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An opportunity for Iowa crop farmers to break even or profit in 2020 | The Spokesman Speaks Podcast, Episode 33

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Welcome to Episode 33 of The Spokesman Speaks podcast. This episode features a forecast from Iowa Farm Bureau Senior Economist Dr. Sam Funk, who sees signs that Iowa corn and soybean growers may be able to break even or secure profit opportunities in 2020. It also includes an interview with Brett Sciotto, the President and CEO of Aimpoint Research. Brett’s a former Army Intelligence Officer, and his company did an interesting study on the characteristics of farmers who are set up for long-term success.

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Narrator: Since 1934 Iowa's farmers have turned to the Iowa Farm Bureau Spokesman as their trusted news source. Now, The Spokesman Speaks. Listen in and hear from leading experts on topics important to farmers and agriculture. Now, here's your host.

Delaney Howell: Welcome to the February 24th edition of The Spokesman Speaks Podcast. I'm Delaney Howell and I'm glad you're all tuning in for this episode because we're covering a very important topic that impacts all farmers operations. Forecasting. Dr. Sam Funk is Iowa Farm Bureau's Senior Economist, and not to give too much away, but let's just say Dr. Funk has crunched some numbers and he sees signs in the forecast -- there's that word again -- that corn and soybean farmers are going to be able to break even and potentially turn a profit in 2020. While Dr. Funk is going to be looking at the immediate future in 2020 we're also going to be having a conversation with Brett Sciotto of Aimpoint Research who takes us further into the future. Brett's a former army intelligence officer and his research company has released a really fascinating study on the characteristics of farmers who are well positioned for long-term success. Let's start with Dr. Sam Funk an economist with some cautiously optimistic market news for farmers in 2020. Hey, we'll take anything right? Spokesman Editor, Dirck Steimel has the story.

Dirck Steimel: Sam an analysis by Iowa Farm Bureau showed that corn and soybean farmers have a better opportunity for making it to a breakeven level or even a profit in 2020. Why is that?

Dr. Sam Funk: You know, two-prong. The first one is actually that some of the expense levels came down and that is something that we found with the Iowa State University Extension publication looking at the cost of production for corn for soybeans for 2020. The other aspect and the larger movement in this gain is actually the fact that prices have increased from last year. So when we did a similar analysis last year, it was obviously kind of in the middle of a lot of different pressing issues in the trade negotiations and other items. In this year, we've still got some of those factors, were waiting for some of the prices to really take impact with the markets moving more product in export potential. But at the same time, we're seeing that the forecast of prices with the November soybeans and December corn futures levels are stronger than they were last year. Being able to look at those types of increased prices has really spurred the stronger outlook for 2020. By looking at that, let's first think about the basis level. So a basis being what's the future's price minus the cash price that you could expect through the state. So IDALS has given us an average basis level looking at multiple markets throughout the state. And so while those basis levels have kind of remained steady, what we've seen is that we've got these market prices for November bean futures and for December corn futures, which have risen substantially from what they were last year. So that gives us first off a higher price expectation for this coming year. Now for corn following soybeans, that's given us a positive price position. So we can actually think about the potential for some profitability for this year. For soybeans it's really brought us to at the highest level, which they have at 62 bushel per acre. It actually reached break even. Some of the other levels are still right now at a statewide level considered to be a loss, but at least it gives us the hope for the break even on soybeans in a potential, if you will, there's an upward bias I would think for prices to improve as we see some of these markets that might potentially allow us to export more soybeans, potentially export more corn or ethanol into some global marketplaces. I would say there's an upward bias toward those market potential because of the gains we've had with our trade policy, which have enhanced. So whether that's China, U.S. China agreement, whether that's USMCA and strengthening those accords, whether that's really something that flows to us because of a gain with either South Korea or Japan because increased higher value pork or beef exports to those marketplaces. They can all gain and give us that much better of an outlook overall for agriculture in the state of Iowa.

