What is Better Financially for College Grads, Rural or Urban Living

Two articles came across my desk last week that made me think about where college grads might choose to live and work. There are several factors that make up that decision and we will look at the financial one.The first article was from USDA discussing which location, rural or urban, workers are paid higher wages and the other from Cornell discusses farm worker living costs and wages. So where is it better financially for young people to work?

I bring up finances because some times people forget that aspect of the decision to take a job. One person I worked with learned that lesson the hard way. He had a job and owned a house in LaCrosse WI which is on the Mississippi River. He was offered and accepted a job in his same field in Chicago with a good pay raise. But he forgot to check into living costs in Chicago first. He quickly found out that housing costs quickly ate up all and more of his housing cost living in Chicago and that he could not afford the same size and kind of house in Chicago as LaCrosse. He wound up worse off moving to the big city. Grout and Ifft found something similar. Grout and Ifft looked at several of the 48 states comparing average farm worker wage to cost of living. Crop worker wages rose in nearly all of the states studied from $1-2 per hour from 2012 to 2016. In California, wages rose by about $2 per hour but was below the rural cost of living all of 2012-2016. Washington state had the opposite situation in place where average wage was as much as about $4 per hour above the rural living cost in 2012. In Florida and Texas living costs and wages for farm workers were nearly equal for the same time period. For these states, crop workers would be better off financially moving to Washington state. In the analysis, other states that paid more than cost of living included Idaho, Utah, Wisconsin and Michigan. But the Grout and Ifft analysis only looked at farm workers and not ag professionals.

The USDA analysis showed 2015 median earnings for those without a high school diploma rural or urban employees earn nearly the same amount. Urban high school diploma holders earned $2088 more than rural workers and urban bachelor’s degree holders earned $10,534 more than rural workers. Urban graduate degree holders earned $18,150 more than rural counterparts.

Depending on where one lives in an urban area they might be better or worse off financially than rural people. One web site, Sperlings Best Places (http://www.bestplaces.net/) allows one to compare cost of living and salaries from one city to another. Using median bachelor’s degree salaries from the USDA study, $41030, comparing McCook to Lincoln, NE a person would need to earn $2955 more in Lincoln for the same living costs. Doing the same for Denver is much worse. A salary would have to be $19,729 more to have the same living standards in Denver. The biggest difference in both cases is the cost of housing. Transportation, food and health care costs are a little higher in McCook than Denver but housing is almost 3X higher in Denver.

Of course there are certain advantages to living in more urban areas, restaurants, museums, concerts skiing, mountains, but McCook is only 5 hours away from all of that.And there are advantages to living in McCook, a lot less traffic, family, free concerts, easy access to hunting areas, better schools often as wells as less crime. Those offered a job in an urban area should fully consider the costs and benefits of that job. If the urban job is chosen, negotiate for a salary high enough that it pays for the higher costs of living in urban locations.

Sources:

Mare, Alexander, Urban Areas Offer higher Earnings for Workers With More Education, https://www.ers.usda.gov/amber-waves/2017/july/urban-areas-offer-higher-earnings-for-workers-with-more-education/ July 2017, accessed 7 August 2017.

Grout, T. and J. Ifft. “Higher Wages Don’t Always Mean a Higher Standard of Living: Rural Cost-of-Living and Farmworker Wages.” farmdoc daily (7):136, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, July 27, 2017.

Sperlings Best Places, Cost of Living, http://www.bestplaces.net/cost-of-living/, Accessed 7 Aug, 2017.

Seed Corn Costs for 2018

Oh boy, here we are finishing the 2017 corn pollination period and this blog post is going to discuss seed corn costs for 2018. What brings up this topic is that very soon, 3-4 months, corn producers will be making seed purchases and orders. Seed corn company field days will start next month. Will seed corn prices drop for 2018 seed corn? Probably not. Recent articles, and charts, from Gary Schnitkey, U of Illinois ag economist, sheds some light on what might happen.

