Scythe & Spade Blog

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!

Food Borne Illness: Part III

by Chas Bonner

By now you are asking yourselves “Have we not heard about this before?” Our answer is YES, and we are now repeating ourselves for the third time. We are reminded that “Repetition = Recall,” and we want all of our clients and friends to remember the import of this topic.

In a new study by the Agriculture Department at the University of Ohio, Robert Scharff has estimated that the cost of food borne illness in the U.S. is $78BB, but this is only the medical, mortality, lost time, and suffering cost. What is not included in that figure are some of the “softer” costs, but which are nonetheless there. Not the least of those is the cost to primary producers---YOU---especially if you are the producer of a tainted food. But even if you are in the same product line, you will also suffer.

In an earlier blog, we discussed the alfalfa sprouts e. coli outbreak in Germany that took months to trace to the primary producer. All other producers in that region, and any European producers of sprouts were also hurt. Likewise, the listeria outbreak on cantaloupe grown in Colorado absolutely killed the cantaloupe business all summer, as sales declined over 30%, not just in Colorado, but throughout all growing regions. Finally, there have been several East Coast supermarket chains that have decided not to have multiple suppliers, despite market pricing concerns. They now feel there is so much legal risk to selling food that they want only one supplier, and if any problems, that supplier is passed the “hot potato.”

While you cannot prevent market losses from commodity problems like the cantaloupe or sprout examples above, you can prevent outbreaks of disease coming off your own farm. We cannot overstate the danger of this, as there are simply too many examples of producers going out of business. With our population refusing to take any risks in their lives, and with the propensity to always blame others, farming is becoming riskier.

Exercise due diligence, and if needed, we can help.

Farmland: Sometimes a Strikeout

by Monte Nevitt

We are firm believers in farming, and even stronger believers in farmland investment. At the same time, we recognize that on the other side of every reward is RISK; therefore utmost care is essential.

A good example of farmland investment becoming a strikeout is Morgan Stanley investing in the Ukraine. Having made mountains of money in 2006, MS decided to up the ante, and buy some of that world-famous Ukrainian black soil, so fertile it could grow anything, and so well-reputed that Hitler had his troops haul some back to Germany during WW II. After buying 11 large parcels of the black Ukrainian soil, Morgan Stanley hired a young Midwest farm boy with a long farming background as well as advanced schooling in farming. They hit the bull’s-eye.

The new MS farm manager loaded up several containers with John Deere tractors, combines, farm implements, seeds and fertilizers, and virtually anything needed upon arrival.

Then the surprises began. First, before the containers could unload, many licenses had to be purchased, and lots of grease was needed. Much of the seed and fertilizer soon disappeared, parts went missing, and officials insisted that MS build roads as well as farm fields. Within 2 years, Morgan Stanley’s farmland investment became history.

This is a reminder to us, when we hear tales of wealth generation in Ukraine, Brazil, Argentina, and third world countries, we might look in the mirror when seeking a good investment property. Although we don’t expect 20% rates of return, we also know nothing will be expropriated, we won’t be paying bribes at every turn, and we don’t worry about theft of all inputs as well as output.

For all the red tape, regulation, checks and balances -- it is hard to beat farming in the USA, where a man can invest his blood, sweat, tears, and resources with confidence that he will see a return, weather, lender, and markets permitting!

Future Forecasts and Commodity Market Prices

by Patina Thompson

The end of summer marks the beginning of intense speculation and commodity market price tracking focusing on what futures prices will do for Fall planted crops. Farmers and other buyers of commodities use the futures to hedge against the uncertainty and risk associated with fluctuations in the price of the commodity they are selling.

In futures markets, participants buy and sell futures for a number of commodities. The futures contract is a specific price and specific date (sometime in the future) for a given commodity. A farmer may want to purchase a futures contract when they anticipate the price for a given commodity to be increasing in the future. A farmer may also want to purchase a futures contract because they need to sell goods in the future and they want to be able to count on selling those goods at a specific price (determined now).

The current (active) crops that are involved in the futures market for Fall are wheat, barley and canola. September 15th, 2011 marked the start of what the Risk Management Agency (RMA) and Insurance companies call the Discovery Period. The Discovery period is a 30-day tracking of futures prices on various markets including the Chicago Board of Trade (CBOT) and Kansas City Board of Trade (KCBT).

At the end of the Discovery Period, the RMA issues an Approved Price for active crops and this price is used by farmers and agents to determine what plans and levels of insurance they elect for the upcoming crop year. October 15, 2011 is the estimated date that the RMA will release approved prices for wheat and barley for the 2012 crop year.

