the funding of this type of research a priority.

NORTHEAST AGRICULTURE 2015 INSIGHTS AND PERSPECTIVES

nitrogen management on winter crops and reduce tillage. Other projects have increased access to USDA inspected livestock processing facilities and helped develop trees that will survive some of New York’s toughest urban environments. For more information about NYFVI and its projects, visit NYFVI.org.

15

ECONOMIC OUTLOOK FOR 2015

MIC HAEL D. GOODM AN , Ph . D .

University of Massachusetts at Dartmouth

Dr. Michael Goodman is associate professor of and chair of the Department of Public Policy at the University of Massachusetts Dartmouth where he directs the Master of Public Policy program.

Dr. Goodman has authored or coauthored over two dozen professional publications on a wide range of public policy issues including regional economic development and housing policy as well as demographic and other applied social science research topics. Dr. Goodman is a three-time past president of the New England Economic Partnership.

16

Aside from a very disappointing first quarter due to an extended spell of nasty weather courtesy of the “polar vortex,” the U.S. economy expanded strongly in 2014. As the year comes to a close, there are a number of good reasons to believe that the nation’s economic expansion is gaining momentum, a development that bodes well for the economic outlook for 2015.

While the rising economic tide is still not lifting all boats and stagnant wages and continued poor prospects for the long-term unemployed remain major challenges, falling oil prices are boosting consumer confidence across the Northeast and the nation and helping to spur consumer spending and economic activity.

As Figure 1 clearly illustrates, in the second half of 2014 oil prices fell

dramatically with associated declines in the pump price of gasoline and the retail price of home heating oil, a fuel source that the Northeast United States (particularly the six New England states) depends upon heavily. While there are a number of reasons for the current slump in oil prices, weak demand due to the sluggish global economy and a significant increase in the supply of oil extracted from shale here in the United States are clearly major contributing factors.

While falling oil prices can be expected to hurt domestic oil producing regions including Texas, the Dakotas and Alaska, lower prices at the pump are resulting in significant savings for U.S. businesses and consumers who find themselves with unexpected disposable income. If, as expected, prices remain low through 2015, the effect on business

FARMCREDITEAST.COM

FIGURE 1

CRUDE OIL PRICES, WEST TEXAS INTERMEDIATE $120 $110 $100

DOLLARS PER BARREL

$90 $80 $70 $60 $50 $40 2010

2011

2012

2013

2014

2015

Source: U.S. Energy Information Administration

and household balance sheets will be sizeable and strongly positive. University of California San Diego Professor James Hamilton recently estimated1 that at current consumption and price levels, the annual savings could be as much as $160 billion or approximately $1,400 for the typical household.

In the New England states, this windfall will be partially offset by significant increases in electricity rates, largely due to inadequate access to the natural gas that has become the fuel of choice for the region’s electricity generating infrastructure. Even if state officials are able to overcome local opposition and increase pipeline capacity (and production from alternative and renewable sources), it will take years to expand the capacity required to reduce regional electricity prices.

Despite the long-term energy challenges facing the Northeast, on balance energy prices will be a net positive

contributor to national and regional growth in 2015. But even though lower oil prices can be expected to boost overall growth prospects in the near-term, as noted above, falling oil prices create regional and industrial winners and losers with those states and industries that have benefitted from rising prices experiencing a reversal of fortune in a lower price environment.

At its meeting in November, the Organization of Petroleum Exporting Countries (OPEC) announced that rather than reduce oil production to place upward pressure on oil prices as it has historically, it will maintain current production levels. This strongly suggests that oil prices could remain low through 2015. If low prices persist, the financial incentives for domestic exploration and the economic attractiveness of alternative and renewable sources of energy will be significantly diminished, and oil prices can be expected to first stabilize and then rise over the long term.

1

See http://econbrowser.com/archives/2014/12/do-falling-oil-prices-raise-the-threat-of-deflation

2

http://www.federalreserve.gov/newsevents/press/monetary/20141217a.htm

NORTHEAST AGRICULTURE 2015 INSIGHTS AND PERSPECTIVES

But in the near term, low oil prices put cash in the pockets of the American consumer and provide the Federal Reserve with a very good reason to believe that price inflation will remain very low in the year to come. This may be part of the reason why the Fed’s Open Market Committee recently indicated that it could afford to be “patient” as it continues encourage job growth through the maintenance of a low interest rate policy. 2 The combination of the stimulus effect of lower gas prices along with the expected continuation of expansionary monetary policy will put more wind in the sails of a U.S. economy that in recent quarters has begun to perform at levels not seen since the 1990s. All of this is cause for optimism and is strongly consistent with the view that 2015 is shaping up to be another very solid year for the national and regional economy.

17

ECONOMIC IMPACTS of AGRICULTURE in EIGHT NORTHEASTERN STATES

R IG O BERTO A. LOP EZ, Ph. D .

