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Managing Drought: Ag businesses, what we can do

November 12, 2012

Robert Pitken of the Corner Stop in Callaway says one of his challenges during the drought has been staying ahead of the demand for fuel.

Part Two of a three-part series:

Drought not only affects the agricultural producers who depend on snow and rainfall to produce crops, graze cattle, and feed their livestock. It also affects the very businesses who supply goods and services to agricultural operations. While the short term for delivering fuel to irrigation wells may provide a boom year, the long term outlook can be financial stress for the producer and, by association, the fuel supplier.
Where short term feed sales are outstanding, the long term health of the producer is of concern to the livestock feed company, and so on.
What have agricultural businesses experienced this year and how are they working with their customers toward 2013? While each ag business is unique, common themes include a sincere interest in the welfare of their customers, respect for the courage and strength of their customers, and a willingness to go above and beyond to serve their needs.

Pioneer Spirit
“The old pioneer spirit in this area is alive,” said Mike Evans of Evans Feed Co. Inc. “And we have a lot of resilient producers around here who are trying every way they can to make it through this.” Evans’ company provides feed and feed supplements to customers as well as a custom feed delivery service.
“It wasn’t necessarily a stroke of genius, it was dumb luck, but last year I was thinking I need to find a way to get creep feed to these feeders.” He bought a tanker unit and was able to keep up hauling feed. “It’s been a lot of late nights and weekends, constantly trying to get products in, shortages of ingredients, but we found ways to keep it in different places so we wouldn’t run out.” He bought creep feeders and rented them out to customers as well as selling them to customers at cost.
“It was a hard summer,” Evans said. “I haven’t worked this hard ever. It was hot every day, it was hard not to get depressed going out in the country, but the positives I got out of it is the resiliency and the attitude of how are we going to do this. People scratched their heads and thought of ways.” And many times, Evans said, he heard producers say “If we can just get through this it will be worth it on the other side. There’s a lot of good producers around here,” he stated. “They’re fun to work with.”

Staying Ahead of Demand
Feed wasn’t the only delivery that was fast and furious this summer. Irrigation fuel poured out into the country via fuel delivery services. Two major challenges were a good and steady supply of fuel for customers and getting that supply out to irrigation wells when it was needed.
Robert Pitkin of The Corner Stop in Callaway said his supply was good. “When you stay very loyal to your supplier they (take care of that), Pitkin said. “Supply is bigger than price” when it comes to customers during an irrigation season complicated by a drought.
His philosophy is to buy fuel at the best price so he can pass that price along to his customers.
Dan Eggleston of Eggleston Oil Co. in Oconto said that getting that fuel to customers meant long days for weeks on end.
“I worked eleven straight weeks with no days off, fourteen to sixteen hours a day making sure the guys had fuel.” He wasn’t alone out there, either. Many producers, he said, planted their crops and then turned around and irrigated them, picked up their pipe and turned off their pivots in order to harvest.
“Producers started (irrigating) on June 10th and shut off on September 10th,” he said, “only stopping to change oil.”
He chose not to forward contract his fuel purchases because “the forward contracts in spring were so ridiculously high. It worked well for the producers. The prices worked backwards.” He sold triple the amount of fuel he’d sold in recent years, he said, an indication of the tremendous efforts of farmers to produce corn and beans this summer.

Thirsty Livestock
While crops were thirsty during a very long irrigation season, so too were pastures and cattle. Badgley Well Service and Trenching owner Cliff Badgley of Oconto said he noticed right away this spring that he had more miles on his well truck and increased trenching hours. He recommended larger livestock water tanks to customers, suggested leaving windmills as back up for new pipelines he was installing, and had some customers spending preventative dollars to forestall problems. He also lowered some windmill wells this year to reach water, but had others that could not be lowered any further.
“We’ve sold more solar systems this year,” Badgley said, “because people were worried about not having wind.”
He said pricing has improved in the last five years, making solar watering systems more viable. Badgley said the systems cost between $6,000 and $10,000 depending on how many solar panels are installed. Compared to other parts of the nation, he stated, this region has more consistent solar pumping because out of a week, six days are generally sunny. Solar water systems can consistently pump three to ten gallons of water per minute, he added.

