New Rabobank Report Calls for Farmer ROI Focus

As U.S. row crop farmers brace themselves for a third year of negative margins, Rabobank believes farmers must lower the costs of operation in order to survive.

These findings are part of a new report from the Rabobank Food & Agribusiness Research and Advisory group, which explores the current costs of inputs and land, as well as the projected supply and demand of commodities.

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This shift results from the need to adopt efficiency-driven, rather than volume-driven, strategies that can maximize profitability in an environment of structurally lower commodity prices, and high seed and input costs.

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“We forecast soybeans, the leading growth commodity, to see consistent export growth in the range of 150 million to 200 million bushels through 2020 (12% to 14% over the trailing 2015 three-year average), given the continued increase in Chinese animal protein demand,” notes report co-author and Rabobank senior analyst Sterling Liddell.

The report, “Farming the Efficient Frontier,” finds the next few years will be crucial for farmers’ existence. This is because a couple years of negative income makes it difficult to maintain operating capital and credit.

“This leaves land, the largest single-expense item for producing the crop, as the primary focus for cost reduction. In 2016, we estimate that land for the median Midwestern farm business represents over 47% of the crop value,” notes report co-author and Rabobank senior analyst Ken Zuckerberg.

The report, “Farming the Efficient Frontier: Crop Efficiency, Not Volume, Will Drive Future Financial Performance,” also finds that although the cost of inputs in 2016 have declined in comparison to the cost in 2015, the reduction was not enough to produce positive margins.

“In order to survive and thrive, farmers must adopt strategies that maximize bottom-line profit, rather than a simple focus on crop yield,” says Zuckerberg.

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