NATA LIYA PLESHA B E N CAMP BELL, P h.D .

University of Connecticut, Storrs

Dr. Rigoberto Lopez is professor and department head of Agricultural and Resource Economics, in the College of Agriculture, Health and Natural Resources at the University of Connecticut.

The northeastern region of the United States comprises 5 percent of the United States land mass but houses 20 percent of the population.1 Even within this relatively small, densely population area, agriculture, forestry and fisheries are important economic components at the household, state and regional levels. At the request of Farm Credit East, we conducted a study to document and ascertain the significance in the economies of eight northeastern states2 of the agriculture sector, defined broadly as including four Fs: farming, food, forestry and fisheries. 3 Because a state’s agriculture sector purchases goods and services from other industries in the state and hires

local labor, its economic impact cascades throughout the state’s entire economy, resulting in a “multiplier” or economic stimulus effect when these spillover effects are taken into account. As measured in the eight states under study using data from 2012, agriculture contributed $99.4 billion to regional total sales or $2,312 per resident and generated 474,482 jobs.

The changing structure of agriculture To put the economic impact estimates in context, it is worthwhile to highlight some of the evolving changes affecting the structure of agriculture in the eight states. As shown in Figure 1, the number of mid-sized farms is declining

Nataliya Plesha is a Ph.D. candidate in the Department of Agricultural and Resource Economics at the University of Connecticut Dr. Benjamin Campbell is assistant professor and Extension economist in the Department of Agricultural and Resource Economics at the University of Connecticut

18

U.S. Bureau of the Census interactive list of U.S. states, including their (2012) population and land mass: http://quickfacts.census. gov/qfd//index.html.

1

Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont. Other Northeastern states (Pennsylvania, Delaware, and Maryland) were not included in the request. Thus, the reported impacts underestimate the impacts for the entire Northeastern region.

2

We defined the agricultural sector more specifically as encompassing agricultural production (i.e., crops, livestock, fisheries and forestry) and farm, forestry and fishery/seafood processing that is closely tied to the underlying production.

3

FARMCREDITEAST.COM

while the number of small and large farms is increasing. In fact, six of the eight states included are among the 16 states nationally where the total number of farms increased between 2007 and 2012. While small farms are able to capture niche markets or supply locally grown products desired by residents, the number of large farms (over 1,000 acres) are able to exploit scale economies and compete in national markets.

As with the entire nation, total land in farms in the eight states declined between 2002 and 2012 (Table 1) dominated by declines in New York and New Jersey.

However, southern New England states experienced a healthy growth of land in

farms while northern ones had relatively modest gains. Southern New England states had the most sagging change in total dollar farm sales as reported by the U.S. Department of Agriculture, with Rhode Island and Connecticut experiencing nominal sales growth below the inflation rate and Massachusetts sales barely keeping up with it. In contrast, New York experienced the highest positive growth in sales, followed by Vermont and Maine, all well above inflation.4 Notably, this study provides an updated and enhanced economic impact evaluation to a previous Farm Credit East report reporting $71 billion in sales impact and approximately 379,000 jobs generated

in 2010 (Farm Credit East, 2012). 5 For the same six states and common 29 NAICS industries6 in the two reports, between 2010 and 2012 the aggregate economic impact decreased 0.6 percent in statewide sales in dollars and 7 percent in the number of jobs.7

How did we measure economic impacts?

The study used the IMPLAN inputoutput model to estimate statewide economic impacts.8 The input-output IMPLAN model converts an industry’s direct sales at the farm/processing plant/ fishery gate (used as input) into statewide sales and statewide jobs generated (economic output indicators). Applying

As defined by the Consumer Price Index for the Northeast, inflation grew by 28% between 2002 and 2012. In nominal dollars, farm sales grew 7.4% for Rhode Island, 17% in Connecticut, 28.1% in Massachusetts, 31.7% in New Hampshire, 34.3 % in New Jersey, 64.1% in Vermont, 64.6% in Maine, and 73.7% in New York. Southern Atlantic states experience nominal sales growth between 74 and 106% in the same period. Based on other price inflation indicators that do not match the geographic region (e.g., national) or the commodity composition (national prices received by farmers) of farm sales, most states experience a negative growth in deflated or real dollar sales.

4

5

Lopez, R.A. and C. Laughton. (2012). Northeast Agriculture: An Overlooked Economic Engine. A report by Farm Credit East.

Note that the North America Industrial Classification System (NAICS) codes used do not exactly correspond to the Agriculture Census classifications. They also include industries beyond the farm or fishery gates into processing and related services such as landscape services which are not included in this article.

In the current report, Support Activities for Agriculture and Forestry was split into two sectors (Agriculture and Forestry, respectively), thus comparing 30 of the 35 sectors included in the current report.