Schnitkey charts seed corn costs calculated by both USDA and central Illinois farmers enrolled in the Farm Business Farm Management program. The USDA numbers are averages for a high productivity farm. While USDA numbers are for all farm productivity types. The two time-series data sets are 0.99 correlated meaning the two data sets closely follow one another.

As we know, seed corn prices have risen since 2006 at a steep rate, from 2006 to 2014 the increase has been 11.3% annually. Schnitkey (2017) An earlier article from Schnitkey (2015) shows annual cost increases for pesticides, 5.7% and fertilizer, 8.1%, for 2006-2014. Fertilizer costs can partially be explained by increased yields and the need for nitrogen to support those higher yields. Even though corn revenue has dropped, recent seed corn costs have been modest. From 2014 to 2016, USDA shows $3/acre seed corn cost decline while the U of Illinois data showed $2/acre drop. The 2015 Schnitkey article also charted per acre and percentage of revenue seed costs using USDA data. Seed corn costs/bushel for 2013 and 2014 were $0.58 and $0.52 respectively. Seed costs per bushel rose at a faster rate, percentage change, than did yields from 1995 to 2015. The trend for seed costs is upward as a percentage of revenue as well. In 1995 seed costs were about 10% of corn revenue and about 13.5% in 2014. The percentage revenue calculation is a little choppy due yearly variation of corn yields but the trend line is clear.

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There are ways to reduce seed corn costs, but significant reductions aren’t likely without price reductions by seed corn companies. How likely is that? A couple of data points give some indication. First, world-wide harvested corn plantings increased about 90 million acres from 2006 to 2016. Schnitkeys’s analysis indicated that 95% of the seed corn price increase can be explained by that rise in corn planting. During that same period, seed corn has added many traits that have value to corn producers such as herbicide resistance, rootworm resistance and some drought tolerance. These two facts and the expected mergers of agricultural technologies companies from 6 to 4 won’t add downward pressure to seed corn prices If the new technologies come from the mergers, prices are more likely to increase since those new technologies have value to farmers. At this point it is probably reasonable to plan for flat seed corn costs in 2018.

Sources:

Schnitkey, G. “Seed Costs for Corn in 2017 and 2018.” farmdoc daily (7):129, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, July 18, 2017.

Schnitkey, G. “Corn Seed Costs from 1995 to 2014.” farmdoc daily (5):214, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, November 17, 2015.

Farm Lending Conditions Update

Last week two Kansas City Federal Reserve economists published an update to current, Q2 2017, agricultural lending conditions for commercial banks. Although they discuss current conditions many of the charts included in their article have year over year comparisons for several factors in agricultural lending. This blog post will review some of those factors.

First half 2017 All Non-Real Estate farm loans were 7% lower than same time 2016. But that same category began to decline in 2014. All farm debt made year over year loan increases have been dropping for about 2 years. This pattern has been true for both real estate and non-real estate loans but the non-real estate loans dropped at a steeper rate. Non-real estate loans have a negative year over year change the last few quarters meaning borrowers are likely working to reduce their debt load. (Chart 7)

 

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However delinquency rates started to rise in 2015 back to over 2%. The last time delinquency rates were above 2% was 2013. Still delinquency rates are not at the 11-year high of 4%. The rise in delinquency rates also fits with the lower repayment rate across six Federal Reserve districts. So although farmers have reduced debt yer over year they are still struggling to stay current. (Chart 10) Chart 10 also shows higher demand for loans giving additional evidence that farm financial conditions are tight.

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Source: Kauffman and Clark, Farm Lending Steady, Risks Remain, 14 July 2017, https://www.kansascityfed.org/research/indicatorsdata/agfinancedatabook/articles/2017/07-14-2017/ag-finance-dbk-07-14-2017

Federal Reserve Beige Book Comments

Periodically the Federal Reserve releases the Beige Book or more formally ‘Commentary on Current Economic Conditions by Federal Reserve District. This book summarizes the comments by Federal Reserve member banks relating to various economic sectors including Agriculture. These comments don’t provide any data but do help to understand trends or new conditions to follow.  You can read the book here: https://www.federalreserve.gov/monetarypolicy/beige-book-default.htm.