Dirck Steimel: What are some of the marketing tools that farmers have available to them to secure that break even or profit?

Dr. Sam Funk: You know, I think the first thing is that once you know that there's a potential for a price that is relatively attractive, at least compared to some recent years. You can start to do some forward marketing. You can start to utilize crop insurance to make sure that you're going to guarantee yourself that level of production and protect yourself in that regard, that you can actually start to market those bushels. Even now, even before you're planting, you can actually start to do some forward marketing. You can actually start to take some positions onto the using futures and options if that's in your marketing plan, to be able to take advantage of the prices that we're seeing right now. Once you know there's actually an opportunity to break even or an opportunity to lock in some sort of a market price that's profitable, then you can say, does this fit with the cost of production that I know I'm expecting to have on my operation? And you can actually take advantage of those opportunities as they arise and not just have to sit there and wait on the sidelines saying, does this cover my cost? No. Compare it now. Does it cover your costs? Is it something that would be attractive to you to lock in a certain level of your production? If those opportunities avail themselves, go ahead and make those types of moves.

Dirck Steimel: Where can farmers find out about these tools and how to use them?

Dr. Sam Funk: You know, a great resource that farmers have here in the state of Iowa is IowaFarmBureau.com. Ed Kordick and others around here do a great job of putting together educational activities that they can find more information. You know, really just reading The Spokesman and reading through and listening to The Spokesman Speaks Podcasts are a great opportunity for producers to keep up to speed with what's going on and current marketing thoughts so that they can try to implement plans in their own operations. If you don't implement a plan, that's a strategy itself and it's not necessarily the best strategy but what we know now is that there's an opportunity and people need to start thinking about what are those strategies they can put in to place and actually take advantage of at this time.

Dirck Steimel: Many farmers last year in 2019 were hit by flooding and other cropping problems. Does the outlook look better for them now in 2020?

Dr. Sam Funk: And that's obviously going to be a relative question. I mean, if they can't get back in there to plant again, they're obviously thinking about that continued hardship. And there are those producers who are, you know, along some of those rivers who are going to have a difficult time again because they haven't had the levees back put into place and they're still struggling with what can they do at this point in time though. What this says is for the crop that they expect that they will be able to get planted in the ground and harvested this year. They can start to make those types of moves just like the other producers would for considering the opportunities for the pricing opportunities that exist. What we've had for so long has been this mountain of beans and a lot of productivity that haven't given us those optimal pricing scenarios. And this one isn't optimal. It's just better than it has been relatively. But for those who have had an, you know, a stressful time thinking about getting last year's crop possibly that they lost in the field, you know, at least for the productivity that they could expect this year, it gives them some sort of a window.

Dirck Steimel: We've been hearing a lot about the Coronavirus in China and its effect on the economy there could the disruption from the disease reduce China's imports of U.S. farm goods and hurt our markets?

Dr. Sam Funk: You know, obviously there's always that lingering threat of yes it could. But the other aspect is that we've talked about before is that now we have this framework in place for this increased in exports from the United States to China. So when it comes about that they realize, look, we've got lower priced, safe pork supplies available from the United States, we've got a large level of product that we can bring in. We've at least helped to alleviate part of that political pressure inside China that hopefully they'll go ahead and allow those products from the United States to enter in with lower level of tariffs and not be punitive toward those people inside China who would like to have the lower cost product that's available from the United States on a very strong basis right now. So although there is that potential that we could have some sort of an impact with Coronavirus and obviously our thoughts are first with the people that are impacted by that, you know, medical disaster, but at the same time what we hope is that we'll be able to help them to find those protein sources and to find those products that are at a much more attractive price than what would they would have otherwise on the world market.

Dirck Steimel: Are there other issues you're watching as we head into the 2020 growing seasons?