6

Comparing 2010 and 2012 results from the two reports, sector specific trends in economic impacts include an 11percent decrease in aggregate statewide sales of greenhouse, nursery and floriculture production, a 7percent increase in dairy farming sales impact with large gains in fluid milk/butter manufacturing, which includes large increases in yogurt manufacturing. Additionally, forestry and fishery followed similar trends with reduction in the impact of commercial logging and fishing but increases in forest and fishery products processing, with the exception of an increase in aquaculture.

7

Three standard models are most often referenced with respect to regional economic impacts: IMPLAN (IMpact analysis for PLANning: Minnesota IMPLAN Group, Inc.), RIMS II (Regional Input-output Modelling System: U.S. Department of Commerce), and REMI (Regional Economic Modelling, Inc.).

IMPLAN is the most widely used.

8

NORTHEAST AGRICULTURE 2015 INSIGHTS AND PERSPECTIVES

19

the IMPLAN model to 2012 data (the latest available) from eight northeastern states, we relied on two indicators (outputs) of the economic importance of agriculture computed for each of 35 NAICS industries included for each state: • Total impact on statewide sales, which is measured by sales generated directly from the industries (direct sales) plus spillover sales by other industries impacted; and • Total impact on state employment, which includes full-time and part-time jobs generated.

Total impacts in the eight northeastern states in the study are simply the sum of impacts in each state. The results are presented below.

Economic impacts of agriculture The aggregate economic impacts of agriculture (including forestry and fisheries) in the eight states in 2012 were significant as indicated by:9 • $99.4 billion impact on total sales or $2,312 per resident, and • 474,482 jobs generated across the eight states

Details are presented in Figure 2.10 It is worth noting that among the 35 industries, dairy manufacturing is the leading sector in economic impact, followed by paper mills. At the production stage, dairy farming was the leading sector in the region. Within farming, the second largest regional impact in sales (and jobs) is in the greenhouse, nursery and floriculture industry, closely followed by vegetable and melon farming which in fact is among the fastest growing sectors in the region. In the agricultural processing sector, dairy manufacturing is followed by fruit and vegetable processing and animal processing. The fishery sector, although important in some smaller states, is a distant third relative to agricultural and forestry production and processing in the region.

Although there is great variability in the distribution of total sales and job creation across these eight northeastern states, reflecting primarily their relative sizes, the findings attest to the value added nature of the region’s agriculture, forestry and fishery industries, due in part to proximity to a large consumer base, which creates opportunities for continued economic growth and employment.

Table 2 summarizes the total and per resident impacts in each state. Total impacts on statewide sales ranged from

9

approximately $1 billion in Rhode Island to $46 billion in New York, with an average impact of $12.4 billion — the approximate impact in Massachusetts.

On a per resident basis, sales impacts ranged from $1,003 in Rhode Island to $10,506 in Vermont. Employment impacts ranged from 6,591 jobs generated in Rhode Island to 193,497 in New York. It is clear that agriculture clearly plays a significant economic role in the lives of the region’s residents.

Conclusions Agriculture in the northeastern United States is characterized by being diverse, value-added oriented, and economically important to the population in at least 8 of the 11 states comprising the region. In 2012, the agriculture sector (including forestry and fisheries) in these states accounted for nearly $100 billion in statewide sales and just under half a million jobs. This translates into $2,312 per resident. Moreover, beyond these measured economic impacts, not included in this study is the value of ecosystem services, scenic views and social benefits derived from open space in farming and forestry in this region, which is significant, affecting the quality of life and social well-being of residents and of future generations.

Dollar amounts are rounded to one decimal place in these highlights from more precise figures in the tables.

Some sectors in Figure 2 are aggregated for brevity such as dairy manufacturing containing all dairy processing products.

10

20

FARMCREDITEAST.COM

FIGURE 1

PERCENT CHANGE IN THE NUMBER OF FARMS IN EIGHT NORTHEASTERN STATES, BY SIZE

PERCENTAGE CHANGE 2002–2012

20% 15% 10% 5% -0% -5% -10% -15% -20%

1-9

10-49

50-179

180-499

500-999

> = 1000

FARM SIZE IN ACRES Source: U.S. Department of Agriculture, 2002 and 2012 Census of Agriculture, United Sates Summary and State Data (2004, 2014).

