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Farm profits have fallen, but Nebraska’s rural areas still sprout pockets of growth

By Barbara Soderlin / Reprinted from the Omaha World Herald  – Date: Dec 27, 2016

The outlook may sound bleak for Nebraska’s agriculture-dependent economy as farmers wrap up the third year in a row with falling profits: The decline has economists talking about state budget cuts, rising farm loan defaults and falling land values.

Main Street businesses that depend on farm spending say the picture might be dimmer, but they’re not yet turning out the lights.

Interviews with business owners in the heart of northeast Nebraska corn and cattle country reveal a mixed picture: Some retail shops report strong sales. Some are hustling just to keep the decline to single digits. Others say they’re managing through the downturn, shifting strategies to move where the money is, knowing that what comes down will eventually come back up.

The showroom floor was quieter than usual this month at Big Country Auto in Madison, a town of 2,400 just south of Norfolk, where the shop bulldog, Enzo, carried around a toy, looking for someone to play with. She lumbered past the tires of a $66,875 F250 truck that dealership manager Chad Boettcher would love to sell.

But without big profit windfalls, farmers aren’t looking for the tax advantages that a new vehicle provides, Boettcher said.

“We’ve sold a few (trucks), but just not as many as normal,” he said.

Boettcher said his salesmen are paying house calls to farmers, but business is down more than 20 percent compared with last December.

“They’re holding off, waiting to see if prices go up on corn and beans and cattle,” Boettcher said.

But 30 miles south in Columbus, a city nearly 10 times the size of Madison, another auto dealer painted a different picture. Sales are up at Ernst Auto Center, thanks in part to Columbus’ diverse economy, which runs on manufacturing, service and health care in addition to farming.

Through November, sales were up about 10 percent at the dealer’s Toyota store, and up about 5 percent on the General Motors side, which is hit harder by a slowdown in farm purchases. Ernst said more than half his business is selling to farms and other agribusinesses.

“Let’s be honest, agriculture still rules,” dealer principal John Ernst said, but he said he counts his blessings that the city has a diverse economy.

In farming’s recent boom years — 2011 through 2013 — Ernst said, “we sold pickups in great numbers.” While pickup sales may be slower now, he said, “the economy overall is doing better, because we continue to grow.”

It’s not surprising that retailers in the same line of business, but in different communities, could fare so differently, said Jerry Deichert, director of the Center for Public Affairs Research at the University of Nebraska at Omaha. “That makes perfect sense,” Deichert said.

Deichert has studied state sales tax data as a measure of economic activity, and said as farm income falls, the spending picture varies greatly from county to county depending on how rural and agriculture-dependent a place is.

For example, net taxable sales in Greeley County, 75 miles northwest of Columbus and home to only about 2,500 people, fell 30 percent between 2014 and 2015 as farm income fell off. Meanwhile, in Madison County — home to more than 35,000 people and anchored by retail center Norfolk — net taxable sales fell only 1.7 percent.

Neighboring Platte County, home to industry-heavy Columbus, saw taxable sales grow, by 1.3 percent.

The state average, which rose 1.1 percent in that time, “doesn’t tell the story,” Deichert said. “All of the regions of the state are going to be different,” he said.

Why the decline in farm country spending?

U.S. farm profit by the close of 2016 will have dropped for the third year in a row, to its lowest level since 2009, the U.S. Department of Agriculture said this month. It is expected to fall by 17.2 percent this year to $66.9 billion, a long way down from record profit of $123.7 billion recorded in 2013. Commodity prices have plunged amid record yields and a strong dollar that’s weighing on exports.

The impact is felt everywhere from Main Street to publicly traded corporations. For example, commodity prices were to blame for a plunge in quarterly profits at Lindsay Corp., the Omaha maker of center-pivot irrigation equipment, the company said last week.

The agriculture downturn is weighing on farmers, making them reluctant to make big capital purchases, Lindsay Chief Executive Rick Parod told stock analysts in a conference call Wednesday.

Lower commodities prices are also contributing to lower food costs. As a result, restaurants are struggling as consumers turn to less-expensive grocery stores, while grocery stores are struggling to see any revenue growth because of low prices.

Nebraska’s farm profits will see a plunge like the nation as a whole, to just over $4 billion from about $4.9 billion in 2015, University of Nebraska-Lincoln ag economics professor Brad Lubben said at a farm economy presentation in Lincoln this month. The state saw highs of about $7.5 billion in farm profits in 2011 and 2013.

It’s not considered a crisis, but the Federal Reserve Bank of Kansas City described “a slow but steady rise in financial stress in the farm sector” in a November report.

In a downturn, “the first thing they’ll do is quit buying machinery,” said Allan Vyhnalek, a university extension educator in Platte County.

The stress weighs on spending on the household side too. The Fed’s index for farm household spending is at its lowest level since at least 2004.

Tina Barrett, director of Nebraska Farm Business, Inc., is advising farm families this winter to carefully account for family living expenses separately from farm business expenses, and to have honest conversations about whether they need to cut back on household spending.

Families don’t like to talk about finances, she said at the Lincoln presentation. “This is personal. It touches your kids’ hearts, it touches your marriage,” she said.

Nebraska Farm Business clients — farm families — increased household expenses rapidly in recent years when grain and cattle prices were higher. From 2009 through 2014 family living expenses rose from $19,685 annual per person to $28,416 per person, for things like food, health care, clothing, personal vehicles and recreation. Now they may be coming down.

