Farmer dusts off his modeling skills to plan for 2021

December 16, 2020 | Bethany Baratta

As a 13-year-old 4-H member, Ron Heck drew a plan of what would be his farm. 

“Even when I was going to school and not yet living here, I was designing it,” says Heck, a past Iowa Soybean Association (ISA) director near Perry. 

Decades later, Heck is back to the drafting table, using his architecture degree to build a model. Not a 4-H project this time, but because Mother Nature forced him to. 

The Aug. 10 derecho destroyed 14 grains bins, leaving Heck with limited storage options and a long to-do list. 

The priority was making five bins available to store his seed soybeans destined for Merschman Seeds in southeast Iowa. 

That meant he needed to fix three bins and sell old-crop corn to the local ethanol plant to clear two additional bins. 

Based on satellite imagery and Storm Prediction Center preliminary storm reports, the Iowa Department of Agriculture and Land Stewardship believes 36 counties in Iowa were hardest hit by the derecho. Within those 36 counties, the storm likely had the greatest impact on 2.5 million acres of soybeans and 3.57 million acres of corn. Additionally, 57 million bushels of commercial grain storage capacity in Iowa were destroyed or seriously damaged. Similar damage was made to on-farm grain storage capacity. 

Drought 

The derecho further extended the damage to crops that were already stressed by the drought. He estimates a 10% to 20% loss from the drought and another 10% to a total loss from the derecho. 

There are so many questions heading into 2021, including what the start of the planting season looks like with parched soils. 

“It takes 20 inches of water to have a good crop,” Heck says. “Normally, we would have 10 inches in the soil. We’ve got zero in the soil now. Next year, we’re starting with nothing there.”

“How do you get 20, 25, 30 inches of rain without disrupting your planting and growing season?” 

No-till 

A no-till operator for years, Heck was forced to till under some of his derecho-ravaged corn crop. 

That created a bit of a mat on the field, leaving Heck to wonder how much of that residue will decompose before planting in 2021. 

“It’s supposed to decay faster because we knocked it down in August, but then it forgot to rain,” Heck says. “I can’t help but notice that it’s all still there.” 

ISA Conservation Agronomist Heath Ellison says the residue could benefit the dry soils this winter.

“By leaving the residue, you have a snow trap, and you’re going to see increases in soil moisture,” Ellison says. “It might be small, but when you’re talking drought, it doesn’t take a lot to make a difference.”

Farmers who didn’t see drought conditions in 2020 could still benefit from reduced tillage practices, Ellison says. 

A recent conservation profitability study of 20 Iowa farmers engaged in conservation practices showed implementation of a reduced- or no-till system saved between $10 to $15 per acre. One participant in the study demonstrated a two-thirds reduction in tractor hours and reduced fuel needs from 5 gallons per acre to 1 gallon per acre by switching to no-till.

“Farmers should be considering conservation tillage, strip tillage and no-tillage from a profitability standpoint,” Ellison says. “You’re reducing the number of passes in the field, wear and tear on equipment and the associated cost of your time. It can be very cost-effective to reduce tillage.”

Profitability

Heck had the year penciled out. He was no-tilling and growing seed beans, both of which would benefit his balance sheet. He was delighted to see the Phase 1 agreement between the U.S. and China progressing, putting an end to the trade war and helping chip away at the 1 billion bushels in U.S. grain stocks. Profitability appeared to be on the upswing.

However, he could not foresee the drought or the derecho, which would pay him not through grain contracts but through insurance checks for lost grain storage and lost yield. This also meant paying higher taxes as some of the money is taxable. 

It’s the effect of selling two crops in one tax year, which means paying more taxes at a higher rate this tax year, and then having a greatly reduced revenue and higher expenses next year.

“I’ll have to pay the high taxes twice — this year and next year —and wait for the refund two years out,” he says.

One bright spot this fall was a dollar rally in the corn market during harvest; Heck delivered corn directly from the field and captured the higher prices. 

It certainly was a different year for the soybean market, too, says Matt Campbell, a risk management consultant for StoneX Financial, Inc. After two years of a reduction in soybean demand due to reduced hog herds because of the African swine fever and a trade war between the U.S. and China, soybean demand grew in 2020.

“In these last few years, soybean prices hit $8.50 to $10 per bushel, and we felt like that was a high price,” Campbell says. “But I don’t think $12 soybeans is too farfetched.”

He says a large (but oversold) crop in Brazil will push global buyers to U.S. soybean supplies.

“We’re left to be kind of the only game in town,” Campbell says. That will change as Brazil’s soybeans come onto the market in March, he says.

Campbell says farmers can prepare for 2021 by knowing their break-even prices and setting sales targets above those.

“It’s very hard to outguess any single aspect of this market. For this reason, risk management is of utmost importance,” he says. “It’s important to understand your risk management tools available because all of them can have a fit during all sorts of marketing years.”

An updated model

“I designed all of this; this was easy,” Heck says, motioning his arms toward his existing, but storm-ravaged bin setup.

But he had years to plan and budget for it. 

Now, he’ll use pieces of plastic conduit, pipe, cardboard and Scotch tape to model the next setup. 

“If there’s a silver lining, it’s that a few years from now we’ll have a nicer grain handling facility,” Heck says.

For Heck and others impacted by the drought and derecho this year, it’s back to the drafting table. Just in time to plan for another year. 

This story was originally published in the December 2020 issue of the Iowa Soybean Review. ^{Click the brackets in the bottom right corner to view the magazine in full screen.}

 

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