FIGURE 2

ECONOMIC IMPACTS OF AGRICULTURE IN EIGHT STATES, BY INDUSTRIES ($ BILLION) FISHERY PROCESSING FISHERY PRODUCTION

2

3

DAIRY FARMING

%

%

FORESTRY PROCESSING

23

FORESTRY PRODUCTION

2%

OTHER AGRICULTURAL PROCESSING

3%

VEGETABLE AND MELON FARMING

5% 7%

%

5% 6%

GREENHOUSE, NURSERY AND FLORICULTURE PRODUCTION

33%

2%

OTHER AGRICULTURAL PRODUCTION

DAIRY MANUFACTURING

7%

ANIMAL PROCESSING

FRUIT AND VEGETABLE PRODUCTS

Note: States included are CT, MA, ME, NH, NJ, NY, RI and VT NORTHEAST AGRICULTURE 2015 INSIGHTS AND PERSPECTIVES

21

TABLE 1

LAND IN FARMS AND FORESTRY IN EIGHT NORTHEASTERN STATES

Number of Farms in 2012

Land in Farms (Acres)

Land in Farms Percent Change 2002 to 2012

Land in Forests (Million Acres)

Connecticut

5,977

436,539

22.2

1.5

Maine

7,755

1,454,104

1.0

16.9

Massachusetts

8,173

523,517

6.2

2.3

New Hampshire

4,391

474,065

6.6

4.5

New Jersey

9,071

715,057

-11.3

1.5

35,537

7,183,576

-6.2

15.4

1,243

69,589

13.7

0.3

New York Rhode Island Vermont Total

7,338

1,251,713

0.6

4.5

79,485

12,108,160

-2.9

46.9

Source: U.S. Department of Agriculture, 2002 and 2012 Census of Agriculture, United Sates Summary and State Data (2004, 2014).

TABLE 2

ECONOMIC IMPACTS OF AGRICULTURE BY STATES State-wide Impacts

Eight Northeastern States

Direct Sales ($ Million)

Total Sales ($ Million)

Dollar Sales per Resident

Leading Sectors

Total Jobs

Production

Processing

24,842

Greenhouse

Paper Mills

Connecticut

2,848

4,544

1,266

Maine

8,342

13,771

10,361

78,656

Commercial Fishing

Paper Mills

Massachusetts

7,693

12,419

1,869

60,008

Commercial Fishing

Fluid Milk

New Hampshire

1,905

3,103

2,349

18,743

Commercial Logging

Fluid Milk

New Jersey

7,254

11,663

1,316

55,317

Greenhouse

Fruit and Vegetable

25,138

46,260

2,364

193,497

Rhode Island

0,724

1,054

1,003

6,591

Vermont

3,501

6,577

10,506

57,406

99,391

2,312

New York

Total

Dairy Farms

Fluid Milk

Commercial Fishing

Fluid Milk

36,828

Dairy Farms

Fluid Milk

474,482

Dairy Farms

Fluid Milk

Note: A fuller description of some of the leading sectors are: Greenhouse=greenhouse, nursery and floriculture; Dairy Farms=dairy cattle and milk production; Fluid Milk=fluid milk and butter manufacturing (which includes yogurt); Fruit & Vegetable Processing=fruit and vegetable canning, picking and drying. Commercial Fishing, Commercial Logging, and Paper Mills are as described in the Table.

22

FARMCREDITEAST.COM

NORTHEAST AGRICULTURE 2015 INSIGHTS AND PERSPECTIVES

23

FOREST PRODUCTS OUTLOOK THE BIG MONEY IS IN THE TREES. JAC K LUTZ, Ph.D. Principal and Forest Economist Forest Research Group

Most of the timber value in a forest is in the sawtimber. To get an idea of how sawtimber markets behave, we need to look at housing starts (Figure 1).

Housing starts have been slowly improving since 2008 to about 1.0 mm units — but historically 1.0 mm starts has been a really bad year.

One of the near-term drags on U.S. housing is the tremendous amount of student loan debt on the books. Today’s graduates spend their first few working years paying off debt instead of saving up for a down payment on a house as their parents did.

Dr. Jack Lutz is principal and forest economist of the Forest Research Group (founded in 2004) and has over 30 years of experience in timberland investments in academic, industry, research and consulting positions. He is editor of Forest Research Notes and is adjunct faculty at the Warnell School of Forestry and Natural Resources at the University of Georgia and the School of Forest Resources at the University of Maine.

24

In spite of the slowness of the recovery and the difficulty in forecasting it accurately, housing starts have actually been improving. This means there is improving demand for forest products. A lot of northeast hardwood is exported to China where it is made into furniture and flooring and exported back to the United States (Figure 2). That market is heavily dependent on U.S. demand, so it will not matter what happens to China’s economy

We Still Need “Pulpwood” Markets While pulpwood is not as valuable as sawtimber, it is vital to have markets for it. Since we do not have intensively managed plantations in the Northeast, we need markets for the smaller and lower quality material to improve the growing conditions and quality of the timber left in the forest. The pulp industry is suffering in the Northeast with only two pulp mills left in New York and six (or maybe seven) left in Maine (Table 1).

FARMCREDITEAST.COM

Downside Risk China has been a major importer of wood from around the Pacific Rim. If China slows and Europe and Japan are in recession, all of the wood from places like New Zealand and Canada that was going to China will try to find a way into the U.S. Even if China’s economy slows, Northeast hardwood log and lumber exports to China can expand as U.S. demand for furniture, flooring and cabinets expands.