Let’s look at some of the comments about agriculture.

Chicago: “The outlook for crop income was unchanged through April and early May despite wet weather slowing planting in much of the District.” Chicago also reported some cold weather damage to some fields. Some dairy operations in Wisconsin had to find new milk buyers when Canada restricted ultra-filtered milk importations. Incomes for hog and cattle improved as prices rose.

 

St Louis: “Agriculture conditions deteriorated significantly due to flooding across the District”. Flooding across the region had hampered planting with cotton being farthest behind in planting progress.

 

Minneapolis: “District agricultural conditions remained weak since the previous report because of continued low commodity prices.” The district noted that planting was slowed by mid-May rains but that planting progress was on a par with the 5-year average.

 

Kansas City: “Persistently weak farm income continued to weigh on the District’s farm economy and agricultural credit conditions. Soybeans prices were lower than one year ago but soybeans remained profitable at current prices. Bankers in the western region of the district were expecting much lower farm income than those in the eastern part of the district. Wild fires devastated parts of the district and reduced cattle and wheat incomes.

 

Source: 31 May 2017 Beige Book, Federal Reserve System

Importance of Dairy Exports

Importance of Dairy Exports

The May 2017 Central Milk Marketing Order “Marketing Service Bulletin” had an interesting retrospective on dairy exports’ importance to the US dairy industry. The bulletin compared the change in total exports volume and dairy product categories since about 2003. Dairy solids exports for 2016 were 14.2% of total US milk solids produced compared to 5% in 2003. The value of dairy exports increased to $7.2 billion in 2014 falling to $4.8 billion in 2016. The 2003 value of dairy exports was approximately $1 billion. This change is even more dramatic when it is noted that before 2003, the US was a net importer of dairy.

The bulletin also points out the important products that are exported as well as the primary importers of US dairy products. Mexico accounts for 25.2% of US dairy exports, Southeast Asia 13.9% and Canada 13.1%. Just over 25% each cheese and nonfat dry milk account for the 2016 export value of US dairy exports. But on a percentage basis only 5.2% of US cheese production was exported while 57% of nonfat dry milk and skim milk powder were exported. Cheese export volume increased by over 5.5X from 2005 to 2016 while nonfat dry milk volume is 2X larger.

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Source: May 2017 Marketing Service Bulletin, Central Marketing Order

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Source: May 2017 Marketing Service Bulletin, Central Marketing Order

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Source: May 2017 Marketing Service Bulletin, Central Marketing Order

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Source: May 2017 Marketing Service Bulletin, Central Marketing Order

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Source: May 2017 Marketing Service Bulletin, Central Marketing Order

How Much is Standing Hay Worth?

Very soon this question will pop up and will ask about selling a full year of production or a specific cutting. Getting a handle on how much either is worth is often just guess work. There is a better way.

First we need to set a price for hay after harvest and then subtract the cost of harvest to get the value of hay standing in the field. At this point someone asks “where do I get those prices and costs?” Let’s get the hay price first. USDA regularly reports hay prices by location, type and quality. For instance, the Nebraska 11 May 17 hay report shows Supreme quality alfalfa, large square bales, sold for $150-155 per ton. Prices for other hay types and qualities are listed in the report. Some reports will include cane hay and cornstalks. All of the quality parameters for alfalfa and grass hay are listed in the report. The web site is: https://www.ams.usda.gov/market-news/hay-reports.

