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Rabobank   Row-crop farming is a commodity business

Row-crop profits predicted to stabilize

Row-cropNegative net income is projected for the third straight year for row-crop producers. Yet relief could be ahead, according to a Rabobank report.

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“When you balance long-term supply and demand, we’re getting to the point where we’ll see price equilibrium,” says Ken Zuckerberg, Rabobank senior analyst for farm inputs.

“Our opinion is that we’re moving more toward breakeven levels over the next five years.”

For corn, that means prices between $3.60 and $4.20, while soybean prices will average $8.30 to $9.60. To succeed with prices at these levels, farmers will need to become more efficient and optimize input costs for yield improvements.

“Row-crop farming is a commodity business where the product is largely undifferentiated,” Zuckerberg says. “The only way to win is to build scale and be the low-cost operation. We believe this will bring on yet another wave of consolidation.”

This could spell growth opportunities for well-positioned farmers. “You want to be liquid and agile when the crowd is running the other way,” he says. “Operational excellence is never out of style.”

Large-crop farmers will need to conserve working capital and maintain alternative sources of capital as the industry readjusts to average profitability.

Farm input providers will need to deliver more value to cost-conscious growers, perhaps in the form of integrated or bundled solutions.

Although the U.S. farming industry has been consolidating for decades, the nature of the expected recovery will benefit larger-scale farming systems over medium and smaller farms.

Smaller farms could be forced to pursue strategic mergers or vertical integration strategies to improve profitability.

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