However, demand for pulpwood is stronger than the pulp data suggest because more and more of that pulpwood is going to engineered wood products (EWP) plants and pellet plants. EWP plants in the Northeast produce things like oriented-strand board (OSB) and medium density fiberboard (MBF) that are used structurally in houses (OSB) or in furniture and cabinets (MBF). Demand for these materials will increase along with housing starts. In addition to supplying domestic markets, the pellet industry is shipping tons of material to Europe, where the European Union has said that 20 percent of its energy must come from renewable resources by 2020.

Upside Risk The great surge in domestic oil production in the United States has dropped oil prices here and forced OPEC members to drop prices as well to retain market share. There are signs that these lower oil prices are beginning to benefit both Europe and Japan.

If those economies can post some respectable growth rates, then demand for wood-based products will increase there as well.

The Rest of the World The United States economy seems to be gaining momentum, which will increase demand for wood-based products.

Meanwhile, Europe and Japan appear to be headed for recessions again, and China’s growth is slowing down.

FIGURE 1

1,000 UNITS

20 YEARS OF U.S. HOUSING STARTS 2,400 2,200 2,000 1,800 1,600 1,400 1,200 1,000 800 600

LONG TERM AVG (Since 1955)

14 20

13 N

20 JA

N JA

N

20

12

11 20 JA

10 JA

N

20

09 JA

N JA

N

20

08

07

20 N

JA

N JA

N

20

20

06

05 20 JA

N JA

N

20

04

03 20 JA

N JA

JA

N

20

02

01 20

N

20 JA

JA

N

20 N

JA

01

00

9

8

19 9 N

JA

N

19 9

19 9 JA

N

19 9 JA

N JA

7

6

400

Source: Bureau of the Census, U.S. Department of Commerce

NORTHEAST AGRICULTURE 2015 INSIGHTS AND PERSPECTIVES

25

FIGURE 2

CHINA/U.S. HARDWOOD TRADE ($MM) $9,000

$1,400

$8,000 China to US (MM)

CHINA HARDWOOD PRODUCTS TO US

$6,000

$1,000

$5,000

$800

$4,000

$600

$3,000

$400

$2,000 US HARDWOOD LOGS AND LUMBER TO CHINA

$1,000

US to China (MM$)

$1,200

$7,000

$200

$0

$0 1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014 YTD (Oct)

Source: U.S. Department of Commerce

26

FARMCREDITEAST.COM

TABLE 1

NORTHEAST PULP CAPACITY, 1981, 2010 AND 2014 (TONS PER DAY) Pulping Capacity (tons per day)

ME

NH

VT

NY

Total

1981

8,820

1,200

80

2,365

12,465

2010

8,860

0

0

713

9,573

2014 (est.)

7,938

0

0

713

8,651

Number of Mills

ME

NH

VT

NY

Total

1981

15

2

1

11

29

2010

9

0

0

2

11

2014 (est.)

6

0

0

2

8

Sources: USDA Forest Service and Forest Research Group estimatese

NORTHEAST AGRICULTURE 2015 INSIGHTS AND PERSPECTIVES

27

What farmers can learn from Modern futures markets were organized in Chicago in the latter half of the 1800s.

One of the first was the Chicago Produce Exchange which was renamed in 1898 as the Chicago Butter and Egg Board and then reorganized as the Chicago Mercantile Exchange (CME) in 1919.

The CME provides a place for buyers and sellers to trade standardized contracts for delivery at a specified time in the future.

Today, the CME trades many different contracts from interest rates, to weather, to agricultural products including Class III and IV milk, corn and soybean meal.

Futures contracts are tightly specified as to quality, quantity, delivery time and place. The only remaining variable is price. And, to determine price, traders access as much information about the

MA RK STEPHENSON , Ph . D .

University of Wisconsin, Madison

Dr. Mark Stephenson is the director of Dairy Policy Analyst at the University of WisconsinMadison and an expert in dairy markets and policy. Prior to joining the University of Wisconsin, he spent 17 years as a faculty member at Cornell University.

28

FUTURES MARKETS future supply and demand of the product as they can. For the Class III contracts, traders are interested in the most recent milk production data — cow numbers and milk per cow. They want to know which states or regions are increasing production and why. They want to know about the drought in California or the possible El Niño impacts on weather in the West or in Oceania. They are interested in policy changes such as the lifting of milk production quotas in the European Union or demand for milk powder in China.

In short, futures market prices are the distillation of as much information about production and sale of a product as is available at a single point in time.

Those price opinions can, and will, be refined over time as new information about supply and demand becomes available. For instance, by May of 2012, futures markets were forecasting $5.50 corn by harvest. In July, the opinion was raised to $7.00 and by August it was $8.00 as information about the severity of a widespread drought in the Midwest was becoming known.

