THE Hitching Post
There is concern that rising tensions with China could disrupt or further weaken realized exports. Most U.S. ports showed significant decreases in container handling over the last several months versus last year, over the same period. As an example, the Port of Los Angeles saw a 43% drop in February 2023 compared to February 2022.
Fuel costs will continue to be higher than recent years, at least in the short-term and possibly longer-term, even with crude oil back in the pre-COVID price range. Information from the U.S. Energy Information Administration shows that the No. 1 U.S. diesel fuel price is projected at $4.23/gallon in 2023, down 15% from the 2022 average of $4.99/gallon. The historical average price from 2017 to 2021 is $2.95/gallon. These continued high fuel prices impact agricultural production, manufacturing and shipping of all inputs and products.
The increase in fuel prices seen in recent years has been the result of refining capability issues as compared to supply issues; this is based on several observations:
AGRICULTURE INDUSTRY INSIGHTS & PERSPECTIVES REPORT
Land values have generally increased over the past several years and the increase is not necessarily due to productivity. Competition for land has increased. The solar, wind, and gas industries are rapidly acquiring land, as are investors. Residential buyers are driving demand for farmland, too, as the desire to live in rural areas is increasing. Land rents have also seen significant increases due to competition. Liquidity in the market has allowed higher prices to be paid for land and land rents. Government payments during COVID-19 helped contribute to the liquidity in the marketplace. Additional borrowing capacity was available to individuals from the liquidity, or the debt that was paid down from the liquidity. Whether land prices continue the upward trend is unknown. Increased interest rates would tend to slow the upward trend; however, in the recent short term, it has not. Only time will tell were land values go, but land values have a substantial impact on farms and their balance sheets.
• Diesel inventories remain low in the U.S.
• Prior to the Ukraine conflict, Europe imported more than 10% of its diesel with more than 50% of that coming directly from Russia. French refineries have been shut down due to strikes.
• Several U.S. refineries did not come back on-line for diesel/gasoline production after COVID shutdowns, including one refinery on the East Coast. The higher cost of acquiring crude oil (especially on the East Coast), a projected future demand, and an unwillingness by refiners to make billions of dollars in investments for which returns are questionable all contributed to refinery closures.
• New refining capabilities are limited and few are planned for in the U.S.
• New ship builds are favoring finished petroleum products versus crude oil vessels. Crude oil vessel orders are also significantly off their historic numbers.
Finally, in 2023 a new federal Farm Bill is due. Every five years Congress passes legislation that sets national agriculture, nutrition, conservation, and forestry policy. It is important that the agricultural industry is engaged in this process, providing input on issues important to agricultural producers and the supporting industry.
Highlights from the February 2023 Farm Income Forecast. https://www.ers.usda.gov/topics/farmeconomy/farm-sector-income-finances/highlights-from-the-farm-income-forecast/
Outlook for U.S. Agricultural Trade. https://www.ers.usda.gov/topics/international-markets-u-s-trade/u-sagricultural-trade/outlook-for-u-s-agricultural-trade/#:~:text=U.S.%20Agricultural%20Exports%20in%20
Fiscal,Billion%3B%20Imports%20at%20%24199.0%20Billion
The Port of Los Angeles. https://www.portoflosangeles.org/references/news_031723_feb_ cargo#:~:text=February%202023%20loaded%20imports%20reached,year%2Dover%2Dyear%20decline.
Gasoline and Diesel Fuel Update. U.S. Energy Information Administration. https://www.eia.gov/petroleum/ gasdiesel/
Natural Gas Production Report. Independent Fiscal Office. http://www.ifo.state.pa.us/download. cfm?file=Resources/Documents/NGPR_2022_Q4.pdf
In addition to lending, Farm Credit strives to provide knowledge and expertise in agriculture to holistically serve its members. Horizon Farm Credit staff compiled a comprehensive Industry Impacts report that provides information for farmers, addressing the dynamics in their industry and they key factors influencing it. A summary of the report is provided here. The complete report, including special sections on the dairy, forest products, grain, and poultry industries, is available by contacting Raechel Sattazahn at 888.339.3334, extension 5047.
2022 was a strong year for many in agriculture, however it was not without challenges. Inflation, interest rates, labor, fuel costs, supply chain delays and trade are just a few of the many factors impacting agriculture. Additionally, certain sectors of agriculture combatted other issues such as Highly Pathogenic Avian Influenza (HPAI) within the poultry industry and invasive pests in forest products and crops. While net farm incomes are expected to drop in 2023 as compared to the highs of 2022, agriculture in the mid-Atlantic region is expected to have another solid year.
Farm Credit is proud to have served agriculture and rural communities for more than 100 years and remains committed to supporting future generations of farmers across our territory. We’re more than just your lender; we’re your partner.
FARM ECONOMY CONSIDERATIONS
Net farm incomes are expected to drop in 2023 as compared to the highs of 2022 but should still be above average. The USDA Economic Research Service (ERS) forecasts Average Net Cash Farm Income (NCFI) to be down 17.7% in 2023. The decline spans all types and sizes of farms. No farm sector is expected to increase NCFI in 2023. The livestock sector is forecasted to see the greatest declines, with dairy leading the group with a forecast drop of 39%.
Current drought conditions in mid and western U.S. are expected to improve, but at a slow pace, and may impact forecasted cropping acres.