Dr. Sam Funk: You know, I think one of the big aspects there is that when you think about what's going on, and this is a crop oriented pricing, a product that we're talking about right now, but one of the ways that it definitely impacts crop producers is what's going to happen with the livestock sector in the United States. Obviously, as we look at some of the changes and you know, global protein consumption and we think about ASF and what's going on there and the amount of pork we've got available in the United States, there are a lot of indirect changes that could happen where we start exporting more pork yet and we start seeing those increases in pork exports make a positive impact into our market structure, which then lend more strength to the crop sector as well. So I think one of the biggest things is just to see how all of the enterprises that impact Iowa are going to take place, whether it's in pork, whether it's in beef, whether it's in you know, ag production. There's a lot of positives that are yet available to us and we're going to look for all of those and how they can contribute to the entire sector of agriculture as an economic contribution to the state.

Delaney Howell: Thanks for sharing that outlook, Sam agriculture, as we all know, is a very cyclical business so hopefully this year will be the year for corn and soybeans to create some better marketing opportunities in the weeks and months to come. Okay so now that we've set the picture for 2020, let's also take some time to look beyond 2020. Brett Sciotto is the President and CEO of Aimpoint Research and one of his company's recent studies analyzes the characteristics of farmers who are well positioned to succeed in the years and decades to come. That study is called the Farmer of the Future and Brett shared some key takeaways from that study at the recent American Farm Bureau annual convention in Austin, Texas. Farm Bureau's Zach Bader was there and he tracked down Brett after his presentation to have him share some of his insights with you.

Zach Bader: Joined by Brett Sciotto, who's the President and CEO of Aimpoint Research. First of all, Brett, you've got a past experience there as a former army intelligence officer. You've got to tell us a bit about that background and how it led you to Aimpoint Research and the work that your company does.

Brett Sciotto: Aimpoint Research I founded when I left the military and I was, as you noted, an army intelligence officer. Had a lot of unique roles when I was in the army. And one of those that really propelled the way in which Aimpoint does business was I was the fusion chief for the hundred and first airborne division. And my job in that role was to look across lots of different intelligence sources, integrate that intelligence into a more accurate view of the battlefield, and a more predictive view of what might occur over time. And so when I left the army, I wanted to continue to empower leaders with insights and took some of those best practices from the intelligence world and put them together with civilian market research and competitive intelligence practices and built a unique approach to providing strategic insight to leaders.

Zach Bader: And why is farming part of your company's focus and how are you using that research to help farmers make better decisions?

Brett Sciotto: Well, from our point of view, you know, I'm former military. Most of our leaders are former military and we recognize the important role of agriculture in our national security in giving us a competitive advantage around the world. And I start most of my speeches to agricultural groups by reminding them of their important role in national security and what an incredible advantage that gives the United States, our ability to feed our people, to feed other countries people, to feed our allies. It's a significant advantage that many countries just don't have. And so that's a great blessing and we want to do our part to continue to reinforce and strengthen agriculture. And the second reason we have such a passion, of course, many of our team members now come from farm backgrounds, but I didn't. And but what I recognized very early was the character of the industry. People look you in the eye. Their handshake means something. That culture that is found within agriculture and the people of agriculture closely mimics what I liked most about the culture in the military. That there is a close association to being honorable, to doing the right thing. And so between the people of agriculture and the mission of agriculture, it was easy to rally around that as we launched our business back in 2001 and to begin to support the leaders who do their best to make the industry stronger every day.

Zach Bader: So, what kind of information are you providing that helps farmers make those decisions?

Brett Sciotto: Well we're largely focused on the organizations and the infrastructures that serve farming. So the leaders of everything from the co-ops that they're part of the farm credit organizations that serve them. The retailers, the crop input providers, that's where our research is really aimed at the strategic intelligence level to help those organizations begin to understand what farmers will need over time, how the industry will change, what those key variables and dynamics look like and how they can be in the best position to help farmers be strong in the future. Now, a secondary or unintended maybe consequence of that is we learn a whole lot about farming and ranching that can help farmers make better decisions too. And the Farmer of the Future research platform is one of our three thought leadership platforms. And it does provide quite instructive insights into the type of farmers that largely are successful today and who will be successful in a very dynamic environment moving forward.

