Agency reports rising prosperity across agricultural economy

By JOHN O'CONNELL

Capital Press

The roof covering one of Dirk Parkinson's older spud cellars collapsed at an opportune time.

The St. Anthony, Idaho, seed potato grower leveled and rebuilt the cellar in June. Since he was already replacing one, he went ahead and rebuilt two other weathered cellars.

Like many farmers and ranchers throughout the country, Parkinson has had the wherewithal to reinvest heavily in his business lately. Statistics show 2011 was another banner year for U.S. agriculture.

Parkinson's equipment purchases this year included a new sprayer and tiller, and he's got a potato digger and a six-row windrower on order. He invested another $100,000 to improve the efficiency of the system that pumps water to his fields from a canyon carved by the Teton River.

"When it's tough out there, you survive on what you've got and you don't do anything new," Parkinson said. "I nailed a couple of good contracts on seed and decided it was time to buy."

Farm income up

The USDA Economic Research Service forecasts net farm income will increase by 28 percent this year. The measure, which reflects income from production in a given year regardless of when crops are sold, will reach $100.9 billion for 2011, up $21.8 billion from the previous year.

Net cash income, encompassing only cash transactions within a calendar year and a measure of a farm's ability to make payments, is forecast at $109.8 billion, up $17.5 billion.

The ERS report indicates 2011 will be the first year both measures of farm prosperity will exceed $100 billion, and the net value agriculture adds to the U.S. economy and net cash income are both at their highest levels since 1974 when adjusted for inflation.

Local equipment manufacturers and salesmen are sharing in the farmers' good fortune.

"I know the implement dealers, all their lots are fairly empty," Bingham County, Idaho, potato farmer Steve Christensen observed. "I think the potato, even the wheat and hay farmers, have been fairly strong."

Parkinson bought some of his new equipment from Spudnik in Blackfoot, Idaho, which is now booked solid through 2012. His relatives have assured him their preferred manufacturer, Double L in American Falls, is just as busy.

Spudnik has increased its labor force this year at the Blackfoot plant from 200 to about 240 workers to accommodate the sharp increase in production demand, said Andrew Blight, who works in sales support for Spudnik.

"As it stands right now we've had a tremendous increase in booking for the 2012 year and we're taking orders for 2013. We can't get it built fast enough for them," Blight said. "This is unprecedented. We have never had this experience before, and I've been here almost 30 years. Probably the closest we've seen to this style of need by the growers was in the early 1990s."

John Aeschliman, who farms in Colfax, Wash., sold much of his wheat around harvest time, when prices were approaching their peak. Wheat has dropped recently due to larger-than-expected global production.

"I think this good wheat price has really helped a lot of growers. They're retiring debt and they're replacing machinery that's 20 years old," Aeschliman said. "I've farmed for a long time and there's never been years likes these last two or three years in my lifetime."

Though times are good, Aeschliman also emphasized fuel and fertilizer prices are up, and growers aren't "rolling in dough" as consumers might suspect.

He'll use this year's profits to retire debt.

"I'm a cash flow type guy. If you retire debt, you can cash flow better and that allows you to invest," Aeschliman said. "When the years are not as good as they are now, why then if you've been a wise financial planner you've got a cash flow that will cover you during lean times."

In California, where a few hundred different crops are produced, some commodities are bound to struggle at any given time, said Dave Kranz, a spokesman for the California Farm Bureau Federation. Though dairy prices were strong in California, Kranz said some producers struggled because of sharp increases in production costs. In general, however, Kranz said 2011 was a strong year for Golden State agriculture.

"The ag economy continues to be one of the real bright spots in California as our state comes out of recession," Kranz said.

Nuts, including almonds, walnuts and pistachios, had a solid year. Prices were also high for raisins, wine and table grapes.

Kranz believes two consecutive good water years have significantly helped California agriculture.

"That is really a huge contributing factor for a lot of farmers and ranchers," Kranz said. "This rainfall season is starting out a little bit more slowly."

The Sonoma County Wine Grape Commission experienced high prices in 2011 but saw declining production among its 1,500 growers due to a short season.

"There are a lot of growers who were down 30 percent, and I'm hoping countywide we're only down 20 percent, but I think that might be conservative," said Nick Frey, president of the commission.

Looking forward to 2012, however, Frey said there's reason for optimism.

"We had two years where there weren't any buyers, and now people are out contracting, and I think that's a good sign," Frey said, adding the bulk market for wine is now at an 11-year low.

Spending

As good as times may be, Oregon economist Bruce Sorte has found farmers are still being conservative in their outlook and making prudent investments.

"The investments in agriculture -- in the operation of the farm -- are going real well. The spinoffs, the guy who buys the new diesel pickup, those aren't going so well," Sorte said. "It's not like they're going out and remodeling the kitchen."

Many farmers are making significant equipment upgrades but are opting for used machinery, he said.

"I talked to a guy at a farm equipment auction. He was going to spend some money, but he wasn't going to go whole hog," Sorte said, adding an uncertain agricultural labor outlook has likely tempered spending.

Spending by farmers has been fueled by low interest rates and equipment tax incentives that may not be renewed, according to Washington State University agricultural economists Thomas Marsh and Mike Brady.

"If you're thinking about investing in equipment, now there is some opportunity," Marsh said. "A year or two down the road some of those opportunities may disappear if they change tax law."

Two key sectors in Washington agriculture, the dairy and cherry industries, have recovered in 2011 from significant declines a couple of years ago, Brady said.

Globally, he lists a multitude of factors that should provide long-term upward pressure on prices, including: a growing world population, strengthening economies in countries such as China, and the use of crops for biofuels and other nonfood uses.

He said favorable exchange rates in foreign countries and new trade agreements are also driving up export demand.

"Things are settling down, but they're settling down to historically high levels," Brady said.

The Washington fruit industry in general has been strong, Marsh said, and vegetable prices have begun softening after a good run.

If there's a downside to the prosperity farmers have enjoyed recently, Marsh believes it's the impact on the political climate. Good times may make it easier to justify cuts to farm bill programs.

Parkinson, for one, isn't banking on another strong year in 2012. He's got three decades of history that suggest otherwise. One of the few certainties in the business, Parkinson said, is that farmers will overplant when prices are high.

"In the last 30 years we've never had three good years in a row. The last two have been good," Parkinson said. "Farmers are better at fixing high prices than anybody I know."