This Week in Ag #50

When explaining the carbon offset market, many of you have heard me give the example of companies and individuals purchasing carbon credits to “offset” their carbon footprints. By nature of what they do, some businesses such as airlines have no choice, as they’ll otherwise never come close to meeting self-imposed carbon footprint targets. But in other cases, such as with celebrities, carbon offsets are viewed by skeptics as a means of virtue signaling or covering up for extravagant lifestyles. The distinction of world’s most carbon polluting celebrity of 2022 went to Taylor Swift. Between her concert tour, social engagements and flying to see the Kansas City Chiefs (she has one more game to attend this season), her two multi-million-dollar private jets emitted 8,293 metric tons of carbon. That’s about the average output from 1,845 gas-powered cars, or the energy use of 1,045 homes. But rest easy. Her people say she has nullified the carbon output of her private jets by, you guessed it, purchasing carbon offsets. Those offsets would amount to adding about 10,000 acres of forest land in one year. This is not to begrudge Ms. Swift for her lifestyle. On the contrary, I admire how her hard work and creativity elevated her to mega-stardom. She has every right to enjoy it. And she generously helps those in need, evidenced by her recent $1 million donation to victims of the recent tornadoes in Tennessee. But the problem many people have is lectures from celebrities and politicians on how those not as fortunate must hunker down and adjust their lifestyles. This is where the notion of carbon offsets rubs people in a bad way. Yet much of Ms. Swift’s criticism is coming from climate activists. After all, she’s emitting a whopping 0.00002% of the world’s annual 40 billion tons of carbon output. Then again, when WEF attendees, including former USA climate czar John Kerry, travel to Davos via private jets, those optics tend to undermine not only the climate message, but all eco-friendly advocacy. Carbon offsets have become a lightning rod for hypocrisy. And while they remain a potential revenue stream for farmers and the ag industry, momentum appears waning, evidenced by reports that only 1-3% of farmers have opted in on carbon offset programs. The more viable future alternative for farmers – and companies like Huma who support them – appears to be via CI scores and capitalizing on sustainably grown crops and livestock markets.

Land is the most valued asset for most farmers. That also makes it the foundation of their balance sheets. It’s not uncommon to see a farmer’s net worth rise, even after a year when they break even or lose money in their operation, due to rising land prices. Farmland prices grew 6% last year across much of the heartland, based on a Farm Credit report. Let’s put this in perspective. Say you have land valued at $8,000 per acre (typical for areas of the western Corn Belt, yet still way below the I states). At a 6% increase in land value, you’ve earned $480 per acre of equity. It’s doubtful many farmers in those areas netted that in 2023 by raising commodity crops. Land values also weigh heavily on a farmer’s ability to borrow money and grow their business. Ag lenders are very tolerant, even generous, as land values increase. Land values have seen a meteoric rise this decade. It’s no longer jaw-dropping to see fertile farmland go for over $20,000/acre. Will the trend last? Perhaps not to this degree. Land values have stabilized in some areas, most notably in Iowa (where high-quality land goes for about $15,000 per acre). Yet it’s doubtful we see any significant dips (at least not for good ground). As I’ve pointed out many times, the dynamics of farmland ownership has changed dramatically, based on the shifting profile of today’s buyers and opportunities brought on by the sustainability and climate action movements. And of course, there’s the words of our grandfathers which still ring true today: “They aren’t making any more of it.”

The only color more depressing for farmers than the gray across the sky is the red across the commodity screens. Since the year began, corn futures have dropped 25 cents, wheat 58 cents and soybeans 83 cents. We’re in one of those funks where farmers stop bothering to check the markets (trust me, I’ve been there). Meanwhile, breakeven prices for corn are projected at $5.08 per bushel, while fall cash bids are around $4.50. That’s not good math. Interestingly, the crop input that represents the largest expense, fertilizer, is projected to drop another 17% this year, after a 16% drop last year.

You might be asking, how does an election year impact farm profitability? Driven by  political pandering, I suspect there’s a good chance we’ll see interest rates and energy prices decline, at least somewhat. But do major election years – with all their promises and vote-inducing policy directives – foretell a farmer’s bottom line? Historically speaking, not really. I did some checking. Over the past eight presidential election cycles, four of those years experienced farm profitability above historical levels, four did not.

This marks the 50^th edition of the This Week in Ag blog. The tremendous amount of support and kind compliments I’ve received from so many of you has, ironically, left me wordless.