The industry is being impacted by poor supply chain elasticity, particularly with farm equipment. The days of ordering new equipment and having it available are gone. This ripples into the used equipment market and will tighten the ability of producers to invest in equipment and replace equipment in a timely manner.
Global conflicts continue to wreak havoc on grain and energy markets. Though the Black Sea Grain Initiative has been established, it has had little impact on moving grains at a substantial level. Energy costs, while down from highs last year, are still rippling through multiple input cost sectors for agricultural commodities.
While exports were strong in 2022, they are expected to soften in 2023. USDA ERS forecasts predict that ag exports may dip below imports this year, which does not follow the general historical trend as shown in Exhibit 7. China is forecasted to remain as the largest market for U.S. agricultural exports at $34.0 billion.
PRESORTED STANDARD U.S. POSTAGE PAID COLUMBIA SC PERMIT 1160 Ag P ro gress Days
300 Winding Creek Blvd. Mechanicsburg, PA 17050
Photo Courtesy of Penn State’s College of Agricultural Sciences
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SUMMER 2023
Story continues inside.
Take the first step and apply to win a $10,000 startup grant.
The farm business of your dreams no longer has to be just that – a dream. Turn it into a reality through Farm Credit’s JumpStart Grant Program.
If you have started your operation within the last two years or plan to start within the next two years you may be eligible to win one of our $10,000 grants. Apply today and allow us to invest in you and help support the growth of a new generation of farmers and ag business owners.
To receive a printed application through the mail, please call 888.339.333 and ask for Johanna Rohrer.
Historic Mill Holds the Key to a Family’s Dream
After nearly 30 years of research and plans, including a lengthy mill restoration project, John Nolt, a dairy farmer from Union County, PA, realized his dream when he and his family opened The Old Mill Creamery.
“When started milking cows in 1993, remember telling my mom that I wanted to direct market to my neighbors,” explains John. “I went to directmarket conferences, read articles and visited other dairy processing facilities. I even drew up where would build a creamery on our farm, but a floodplain prevented that idea. It was a long journey of learning.”
A local mill, located a half mile from the Nolt’s farm, eventually helped bring John’s dream into sharper focus. Through its 193-year history, the mill survived multiple fires, owners and purpose, from foodgrade flour production to a ceramics business. The most recent mill owner approached John and his sons to help restore the building. Over two years, the Nolt family cleaned out the mill and began exposing the building’s old brick. When that owner died in 2015, the mill was again for sale.
“We bought the mill in December 2017,” John remembers, finally locating a home for his creamery. “The following spring, our three sons went back to work on the mill restoration.”
As they developed blueprints and construction plans for a dairy processing facility and creamery retail store, building code interpretation, floodplain issues and permitting challenges arose, primarily because it an old building construction project. Family health issues also stretched the creamery timelines. “At one point, we held a family meeting to discuss if we should keep moving forward,” Johns says. “We all decided that we wanted to make it work.”
“Farm Credit, our lender, had patience with us as worked through all our project and family issues. They stayed the course,” he continues.
Opening the Doors
The Nolt family persevered and in June 2022, The Old Mill Creamery opened to the public featuring hard ice cream, milkshakes and bottled milk. “We have ice cream flavors like grandpa used to make,” smiles John. “The fun part of our small business is that customers can dream up flavors too.” While vanilla
remains the top seller, it’s followed closely by peanut butter oreo cookie, a flavor designed by John’s wife, and salted caramel pretzel. A drive-thru window “makes milk convenient,” according to John and also supports their specialty coffee drink line.
Our mission is to make a product that people enjoy, at a place they enjoy,” John notes. The store provides ample seating inside or outside and “allows a group of friends to meet up with face-to-face time instead of Facebook,” he says.
In addition to ice cream and milk varieties (full-fat, reduced fat, skim and flavored, including orange), the retail store also features other local food products from neighboring counties such as freezer beef, yogurt, and homemade potato chips.
A team of 11 part-time employees, peaking during the summer, powers the creamery. “We have the best team anywhere,” John explains. “We all collaborate and make it happen.” John’s family is active in leading the business, too. One son manages the processing operations and another son manages the farming operation. Approximately 50% of the milk produced by their 60 cows is processed at the creamery today with plans for additional product lines in the future.
Word-of-mouth, occasional local advertising, and a business Facebook page drive traffic to the Old Mill Creamery. “Our first summer, we learned that local folks bring their visitors to the creamery. We had visitors from Tennessee and Florida in the same day,” he explains. “This summer, we’re excited to be a stop on the popular PA Ice Cream Trail.”
Reflections
John advises anyone who is considering a direct-market business to do their homework. “Put on the miles visiting facilities,” he says. “The more recent the facilities you visit, the more beneficial because those businesses have jumped the hoops to open.”
“I also learned that both the time and cost of distribution can be a pitfall for small business,” recalls John. “We sell as much as we can at one location.” While the Nolt family does bottle milk for a few clients, milk is picked up at the creamery.
“If you have a dream to direct market, there will be times it’s a nightmare,” laughs John. “You have to find a road forward. It’s not a sprint to get into direct marketing; it is a marathon. You don’t have to be crazy to do it, but it just might help.”
888.339.3334 | HorizonFC.com 888.339.3334 | HorizonFC.com SUMMER 2023
You have to find a road forward. It’s not a sprint to get into direct marketing; it is a marathon. You don’t have to be crazy to do it, but it just might help.
Sometimes everything you want is on the other side of a Jump.
888.339.3334 | horizonfc.com/jumpstart
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