Scythe & Spade Blog

Natural Gas & Agriculture

by Monte Nevitt

Natural gas prices are the lowest they have been in a decade.

Gas production is booming, having increased over 10% in just 2 years’ time. As is true of any commodity, overproduction equals reduced prices. Hydraulic fracturing, or “fracking” is a new technology that has opened millions of acres of shale rock that holds a great deal of gas, and it can finally be accessed. The number of rigs to access that gas has also increased as has the amount of acreage.

Because natural gas is the primary source of ammonium nitrate, the basis of nitrogen fertilizer, the dramatic reduction in gas prices should augur well for fertilizer cost. At the same time, other elements in fertilizer, namely potassium, phosphorus, magnesium, calcium and sulfur are getting harder to find and mine, so it is a pure conjecture where fertilizer prices might go. Luckily, fertilizer production accounts for a mere 2% of US output of natural gas.

There are other influences that will drive up the cost of fertilizer: 1.) Many of the dead plumes in river estuaries are blamed on nitrogen fertilizers; 2.) nitrous oxides in the air are far more deleterious than carbon dioxide, and most research indicates over 70% of nitrous oxides are the result of decomposition of nitrogen fertilizer; 3.) a problem recently discovered is that nitrates and nitrites that are finding their way into water tables, and that will prove a very expensive fix.

As one Newton’s Laws says, “For every action, there is an equal and opposite reaction.”

Sight or Vision

by Chas Bonner

“Sight is the ability to see the physical world while vision is the gift of seeing beyond it.”

This must be one of the best descriptions ever, of the difference between sight and vision. When looking at things around us, if we have vision we see more than objects and grow in knowledge. We can see, feel, and understand what is happening in our immediate world. Even though blind people cannot see a thing, they are always reported to have a better sense of feel and understanding. They can envision events before they happen.

If any farmer or rancher expects to be successful for his entire career, he/she must have long-range vision, expectations, and a map to arrive at the planned destination.

One of the best ways to gain insight or vision is through constant observing, reading, learning, all of which leads to an outlook of the future. While we may not be able to alter the future of the world or our industry, we can certainly alter our actions when we have a vision of the future.

At Scythe & Spade, there is a heavy focus on developing vision of farming. For instance, when doing due diligence studies we review water, sprinkler systems, soil, land use, crop histories, environmental issues, and anything that might affect the success or failure of that farm. But those are only action steps in the process, whereas the real goal is a complete understanding of the potential of that farm, given not only physical attributes, but also markets, political pressures, population movement, and a myriad of other outcomes that are a result of good vision.

Weed Control

by Patina Thompson

 

With the high demand for alfalfa and nearly non-existent supply, a weed control program incorporating grazing animals in early spring can benefit both the two-legged and four-legged parties involved. This organic version to weed management can be used to minimize the spread of certain weeds and to control large infestations. It’s a great option for cleaning up weeds on field borders or corners on overwintering bermuda and alfalfa crops.

 

Livestock grazing can be an effective alternative to herbicide use and can be utilized when weeds are located in areas where other control methods are impractical. The ability to fence problem areas and apply grazing pressure at early stages of weed growth is often the key to weed control. The length of grazing, stocking rates and field rotation are also important.

 

Cattle, sheep and goats are the most common animals used for grazing pasture weeds, with each having their pros and cons. It’s important to not only identify and target your problem weed, but match it to the correct grazer since some plants are less palatable to certain livestock.

 

Cattle prefer grasses and tend to avoid forbs and shrubs. Their larger hooves not only compact a larger surface area of soil, which may be wet due to recent irrigations, they can also cause more damage to young, tender, emerging shoots.

 

Goats can control a large number of spiny and prickly weed species generally untouched by sheep and cattle. Goats have also been used successfully on brush control.

 

Grazing by sheep is probably the most popular method of biological weed control. Sheep prefer broadleaf plants (forbs) and weeds over grasses and shrubs. Being physically smaller, they can be transported easily and overall offer the most efficient choice for weed control due to their ability to adapt easily to a variety of weed species, including poisonous plants.

 

Although grazing in itself does not necessarily kill the plants, it will prevent seed production and may lead to a depletion of root reserves and plant vigor, leaving more soil and space reserves for agricultural plants. As with most management decisions, the costs and benefits of each must be addressed and analyzed. In this case, the farmer can get a head start on the blooming weeds that compete with his agricultural crop, and the livestock owner can get some inexpensive feed, a benefit to all!

Technology and Farming

By Lori Evans

People outside of the agricultural community typically have a narrow view of the everyday farmer. Growing up, when I told people my dad was a farmer, they would assume that meant he was not highly educated nor was he current on today’s technology, but they were wrong. My father has shown me how the average farmer is highly educated and has become extremely technologically advanced, harnessing today’s technology to ease some of the daily stress of farming. I have been repeatedly surprised by how much technology has become integrated into the farming community. No longer is the farmer reliant on having to just drive the tractor, but the tractor almost drives itself with GPS guidance systems. In a recent article in the Delta Farm Press, I read that John Deere has developed a baler-mounted hay moisture tester to inform the farmer whether the hay is too dry or too wet. In a recent edition of the Capital Ag Press, I read how farmers are now utilizing smart phones TO manage irrigation on their farms. They no longer have to drive from field to field, starting or stopping a pivot, changing the rate of flow or the speed of the pivot. He can do it all from the comfort of his tractor seat with his smartphone.

