Dry Bean Business Transition to 2009
March 30, 2009
2008 Boom or Bust
Was 2008 a real boom year or was it a bust year? According to Larry Sprague, senior dry bean merchandiser for the Kelley Bean Company, for many growers it definitely was a year of plenty. Those are the growers who locked in their inputs early and contracted late and had average to above average yields. On the other side, there were many growers who had contracted early at what looked to be good prices (which they were at the time) and contracted heavily, happy with the projected gross return per acre. However, says Sprague, very few of us thought that we would see the tremendous increase in input costs or that our crops would not have the perfect growing season. 2008 was a year that all of us are likely to remember and to tell about in future generations. 2008 was a year that all of us are likely to remember and to tell about in future generations.
Out of Your Control
Sprague stressed that there are a number of factors that are just out of ones control. As growers, you may worry, but in the final analysis there is just nothing that you can do except to be aware of what those factors may be and to be aware of the effects of those factors. Things that may have a real impact on your businesses are government and its regulations; the situation of failure and merger in the credit markets; competitive crop prices and input costs; and currency exchange, he says.
The New Administration
Farm Bill interpretation will also have an impact on growers and the agricultural industry in general. Sprague says there is talk that the new administration will concentrate on shifting funds to a more green policy in conservation and potentially less money for production agriculture and more for food stamps and export enhancement programs.
He says trade policy is likely to change under the new administration as well. The agricultural industry is extremely interested in the new administrations approach to Cuba. The United States International Trade Commission released a study indicating that dry bean exports to Cuba could move from $20 million dollars annually to $49 million dollars if Cuba is allowed access to credit from the U.S.
The approach to food aid will be an important agenda item. How will the new government view spending for supplemental appropriations for food aid? Will there be a push to send cash rather than U.S. produced agricultural items? The USDA purchased 1,082,500 cwt of dry beans or more than $52,740,000 in the most recent year of food aid business ending last September making the U.S. government one of our largest customers, says Sprague. The USDA purchased 944,000 cwt the year prior at a cost of $31,161,000.
Sprague says the large question is how much of an impact will agriculture feel due to the banking crisis. Ive been told that roughly 70% of production agriculture is being financed by the farm credit systems while roughly 30% are financed mostly by banks. Most of the farm credit systems are reported to be very healthy and should be in a good position to again provide adequate capital, he says. One word of caution is that we did see an abandonment of agriculture by most large banks in the very early 80s. That possibility still exists if the financial health of agriculture deteriorates due to decreasing land values or a reversal in net profits caused by low commodity prices or record high input costs.
What to Expect in 2009
What are the prices going to be for your 2009 dry bean crop? Gary Lucier of the USDA is predicting dry bean plantings could increase from 5% to 10% in 2009 unless competitive crop prices move higher or bean prices move lower. He also said that if yields go back to trend line averages, the production could be down from 5% to 7% from that of 2008.
Sprague believes demand for dry bean products should remain good during these troubled and uncertain economic times. He predicts that domestic demand for dry bean products will remain strong through this next year. What he cant predict however is if growers or buyers will be as active in contracting 2009 crop beans prior to planting season as was the case in 2008. The average North Dakota grower price for dry beans for the 2007 crop year was $25.70 per cwt, while it was $20.20 for the 2006 crop, and only $15.50 per cwt for the 2005 crop. That is a $5.00 per cwt average increase of or more than a 20% increase per year over those two years.
Sprague put together the production numbers of the most popular dry bean classes grown in this region along with the carryover from the 2007 crop to help explain the supply and demand situation as it is today. Go to www.northarvestbean.org/Sprague.pdf to view his charts.
Larry Sprague is a senior dry bean merchandiser for the Kelley Bean Company.