In the absence of more substantive information, futures market prices tend to revert to recent “normal” price relationships. Economists refer to this as “mean reversion” where there is a pull toward recent averages. Figure 1 shows actual Class III prices in the heavy red line and the dashed lines show Class III futures market price expectations at various points in time. You can see that futures markets did not correctly anticipate the high prices of 2014 and were consistently trying to forecast prices

back into a more normal range.

The futures markets weren’t wrong about 2014 price expectations, they just didn’t have all of the necessary information. For instance, the United States exported quite a bit of butter early in the year and our inventories became tight. China bought a great deal of milk powder early and then stepped out of the market as a buyer for the latter part of the year. These events weren’t known until later and the futures markets simply couldn’t anticipate their price impact.

Futures markets also sell options on contracts. These options give the owner the right, but not the obligation, to own the underlying futures contract.

If someone buys an option at a specific strike price, the seller has to evaluate the likelihood that they will have to give up the underlying futures contract. This is factored into the option price along with the value of the underlying contract and the time to maturity. We can use this information to help form our own price expectations.

You have probably seen examples of Figure 2 before. These are expected margins between milk and feed prices used in the new Margin Protection Program calculated from CME futures market prices. The black line shows you the forecast of the margin for the months ahead and the green and red bands show you a 50 percent confidence interval around that margin. Of course, there is still a 25 percent chance that margins could be above the green or below the red bands. Over time, the margin opinion will change as new market information

FARMCREDITEAST.COM

becomes available. For instance, the margin opinion was forecast for a low of about $10.50 back in September and had deteriorated to a forecast below $8.00 by December.

You might well ask if we can learn anything from futures markets given that their opinion is changing all the time. I think the answer is “yes.” Although the margin is not always correctly forecast, opinions are usually helpful in making a decision about

the level of risk protection needed in the year ahead. They give us both a price opinion and they reveal a level of confidence in that opinion. Knowing what lies ahead will help any farmer make better production decisions and reduce the risk of marketing their product.

FIGURE 1

2014 CLASS III ACTUAL AND FUTURES PRICES $25 AMS CLASS III

$24 $23 $22 $21 $20 FUTURES

$19 $18 $17

Dec

Jan

Feb

March

April

May

June

July

August

Sept

Oct

Nov

Dec

FIGURE 2

FORECAST OF MPP MARGIN $18.00 $16.00 $14.00 $12.00 $10.00 $8.00 $6.00 $4.00

October 2014

December 2014

February 2015

April 2015

NORTHEAST AGRICULTURE 2015 INSIGHTS AND PERSPECTIVES

June 2015

August 2015

October 2015

December 2015

February 2016

29

C AR L ZULAUF, Ph.D. Ohio State University Department of Agricultural, Environmental and Development Economics

GRAIN and OUTLOOK Historical Context

Dr. Carl Zulauf is a professor in the Department of Agricultural, Environmental and Development Economics at The Ohio State University. Dr. Zulauf has served as a source for over 830 articles appearing in print, radio, TV and electronic media.

His areas of specialization are commercial agricultural policy and commodity futures and options markets. Dr. Zulauf spent most of 1985 on assignment with Senator John Glenn’s staff during the writing of the 1985 Farm Bill. He has testified before Congress on farm policy and wrote a paper that laid out many of the principles that helped guide the development of the ACRE and ARC farm programs enacted in the 2008 and 2014 farm bills.

30

The post-2006 crop sector prosperity was built upon two demand growth pillars: biofuels demand, notably government mandates for ethanol; and food demand in middle and low income countries, notably China. Just as important were production problems, including the 2010 Kazakhstan, Russia and Ukraine (KRU) drought and 2012 U.S. drought. A combination of good production weather around the world, economic incentives to expand production and sharply slower growth in biofuels as the U.S. ethanol mandate reached its limit propelled corn

and soybean prices down roughly 50 percent and 30 percent from 2012 crop year highs. The key question: Is this decline signaling a period when crop and oilseed prices remain at or below production cost or can prices retrace at least part of their decline and return the crop sector to profitability?

Looking Ahead Weather will be even more important in the near future with KRU emerging as a major exporter of wheat, barley and increasingly corn. This emergence has important long-term consequences, in

FARMCREDITEAST.COM

OILSEED FOR 2015 part because KRU production is extremely variable due to weather, as the 2010 drought illustrates. Further complicating near-term forecasts of KRU grain production are geopolitical instability between Russia and Ukraine and a likely economic depression in Russia due to sharply declining oil prices.