Factor all these together and a farmer has many decisions to make. Not only costs associated with prepping, planting, irrigating and harvesting the crop, but also the price now, the price you may receive in the future, and how much you’re willing to risk that those changes may or may not occur. Throw in Mother Nature and fluctuations in the cost of diesel fuel and you’ve created a perfect storm.

As always, Scythe & Spade is up for the challenge and ready to help you navigate through these factors to help make 2012 another fruitful year.

P.S. An excellent resource for commodity market price tracking is www.barcharts.com

E. Coli & Agriculture

by Chas Bonner

There is probably not a person alive who has not heard of the deadly outbreak of E. coli 0104 in Germany. Although there are many strains of E. coli, most are harmless, some a minor problem, and some like 0104 that are deadly. In the United States, regulators normally have their eye on E. coli 0157 which is also considered deadly and more of a recurring issue in this country. E. coli can spread from person to person, but is usually caused by contaminated food.

There are several ways in which food can be contaminated, but the initial source is animal. The bacteria live in the gastro-intestinal tracts of cattle, pigs, sheep and other ruminant animals. From there it spreads through use of manure or through tainted water.

Like most bacteria and viruses, there are continual mutations, many far more serious, and normally more difficult to cure or mitigate.

In Europe today, many companies and even countries are making monetary claims to the E.U. for losses to agricultural producers because of incorrect blame assessments. E. coli and salmonella have also bankrupted several companies over the years, some very large, so it is not a subject to be taken lightly. Furthermore, there are increasing methods of tracking to source, not only to individual farms or ranches, but even down to precise areas. When problems like this develop, plaintiff lawyers follow, so we cannot overstate the importance of diligence, tracking and documenting.

Due Diligence is one of the core competencies of Scythe & Spade, and not only do we track water rights, but also water quality, quantity and delivery systems. Water is fast becoming the most important aspect of farming on irrigated lands.

To Sell or Not to Sell

by Chas Bonner

The $64,000 question:

U.S. farmers are aging, with average farmers over 57 years old, and now they are facing that question---probably the biggest of their careers. Do we sell the farm that has been in our family for generations, do we sell part of it to liquefy, do we rent out to professional managers, or do we let our “un-tested” children take over?

First, remember one thing: If you are faced with that decision, consider yourself lucky. Most are merely faced with the decision of retirement and having nothing to sell, plus wondering when their Social Security will run out.

Farming and ranching are usually occupations that chew up capital, leaving owners cash-poor and asset-rich. Therefore, the necessity of an exit strategy---the subject of our blog a few months ago. Our best advice would be to consider this early, looking at absolutely all aspects of the decision. We have all heard the maxim that “timing is everything,” and a farm sale decision is a critical timing question. My 20 year history in the merger/acquisition business demonstrated that maxim in spades: Out of many businesses sold over 20 years, 95% were over their peak; owners simply waited too long to pull the trigger. Perhaps that was evidence of another maxim: “Pigs get fat, but hogs get slaughtered.” In short, plan your work, then work your plan, even if 20 years away.

Another opportunity that is a combination of selling and holding, AND avoids the “cash-poor, land-rich” dichotomy is to sell part of the farm, perhaps to family members or to other farmers or to farming organizations. That strategy would enable you to liquefy your holdings, maintain input into direction, and provide an exit when too old to farm.

Finally, and perhaps most important, consider market context. If everyone is buying, now is the time to sell, partially sell, or rent. If on the other hand, everyone is selling, consider a buy. That is “industry timing” context. Next, if you see industry sale timing coming, prepare your farm to look like Grandma’s Apple Pie---“specific entity” context.

Don’t try to do this alone. There are countless services, attorneys, accountants, farm advisors who will provide valuable input.

Winter Forecast

by Patina Thompson

Much of agriculture hinges on hedging your bets against the weather . . the unpredictable, harsh, irrational but oftentimes mild weather. Timing is essential in farming and having the right weather at the right time impacts the costs for fuel, fertilizer, pesticide and seed. Having the wrong weather at the wrong time can be even more devastating. Everything from planting crops to harvesting crops depends on the daily weather cycle and extended forecasts.

Scientists with the National Oceanic and Atmospheric Administration (NOAA) track the temperature of the surface waters in the tropical Pacific Ocean typically over a three to five month time frame. This data is analyzed and used to predict the occurrence of a La Niña or El Niño weather event. The water temperatures tend to be warmer than normal during an El Nino event and cooler than normal during a La Niña event. These variations of temperatures cause noticeable weather impacts in the United States, which vary from season to season. History shows that El Niño and La Niña systems alternate through the years although the length of each is certainly variable.