Zach Bader: Let's build off that thought. And I know you presented on this, the Farmer of the Future, and I know like you said, you've done the research on the future of farming. So what are some of the characteristics or attributes of farmers that you're seeing who are well positioned for the future? And what have you found from that research?

Brett Sciotto: Well, there's a couple of fundamental pillars to the research and the first is a psychographic segmentation, which is a quantitative exercise where we allow math to kind of articulate what some of the subgroups look like and how they vary across the farmer, rancher universe from other groups. And one of the things that's very clear is that there is an entrepreneurial class of farmers and we have five different segments. Two of them I would describe as an entrepreneurial class amount to about 41% of the total farmer rancher universe. They're very adaptable. They're very innovative. They tend to have higher than average business IQs and they're really driven to succeed. And so they're finding new ways to optimize their operation. They are leaning forward on issues like traceability, transparency, sustainability. They're not waiting to be told how to do those things. They are leaning forward and finding best practices in advancing their farm towards those goals faster than many of their peers. And what that's doing is it's making them more attractive to the Agri-food value chain into the food companies and retailers that want to have inputs and produce and food that is ultimately raised in a certain way and with certain shared values that they can then communicate to the consumer and make that connection on the shelf. And so those farmers are having an advantage today and they're likely to continue to emerge as the most competitive group of farmers in the future.

Zach Bader: I've heard you say that the best way to predict the future is to create it. Now we're all aware that there are many factors that are outside of farmers' control, so how can farmers create a positive future for themselves and their families?

Brett Sciotto: Well, it's interesting, you know that nobody knows their farm better than the farmer that grows there and they certainly have traditionally quite a bit of history and thinking through how to optimize their particular land, their particular commodity, and it's easy to just get focused on the day-to-day of running the farm, plenty to deal with there. I think what the farmers of the future are doing is they're looking up a little bit over the horizon and they're starting to understand more clearly what consumers are asking of them. I think farmers share a lot of consumer values. We don't have to be defensive about that. I think consumers want to know why we do the things we do. It's hard for them to understand, but in many ways farmers are the original entrepreneurs and the most sustainable business people on the planet. So we got to tell our story better, but we have the opportunity to lean forward on some of these initiatives that are kind of going to be table stakes in the future, like transparency, traceability and sustainability. These things that we can begin to integrate systems into our farm operations today that will allow the resolution that the Agri-food value chain is ultimately going to require anyway. And that'll give us a leg up over those that are unwilling to adopt those new kinds of technologies and changes.

Zach Bader: So, based on your research, what's something common or maybe even the most common thing that you're seeing that's maybe holding some farmers back from a successful future. Maybe it's an attribute to our mindset or a fear or a particular skill set that they could build on. What'd are you seeing there?

Brett Sciotto: Yeah, I think the most clear attribute of those that are losing their competitive advantage is that they are unwilling to change. That they are very much stuck in their ways. Very traditional. In fact, we hear farmers say, you know, we have farmed this way in our family for the last hundred years and we're going to farm this way for the next hundred years. Just a very conservative group of farmers that aren't willing to adapt unless forced to. And that willingness to adapt is a pretty important quality of the farmers that are getting ahead right now. That willingness to change the way they do business, to adopt new technologies and new management practices that allow them to access parts of the Agri-food value chain that others can't. And so that's a real advantage. And for those farmers that are unwilling to change, I think the market is going to become more and more unfriendly over time.

Zach Bader: So, where does your ag and farm research go from here? What are you excited to start researching in 2020 and beyond?