Here at Scythe and Spade Co., we are up on technology and down to Earth.

Calculated Leverage

by Monte Nevitt

One of the significant points made in this year’s Urban Land Institute conference held yesterday is that banks have cheap money available for land deals but no one appears to qualify. The bank’s dilemma? They can’t find credit-worthy borrowers. The downturn has left so many of yesterday’s landowners upside down in the greater Phoenix market that the previous players don’t qualify for loans today. It is ironic that the patient and disciplined farmer, who decided to stay on the sideline during the irrational exuberance that was displayed during the last boom is the very individual who is now going to his lender to qualify for the loan to buy back the farmland.

Strong commodity prices, coupled with depressed land values leave today’s farmer with an opportunity to leverage to increase the production and revenue, to address loan payments, to replace aging equipment, or to expand the size of the operation through purchase. In some cases we see dairy farmers buying land, not so much because of a desire to expand – but rather to shore up acreage on which to raise hay to bring their feed cost down.

Ninety five percent of the last thirty five land deals done in Pinal County were closed by farmers or ag related entities.

An article in last Friday’s Phoenix Business Journal highlighted the use of leverage in today’s favorable ag climate to expand and to improve the agribusiness bottom line.

Of particular note in this article is that the Journal highlights a farm purchase in which Scythe & Spade played a key role. The opportunity presented itself for a purchase and expansion onto 1,000 acres in the south Coolidge market. The deal would require a 30 day close. It also required two separate appraisals, a bridge loan of $5.4 million, preparation of material, due diligence, and budgets for a loan underwriting committee, shared well and ditch agreements????, opening and closing escrow, all in a 30 day time period!

Scythe & Spade was able to open its files and due diligence binders, plot in and pull down GIS maps on the property, update budgets, provide materials to appraisers, loan officers at M&I, and to the buyer, coordinate a 1031 exchange, and close escrow by the 22nd of December. In short – the seller , the buyer, the lender, the appraiser, the neighbor/partner, and Scythe & Spade all ended up looking good on the deal.

Take home point: because of Scythe & Spade’s ability to coordinate the deal, this farm family was able to seize a unique opportunity, come to alevel of comfort on a very shortened feasibility, acquire a loan from a cooperative BoM/Harris Bank, and be poised to take advantage of a forgiving commodity market going into 2012 on an expanded acreage.

Water Wars

by Monte Nevitt

Water is a key ingredient, if not THE key ingredient in agriculture, and even more so in the arid Intermountain West and Southwest. We pay a great deal of attention to it as the lifeblood of our industry and lives.

There is an interesting book published by Alex Prud’homme in 2011 entitled “The Ripple Effect” which discusses water mis-use, over-use, waste, contamination, and lack of attention paid to the commodity. Because we have historically had water, why worry?

Most of us are keenly aware, or should be, of many of the issues outlined in Prud’homme’s book---deserts moving north around the world, dead zones in the sea water at the effluent of all major rivers, decaying infrastructure of supply and sewage disposal in most major cities, aging dams and canal systems delivering water to farms, and finally, only about 1% of the world’s water is fresh and liquid.

A familiar sight for those who have visited the administration building at Salt River Project (SRP) is a painting of a Zanjero, on horseback, armed with a rifle, guarding a weir box at a water distribution point. At one point it was a justifiable homicide in the west to take a life over water. One of Prud’homme’s theses is that in the future there will be wars over water; something we all recognize is probable with growing populations, and shrinking availability of water and quality water. He does feel that the primary problem is associated with water quality, and is a result of total mis-management of the commodity and delivery systems.

Recognizing the truth of water mis-management, Scythe & Spade focuses much of its effort on water, including water rights, availability, and mostly how to reduce usage. Knowing that agriculture uses 70-80% of all water in the US, and even more in the Southwest which is in the middle of a long-term drought, all farms are in the gunsights. It is not a matter of IF we reduce use, it is simply WHEN and HOW we proactively implement water reduction strategies.

Sustainability & Profitability

by Chas Bonner

Conventional wisdom says the two words are oxymorons.

After all, virtually all governments are trying to impose environmental controls, cap and trade programs, water use reduction, sewage clean up, and more. The Kyoto treaty was one of the first world-wide treaties committing many countries to global warming initiatives (and the U.S. was non-signatory to that treaty). Then there was a similar treaty in 2009 in Copenhagen which was a flop. A year later a climate meeting was held in Cancun, and few showed up. The latest one was in Durban, South Africa in November, and nothing substantial resulted. In short, few governments, let alone the U.N., have been effective in forcing climate control on any country.