The large decline in grain and oilseed prices will at least reduce the growth in supply, but supply response always lags and its size is difficult to assess. Moreover, the United States accounted for only 23 percent and 19 percent of the growth in world corn and soybean production between 2003-2004 and 2013-2014. It is important to monitor supply response in

the United States but especially the rest of the world. Pay particular attention to countries without extensive farm safety nets, such as KRU. An important early indicator of supply response will be the size of the safrinha (second crop) corn planted in Brazil.

“ Stocks of grains and oilseeds have increased due to large production and slowing demand but are not burdensome by historical standards.”

Since 2009, China’s soybean imports grew on average 4.7 million metric tons per year, requiring roughly 3.9 million more soybean acres at 45 bushel per acre.

However, the rate of increase in China’s soybean imports is declining. While still an impressive 9 percent per year over the most recent five years, it is the first single digit rate of increase in Figure 1.

NORTHEAST AGRICULTURE 2015 INSIGHTS AND PERSPECTIVES

31

FIGURE 1

AVERAGE ANNUAL GROWTH RATE, 5-YEAR PERIODS SOYBEAN IMPORTS BY CHINA AND REST OF WORLD, 2000-2014 35 30 25 CHINA

20 15 10 5

REST OF WORLD

0

01 4 -2

01 3

09 20

20

08

-2

01 2 07 -2

-2 20

06

-2 05 20

20

0 01

9 04 20

20

03

-2

-2

00

00

8

7 02 20

-2 01 20

-2

00

00

6

5 00 -2 00 20

01 1

-5

Source: Standard & Poors

Summary

Crop Programs

Stocks of grains and oilseeds have increased due to large production and slowing demand but are not burdensome by historical standards. Livestock production in the United States is expanding, and China’s soybean imports remain strong. A good foundation appears to exist under existing prices unless a second year of high yields occur around the world or China’s economy declines into recession. Notable production problems anywhere in the world could send prices higher. However, longer-term clouds are gathering unless a new engine of demand growth emerges.

A tool to help manage the uncertainty through the 2018 crop year is crop programs. Three program options exist.

Seek to understand 1) the different method by which each option manages price or revenue uncertainty; 2) the difference in yields by program option since more is known about yield than price; 3) the base acre allocation decision since payments are made on base acres; and, 4) whether it matters to you that some indication of potential payment by each program option will exist for the 2014 crop year by the March 31, 2015 program decision deadline.

32

Space precludes more discussion. Websites exist, including one I authored, http:// aede.osu.edu/crop-program-decisions.

It contains additional information and links to the program calculators and other websites.

FARMCREDITEAST.COM

ARE YOU BETTING TO WIN or PLAYING TO NOT LOSE? All sorts of farmers across the United States have or soon will be making choices about new government programs that are intended to help them when times get tough. Northeast farmers will have some new choices to think about. The list includes the new Margin Protection Program for Dairy Producers (MPP-Dairy), Price Loss Coverage (PLC) vs. Agricultural Risk Coverage (ARC) for major crops, and for horticultural, organic and other specialty crops, the Noninsured Crop Disaster Assistance Program (NAP) and the Whole-Farm Protection Program.

What the best choice is for each program is not at all obvious, for lots of sensible reasons. Even more basic than understanding your own business or anticipating correctly what will happen

A ND REW M. NOVAK O VI C, Ph. D .

Cornell University Ithaca, NY

to your markets in the next year, farmers should think about what they hope to accomplish. Are you playing this particular game to win or not to lose? It may sound like the same thing, but let’s think about how it is different.

Are you a player?

All farmers must first decide if they even want to participate in a government program. A certain percentage will just say no on the face of it. Everyone else will be trying to decide either which program to choose or what level to pick within a program. How a farm manager makes that choice is subject to many factors.

The most basic question is: What is it that I want these programs to do for me?

The expectation that farm management advisers and extension educators typically bring to this conversation is that farmers want to minimize their risks, reduce their probability of loss and/or “lock-in” a return in the event that markets are unkind. The risk management strategy begins with the assumption that the objective is to not lose.

Some farmers have exactly this objective.

These are the farmers who hedge their crop and are not particularly unhappy when market prices are higher than the price they locked in or when their crop insurance policy didn’t pay off because in fact they didn’t have a crop disaster.

Dr. Andrew Novakovic is the E.V. Baker Professor of Agriculture Economics at Cornell University. His primary focus is applied research in the field of dairy market economics and educational programs for dairy sector leaders, analysts and policymakers. Dr. Novakovic has written over 400 publications and often speaks at industry conferences.

Other farmers bring a very different perspective. For these farmers, a successful government program is one that pays them more than it cost. The Milk Income Loss Contract (MILC) was the perfect example for dairy farmers. While a dairy farmer might not collect a lot

NORTHEAST AGRICULTURE 2015 INSIGHTS AND PERSPECTIVES

of money from MILC, or only partially offset his loss in a bad month, MILC did not cost anything. The gravy might have been light, but it was all gravy. In contrast, MPP-Dairy requires farmers to pay premiums to obtain coverage beyond a low, “catastrophic” level.