Brett Sciotto: Well, what we presented to the convention yesterday was what we call foundational research. So it's a look at the farmer of the future, primarily through an American lens. And so there's two things that are coming. One is in 2020, we're going to put more of a global view on it so that we can understand the dynamics that are occurring around the world that might impact American agriculture in ways that we may not have known before. So a look at the critical dynamics around the world and what they will mean to the American farmer moving forward. Then the second part is a deeper understanding of what the next generation consumer's going to demand of the Agri-food value chain. And so in just a couple of weeks at the National Council Farmer Cooperatives, we're going to unveil our next gen consumer research, which looks at it quite a bit different than Farmer of the Future. Farmer of the Future looks at it through ag eye's all the way down to the consumer. This will look through consumer's eyes back at the farmer and we'll get a clearer understanding of what they're going to require from us over time and what are the table stakes of doing business 20 years from now and what are those things that maybe we can start leaning forward on now to have an advantage over time.

Zach Bader: Any parting advice that you'd offer to farmers who are listening to this podcast and are just looking for ways to better position themselves and their families for the future?

Brett Sciotto: Well, I think what's most important is that they are looking to optimize that they are looking to innovate, that they don't get stuck in their ways and that at the end of the day they remember that they are the original entrepreneurs. And at some times when you get under financial pressure or you get into situations like this year 2019 or last year, that was very, very difficult for most farmers. It's easy to bunker in and to just kind of do business the way it's always been done. And so what, what I tell all the farmers at the very end is that when I look at the trends coming, when I look at the dynamics that are coming across the Agri-food value chain over the next 20 years, there is tremendous opportunity for American agriculture and American farmers here and around the world. And change comes one day at a time. So we have the opportunity to start taking small steps now that will ensure that they have a competitive advantage around the world when the dynamics emerge in 2040. So a lot of opportunity for American farmers, they're the best in class, best in the world, but they have to keep adapting and innovating.

Delaney Howell: It's hard for us to think about what's ahead in 2020, let alone 2040. But as Brett said, farmers are the original entrepreneurs of change that happens one day at a time. We appreciate those insights from Brett and we hope that you picked up something new that you can use to prepare your farm for the future. Who knows? Maybe the future will include hops or strawberries, maybe vegetables or even agritourism. If you're interested in unique opportunities like those, I really encourage you to register for Iowa Farm Bureau's upcoming Acres of Opportunity Conference, which is March 28th in Cedar Rapids. Iowa agriculture now more than ever offers diverse opportunities and the Acres of Opportunity Conference is your opportunity to learn from farmers who've had successes tapping into those niche markets. Just head to IowaFarmBureau.com to learn more and get registered for that conference today. Well that's it for another episode of The Spokesman Speaks Podcast. I'm your host Delaney Howell., If you've enjoyed this episode, be sure to hit subscribe in your podcasting app so you never miss an upcoming episode including our next one that drops on March 9th which is going to be tackling the subject of -- just getting you thought I was going to let you know, but I'm not. You've got to tune in on March 9th so hit subscribe so you never miss a beat. So until then I hope each day gives you a new opportunity to learn something new or diversify those farming operations, not just for your generation but for those generations yet to come. Thanks for reading The Spokesman, and thanks for tuning in to The Spokesman Speaks.

Narrator: Thank you for listening to The Spokesman Speaks, a podcast by Iowa Farm Bureau. Check out more podcasts and articles from The Spokesman at IowaFarmBureau.com/Spokesman. You can also find and subscribe to The Spokesman Speaks Podcast in the Apple Podcasts app, Google Play, and other popular podcast apps. We appreciate your ratings and reviews and welcome your feedback at Podcast@ifbf.org.

About The Spokesman Speaks Podcast

Since 1934,  The Iowa Farm Bureau Spokesman has been Iowa’s leading agriculture news source, and today it is the largest circulation ag newspaper in Iowa. While the Spokesman newspaper is available exclusively to Iowa Farm Bureau members, The Spokesman Speaks podcast is available publicly, reaching farmers on-the-go with stories that matter to them. You can  find episodes of the podcast here or subscribe and listen in your favorite podcast app, such as Apple Podcasts, Google Play, Spotify, iHeartRadio, Stitcher, TuneInRadio, or Radio.com.

We release new podcast episodes every other Monday. Episode 34 will be released on March 9, 2020.



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