However, business has seen much more positive results. The accounting firm of Ernst & Young recently quizzed heads of 300 international companies, and surprisingly, 83% of them were in favor of legally binding treaties to mitigate global warming. Even more surprising, most of them were already investing heavily in the arena, AND on a profitable basis. Improved energy consumption has been the most notable, but reduction in waste has also proven profitable. Being “Green” is making green.

As an example, Wal-Mart intensely planned out their transport system, and reportedly are now saving about $200 million per year. Tesco, the big British supermarket firm has taken similar steps, and claims to be saving almost $300 million per year. The Carbon Disclosure Project which charts energy emissions of over 500 large companies now reports that 59% of energy efficiency projects undertaken will be profitable within 3 years---a 33% rate of return. That is profitability.

Closer to home, Scythe & Spade was hired to manage a very large farm in Central Idaho which was a mess, and after wells, pumps, sprinkler systems, ditches, etc. were repaired and revamped, return on the farm more than doubled, much of that due to water savings.

A HAPPY NEW YEAR TO ALL!

Agricultural Revolution

by Danielle Stephens

We have done blogs in the past about sustainability, commodity prices, future food sources and shortages, and what it all means to farm owners and employees.

Doing more research on the subject has been most interesting, and one of the best sources of long-term outlooks has been McKinsey & Co., a recognized expert in future planning, and not just for the agriculture industry, but for all business.

McKinsey recently published two interesting articles, one entitled “A New Era for Commodities” and the second entitled “The Next Agro-Industrial Revolution.” Of paramount importance (facts we all know but bear repeating):

• Over 200 years ago, Thomas Malthus wrote that growing populations would eventually die out due to starvation, pestilence, or war. The Industrial Revolution disproved his theories---or as we increasingly hear, maybe just postponed them.
• In the past century, commodity prices continually declined on a constant dollar basis because of better efficiencies and discovery of new sources. In the last decade however, commodity prices have steadily increased, and show no signs of later decreases.
• In food commodities, increasing populations, growing middle classes, reduced land availability, reduced water, and slowing productivity increases will exacerbate shortages and keep prices high on a relative basis.

We encourage our readers to go to both McKinsey sites. They are quick reading.

While knowledge of the facts and theories is critical, of more importance is “What do we do with the information and how do we increase opportunity and decrease risk?”

At Scythe & Spade, one of our company goals is that all team members keep abreast of industry developments and know how to improve productivity while reducing costs. I am personally reminded of a book written by Andy Grove, former CEO of Intel Corporation, entitled “Only the Paranoid Survive.” Fear is a great motivator and forces continual improvement.

Thanksgiving

by Chas Bonner

In our blog last week, we discussed what is right in America and the world.

Our short blog in this Thanksgiving week is based upon yet more good news seen in the December issue of Popular Science magazine. One of the 2011 Grand Award Winners for new scientific advances was Forage Boost, a microbial soil enhancer reportedly containing over 1 Trillion living microbes per milliliter. According to Popular Science, Forage Boost can substantially reduce or even eliminate the 180 million tons of worldwide nitrogen fertilizer use, blamed for causing algae blooms that kill aquatic life. It also increases productivity of land by 20%, decreases water run-off by half, and therefore reduces water use. It has been in development for over 10 years.

Because the product is so new to the market, there was little news in Popular Science. Therefore we urge you to check out the website of the developer: www.sumagrow.com.

Good news is always good at Thanksgiving time.

We wish all of our clients, customers and friends a wonderful Thanksgiving, and recognition of the bounty for which we can be thankful.

Fish & Agriculture

by Patti Jo Hardwick

Yes, there is a connection between fish and agriculture, and not just fish farming. Some of the connection is positive, some negative, but it all proves the inter-connection between most segments of our economy and our lives.

Having lived in Oregon for 15 years, I have grown more and more aware of the ocean fisheries and of the fishers whose livelihood depends on the health and sustainability of that industry. Therefore, when seeing a study done by McKinsey Company management consultants, I read it with keen interest.

McKinsey worked with the Food & Agriculture Organization of the U.N. and with the University of California at Santa Barbara for a long time. Their conclusions were that marine ecosystems around the world are broken, that fish are overexploited, and it probably cannot be stopped because over 180 Million people world-wide derive some or all of their living in an industry producing over $500 Billion in revenue per year. Most of the world’s population lives near the sea, many of them in the developing world where they rely heavily on the consumption of the animal protein for their food supply; without which could mean starvation. While the World Bank estimates that sustainable fishing might increase yields by 10-20%, if done, it would mean reducing catch rates dramatically in the beginning, and carefully controlling output around the globe forever, something improbable, if not impossible to achieve.

If a large source of protein in the human diet is depleted, where will it be made up? Given the critical need of those developing countries, plus growing middle classes around the world demanding more protein, where will it be found?

This is another example of the importance of agriculture today and forever. What is lost from the sea must be replaced from the land. We are thankful to be in the business, and hope to continue contributing to its success.