The USDA prices are for harvested hay so we need to subtract harvest costs from the reported hay prices. If a farmer or rancher has calculated their own hay harvest costs, that cost would be subtracted from the USDA hay price. If the farmer or rancher wants to calculate their cost of hay harvest, an available spreadsheet from KSU, https://www.agmanager.info/ksu-machinery-costs, can be used to calculate a large number of machinery costs including hay harvest. Custom rates can be used as a proxy for hay harvest costs as well. Nebraska custom rates are published at: http://agecon.unl.edu/cornhusker-economics/2016/custom-rates. Other states publish custom rates as well.

So now we know what to pay for a ton of standing alfalfa (hay price-harvest cost). But we don’t know how many tons are going to be harvested and payed for. The best way would be to weigh the hay harvested. Sometimes that isn’t possible so a sample of the hay harvested can be weighed and then the total calculated. Another way that has been investigated is to count stems per square foot. A recent study in North Dakota showed that system has a 0.33 to 0.97 correlation to measured yield. Two of the locations had a high correlation and a third had a very low correlation. Thus stem counts may work sometimes. A third way is to scissor cut several random 1 square foot areas to get an average yield and then multiply by 43,560 to get a yield per acre. Don’t forget to correct for moisture though. And cut at the same height as mowing occurs.

Another question sometimes asked regards “how much should I pay for a specific cutting?” If weight is used for payment of the standing hay, then a buyer can pay only for what they harvest. Another way might be to use a percentage of a cash rental rate to pay for a hay cutting. In a 3-cut system for alfalfa the first cutting yields 40% of total annual yield and the subsequent are 30% each. A 4-cut system has 35% of the annual yield in the first cut, 25% in the second cut and 20% for the next cuttings. Thus if a buyer wants just the first cutting of a 3-cut alfalfa field then multiplying a cash rental rate by .4 is way to calculate a price.

Of course the amounts calculated above are starting points in a negotiation. A fair price is the one that two parties agree upon.

Care of Storm Damaged Trees

Recent storms have left some trees damaged and others that require maintenance to survive. This column will provide guidelines on how to care for these trees.
Evaluation of the damage is the first step in care of trees after storm damage. Do not try to take care of tree limbs on or around power line. Large branches that are partially attached and overhanging buildings or areas humans use should be removed first. Clean up debris on the ground before tree repair starts so that personnel safety is increased. Look for hidden damage so that safety hazards are considered before repair work starts.
Remove damaged branches back to the first undamaged branch. Prune back to the branch collar; do not flush cut to the trunk or another branch. In addition, make a pruning cut that produces a smaller wound. When pruning lager branches, use a three-cut method to safely cut the branch. When using chainsaws, use all the proper safety equipment. There is no need to use tree wound dressings or some type of wound paint. These dressings can actually reduce the natural defense and repair methods of a tree. Wound paints may actually be food sources for microorganisms.
All trees that have had major structural damage will need to be removed. This damage does several things that reduce the viability of the tree. It can reduce leaf area needed for photosynthesis; provide entry points for disease and pests. Do not top trees to remove damage. A flush of branches will sprout creating a “witches broom” that is weak structurally. Trees that have had 30% or more of their bark removed during limb breakage probably will not survive. The root connection has been severed due to this bark damage. These trees also should be removed. However, pruning out damaged bark areas will help trees heal. Prune to shape the bark removal area as an elongated football. Portions of a tree with bark damage may die back however.
For the first year or so after storm damage, a tree may produce many unbalanced branches. Remove the weaker or undesirable limbs as they appear. The storm damage and pruning can cause a severe “shock” to the tree. Proper fertilization and tree watering will help counteract the shock. Continued pruning and fertilization will help maintain balance, improve the tree’s health, and help restore its beauty.
When replacing trees, consider what types can be more susceptible to storm damage. Some species less susceptible include Bur oak, Kentucky coffeetree, Little leaf linden and black walnut. Trees that tend to be more susceptible to damage include elms, Silver maple, Honeylocust and Marshall’s green ash. Wait to do developmental pruning of newly planted trees until two to three years after planting. Unless there are multiple leaders and basal sprouts.