For MPP-Dairy, crop insurance and other risk management tools, playing to not lose requires hard work. You need to understand your farm business and the nature and extent of the risks the farm is susceptible to in some detail and depth.

You need to think hard about the market environment for the coming year. Doing this right is neither quick nor easy, but done well it can save you a lot of grief.

For programs that allow different coverage levels, playing to win takes courage; it is not a game for the faint of heart. Winners will generally be those who go all in, who are willing to pay high premiums for the chance of high benefits. The courage comes with the knowledge that there is no guarantee that you will win. People who approach the participation decision with this goal must seriously ask themselves whether they can afford to pay the premium even if they get no benefit payments at all.

I think it is safe to say that most of us who sit on my side of the table would encourage farmers to use the risk management strategy when considering MPP-Dairy or any of the other new or existing government programs. Farmers who decide to play to win owe it to themselves to think clearly about what they are doing and reserve their criticisms of the program in the event they don’t win.

33

NOTES

34

FARMCREDITEAST.COM

ON THE FARM, IN THE OFFICE OR ON THE INTERNET, OUR ENTIRE FARM CREDIT EAST TEAM IS READY TO HELP YOUR BUSINESS BE MORE PROFITABLE AUBURN, ME Matt Senter, Manager 615 Minot Avenue Auburn, ME 04210-4052 800.831.4320 / 207.784.0193

COBLESKILL, NY Rob Yurkewecz, Manager 2668 State Route 7, Suite 21 Cobleskill, NY 12043-9707 800.327.6588 / 518.296.8188

GENEVA, NY Dale Foley, Manager 1450 Route 14 Phelps, NY 14532-9542 800.929.7102 / 315.781.7100

POTSDAM, NY Mike Haycook, Manager One Pioneer Drive Potsdam, NY 13676-3273 800.295.8431 / 315.265.8452

BATAVIA, NY Ed Urbanik, Manager 4363 Federal Drive Batavia, NY 14020-4105 800.929.1350 / 585.815.1900

CORTLAND, NY Jan Bitter, Manager One Technology Place, Suite 2 Homer, NY 13077-1526 800.392.3276 / 607.749.7177

GREENWICH, NY Chris Truso, Manager 394 State Route 29 Greenwich, NY 12834-2650 800.234.0269 / 518.692.0269

PRESQUE ISLE, ME Pete Hallowell, Manager 26 Rice Street Presque Isle, ME 04769-2265 800.831.4640 / 207.764.6431

BEDFORD, NH David Bishop, Manager 2 Constitution Drive Bedford, NH 03110-6010 800.825.3252 / 603.472.3554

COUNTRY LIVING Dave Pugh, Director 2668 State Route 7, Suite 36 Cobleskill, NY 12043-9707 800.327.6588 / 518.296.8188

HORNELL, NY Dave Van Lieshout, Manager 1155 Airport Road Hornell, NY 14843-9144 800.929.2025 / 607.324.2020

RIVERHEAD, NY Steve Weir, Manager 1281 Route 58 Riverhead, NY 11901-2097 800.890.3028 / 631.727.2188

BRIDGETON, NJ Scott Andersen, Manager 29 Landis Avenue Bridgeton, NJ 08302-4396 800.219.9179 / 856.451.0933

DAYVILLE, CT Lynn Weaver, Manager 785 Hartford Pike Dayville, CT 06241-1739 800.327.6785 / 860.774.0717

MAYVILLE, NY Jim Warner, Manager 28 E. Chautauqua Street Mayville, NY 14757-0163 800.929.2144 / 716.753.2144

SANGERFIELD, NY Craig Pollock, Manager 995 State Route 12 Sangerfield, NY 13455-0060 800.762.3276 / 315.841.3398

BURRVILLE, NY Kathryn Canzonier, Manager 25417 NYS Route 12 Watertown, NY 13601-5730 800.626.3276 / 315.782.6050

ENFIELD, CT Keith Stechschulte, Manager 240 South Road Enfield, CT 06082-4451 800.562.2235 / 860.741.4380

MIDDLEBORO, MA Cynthia Stiglitz, Manager 67 Bedford Street Middleboro, MA 02346-0720 800.946.0506 / 508.946.4455

CLAVERACK, NY Blane Allen, Manager 190 State Route 9H Hudson, NY 12534-3819 800.362.4404 / 518.851.3313

FLEMINGTON, NJ Steve Makarevich, Manager 9 County Road 618 Lebanon, NJ 08833-3028 800.787.3276 / 908.782.5215

MIDDLETOWN, NY Blane Allen, Manager 669 East Main Street Middletown, NY 10940-2640 888.792.3276 / 845.343.1802

FarmCreditEast.com