A reluctance to spend is showing up at shopping centers in Nebraska’s smaller cities, said Brian Reilly, president of DP Management. The Omaha property management company operates malls and strip centers in Norfolk, Kearney, North Platte and Columbus, among others.

“People are still visiting those malls, (but) they might be a little bit more cautious about what they buy,” Reilly said.

The company is investing in enhancements like exterior holiday lighting, he said. “We want to provide people with a really great experience. If that happens, then they’re going to come back.”

It was the same story at Deets Home Store in Norfolk, where second-generation owner Ron Deets said sales are down compared with last year.

“We really had to work hard to keep (the decline) in the single digits,” Deets said. “The farm homemaker knows when to pick her battles. When times are tough and commodities are low, she’s not going to ask for $20,000 to buy furniture.”

Store visits are down about 15 percent, so salespeople are working harder to try to convert each visitor into a customer, Deets said. The store spruced up its landscaping and improved the way it greets customers, assesses their needs, even how it helps load items into a customer’s car.

“We’ve really focused, the last two years, on the consumer experience,” he said.

Farmers are a critical part of the economy in northeast Nebraska, with their dollar turning over several times within the community, Deets and others said.

His brother, Tim Deets, who runs a competing furniture store in Columbus, said, “The farmers buy the pickups, the people that sell the pickups buy the groceries, and the people that sell the groceries buy the furniture.”

Creighton University economist Ernie Goss noted the impact in this month’s Rural Mainstreet Index report, covering a 10-state region including Nebraska and Iowa.

“Weak farm commodity prices continue to slam Rural Mainstreet economies,” he said, reporting a 19 percent decline in livestock prices and a nearly 12 percent decline in grain prices in the last year.

Some of the businesses that take a direct hit when farm prices fall said they manage by diversifying.

“In our world, if you rely on combine sales and tractor sales to keep the lights on, you’re going to have the life expectancy of a dog that hunts alligators,” said Art Gilfus, general manager at Platte Valley Equipment, a John Deere dealer employing about 145 people at four locations including Fremont and Wahoo.

Gilfus declined to share his sales figures, but John Deere corporate said total sales of agricultural and turf equipment for the company as a whole were down 7 percent in the year ending Oct. 31. The company forecast sales for agricultural equipment in the U.S. and Canada to drop 5 to 10 percent for the 2017 fiscal year.

Platte Valley survives by also selling services, including equipment inspections and on-farm repair, helping farmers increase their productivity, Gilfus said. And the dealer is cutting back on its own capital purchases.

Another seller of big-ticket ag equipment, steel fabricator Behlen Manufacturing in Columbus, said sales of its grain bins and ag-related building structures have declined this year.

“We have seen a downturn on big-ticket capital investments by a lot of end-use people in agriculture, whether that’s ag manufacturers or farmers or ag processors,” Chief Executive Phil Raimondo said.

Behlen’s sales of grain bins are down more than 30 percent. Behlen’s buildings business is roughly flat, thanks to sales in non-ag industries. And sales of smaller items like stock tanks and cattle gates are up 10 percent as farmers invest in upkeep.

Altogether the company expects to log $200 million in sales this year, about even with last year, what Raimondo calls “solid” performance.

“We’re very happy to be diversified,” Raimondo said.

Behlen looks to avoid cuts to its workforce, including 650 people in Columbus, during the downturn in grain bin sales, as good workers can be hard to find and the company expects business to pick up in the second half of next year. Instead it is shuffling workers around, reducing overtime, not filling positions, and giving workers extra days off around the holidays.

Perhaps unexpectedly, some businesses that trade in luxury items say they’re having a strong year.

At Treasures boutique in Columbus’ bustling downtown business district, owner Mary Nyffeler said she expects profits to be up this year thanks to a strategy of specializing in more high-end items with higher profit margins, including high-quality antiques and home decor items.

“Our customer, yes, they’re farmers, but they’ve also been farmers for decades, and they’re not panicking and they’re not going crazy spending either,” she said. “They know if it’s bad, it’s temporary.”

In Wayne, jeweler Randy Pedersen — who goes by “The Diamond King” in his off-key radio jingles — said his 38th year in business was a strong one.

“I’ve been through a lot worse farm economy than this,” he said.

He diversified in recent years by adding flowers and gifts to his store, the Diamond Center, and has cut costs by making annual trips to a diamond market in Israel, eliminating some middlemen, he said. This year he pre-sold 50 diamonds before making the trip.

Old-fashioned marketing plays a role, too: Pedersen stays in touch with customers, calling on them when a big anniversary is coming up.

“Maybe a 25th anniversary, maybe he’s just in trouble,” he said. “My job is to get men out of the doghouse.”

Pedersen echoed a common statement among northeast Nebraska business owners when he said he’s optimistic about 2017 thanks in part to the election of Donald Trump, who is likely to try to eliminate many regulations on business.

He’s also hopeful that a push to force online retailers to collect state sales tax will be successful, leveling the playing field and sending more sales his way.

He tries not to dwell on bad economic news. “I just keep working,” he said.

To watch the video, follow the link below.

http://www.omaha.com/money/farm-profits-have-fallen-but-nebraska-s-rural-areas-still/article_486c1a39-b516-5d6c-adb8-486afd708a96.html

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