A La Niña system developed in mid 2007 and lasted until early 2009 followed by an El Niño system May 2009 through April 2010. The warmer and cooler trends directly relate to the North central states, so the warmer El Niño creates the opposite effect of a cooler winter in the Southeast and Southwest. Therefore a La Niña event, which we are currently experiencing in Arizona, holds true as the early winter of 2010 has shown to have warmer than normal temperatures, and a wetter summer.

Other predictors indicate a change in the coming months as the “real” winter storms arrive resulting in a delayed planting season in March and April 2011 due to frozen soil conditions. March is expected to be a particularly brutal month of arctic temperatures and winter storms across North America. However, the Farmer’s Almanac predicts for the Western states to see a “kinder and gentler” 2010-2011 winter overall compared to the winter of 2009-2010.

Whether the warm continues or the cold stays put, as we have seen time and time again in the agricultural industry . . . it all depends on the weather.

Red State/Blue State

by Chas Bonner

At times the comparisons get overworked, but since we operate primarily in the Intermountain West, regarded as Red States, we notice the more outlandish comparisons, and consider ourselves lucky to live and work in Red States.

The October 23 edition of the Wall Street Journal published an article entitled “WASHINGTON vs. OREGON: A Case Study in Privatization vs. State-Run Insurance.” At present time, all workers’ compensation in Washington is underwritten by a state agency---a monopoly, but in Oregon, workers’ compensation was privatized many years ago.

Some astounding differences in the results posted by both states:

• In Washington, a worker with a time-loss injury misses an average of 270 days of work; in Oregon, the average is 70 days.
• In 2007/08 Washington pensioned 3600 workers with permanent disability; Oregon pensioned 24.
• Despite a 52% decrease in job injuries in Washington since 1990, insurance taxes have escalated 53% in 10 years; Oregon premiums have not risen in over 20 years.
• West Virginia privatized worker’s compensation insurance 5 years ago. Two hundred insurance companies have moved in, and rates are now 30% lower than when the state had the monopoly.

Yet more reasons why so many businesses are moving to business-friendly, RED states.

Accounting for Decision Making

by Danielle Stephens, Head of Accounting and Finance

Farm operation management continues to become more and more complex. While success has traditionally been measured by increasing production, higher production does not always lead to higher profits or a higher net worth. Like any business, raising production (or providing additional services) requires additional input costs (building new facilities, purchasing additional equipment, hiring more employees, etc.). Other considerations include whether financing is necessary for expansion, the cost of financing (high vs. low interest rates), and whether the market can endure increased production (potentially leading to decreased commodity prices).

There is risk involved in the decision to increase production or maintain the status quo. However, managing farm finances has the greatest potential for adding profits and financial stability to the operation. Financial analysis may show increased profits for the increased production or analysis may show that the farmer would be financially better off maintaining the current production level. If the increased revenue received from additional production exceeds the costs necessary to increase production, the operator may have created a profitable situation. At the same time, opportunity costs must also be identified and analyzed.

In today’s farm economy, increased production and hard work cannot guarantee success. Keeping good records and constantly monitoring the financial condition and performance of the business is required. The key to agricultural success lies in identifying the highest sustainable output of resources; both natural and financial. The result is a maximized return on investment that you can count on for years to come.

“HOLY HAIL”

by Patina Thompson

It’s no secret that the massive storms that came through central Arizona on October 5th were intense and caused extensive and widespread hail damage on cotton crops. The timing of hail damage is critical in deciding what to do, and is often a difficult decision. In fields with questionable stands, there are several things to consider before making a replant decision.

1)  What is the calendar date?

Mid-summer monsoon storms that cause hail damage could be early enough to allow replanting, but a hail storm this close to picking can be catastrophic.

2)  What is the population of plants that will survive?

A good yield can still be obtained on a low plant population.

3)  What is the health and damage level of the remaining plants?

Determine what percent of the field is damaged and what percent have a terminal versus what percent are cut off below the cotyledon node. Those cut below the cotyledon node will probably not recover. Damaged plants may survive but mature later and be susceptible to insects and weather.

4)  And perhaps most important, is insurance in place to cover the crop loss?

Many insurance options are available with different coverage levels. Multi-peril Crop Insurance (MPCI) covers adverse weather, such as hail, and separate, privately-offered crop-hail policies are also available on cotton crops in Arizona. Your crop insurance agent should be contacted and a Notice of Loss (NOL) should be timely submitted within 48 hours of the storm event. A NOL should be submitted under both your MPCI and Crop-Hail Policy (if applicable) ~ it’s better to be safe than sorry!

Should you need some advice after this untimely hail storm, please call me at 1-520-507-2220.