Veterinarian’s View
Clayton Smith graduated from Oklahoma State in Stillwater a year and a half ago and has been working for Vet Care in Broken Bow ever since. Vet Care serves roughly 175 cattle clients in addition to their large swine practice and works within a 60 mile radius of Broken Bow. Smith said he believes his role next year will a source of information as much as it is providing animal health care.
“Everybody gets the same magazines in the mail as far as Beef Magazine or Drover or the Nebraska Cattleman magazine,” he stated, “and I think every magazine has a tip for helping to manage something. I feel like I should be a line of information, or a source, as well.” One way he can do this is through sharing what he is seeing in the region he works and drives each week.
He sees differences in the condition of rangeland throughout his territory, and is aware of rainfall amounts in these areas, as well. But he allows that he is still learning about this territory since he grew up in Lubbock, TX, far away from his wife’s home north of Burwell and the Calamus Reservoir. As far as major changes he’s seeing in customers’ future practices, Smith echoed many ranchers saying that “maybe we need to be managing for nine years out of ten by just maintaining our pastures a little better.”

Drought, Fire Insurance
One way to manage drought is to insure against it. According to Randy Meyer of J R Meyer Insurance in Callaway, there is a new tool this year called PRF - Pasture Rangeland and Forage insurance which is based on rainfall in twelve mile by twelve mile square grids. “November 15 is the deadline for signup for PRF,” Meyer said. “There’s a county base per acre on their grazing land” he said, and where there used to be a vegetative index with satellite pictures and payouts based on how “green” the picture was, PRF is based on a rainfall index. PRF uses seven to eight thousand rain gauges that gather rainfall data, and producers must sign up for at least two month intervals.
“You want to pick the intervals when you need rain to get your grass to grow. If the county base is $13.50 per acre on pasture land,” Meyer said, “you can pick a productivity factor of 150 percent to get to $19 or $20 per acre. Then you choose a level like in crop insurance, like 75 or 80 percent of that level. And the higher you go the more premium you pay.
Another decision farmers are weighing for next year is whether to stay with the newer enterprise insurance, where all crop ground is thrown together, or to return to optional units where each field is insured separately. “With enterprise units, both irrigated and non-irrigated, are all thrown together and guaranteed the same bushels. “They save premiums on enterprise insurance,” he said, and if the farmer “does a lot of forward contracting they’re just trying to guarantee those bushels and get them contracted.” However, the down side is that many farmers’ irrigated yields were so good in 2012 thanks to herculean irrigating that they might not get paid a loss on their non-irrigated fields.
Fire insurance was also a hot purchase this year. Meyer said it is similar to hail insurance in that it can be purchased at any time as long as it is prior to a loss.
“A federal insurance policy won’t cover a mechanical (caused loss),” he said, noting that the Stapleton harvest fires last year motivated several customers to purchase insurance to minimize losses from harvest or other equipment ignited fires.

Financially Speaking
Aside from worries over the condition of their livestock, soil and pastures, agricultural producers are mulling over various scenarios they may face during their operating line of credit loan renewal this winter.
High priced feedstuffs, tightening cash flows, and uncertain future weather patterns play into these concerns. Brenda Still, Market President for the Callaway and Broken Bow Great Western Bank branches, said the bank knows what their customers are facing and they plan to support them. “We look at it as we’re not in this for one year. We know there are cycles in the ag business, and we are here to help the producer to manage.” She said the bank will not let people get over extended and yet understand that in some years, customer’s needs are greater because of drought. “We want to be there to help manage through the easier cycles and the tougher cycles.”
“We have done some drought testing within the system throughout Nebraska, South Dakota and all of our markets.” Information was gathered on how banks see this drought affecting their customers and on ways to prepare for the upcoming loan renewal season.
“We’ve prepared for the last six months (to deal with the drought).” Great Western management, she added, knows there are issues compared to normal years.
“We’re here to work with ag. That’s what we want.”

Next week ...
Managing Drought: Part 3
Affiliated Ag:
What We Can Do
Stories about organizations and agencies and their role with agricultural producers during drought.

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