Making Wise Agricultural Decisions

How Right Choices Add Up

Published in the January 2009 Issue Published online: Jan 27, 2009
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The closing lines of the Robert Frost poem entitled The Road Less Traveled read, "Two roads diverged in a wood and I took the one less traveled by and that has made all the difference."

After observing the wild price swings in the commodities markets and unprecedented input costs, agriculture is blazing trails in completely uncharted territory, and a faint glimmer of a trail would at least be comforting.

 

ELEVATED COSTS

Most growers remember very few times when every crop they produce has the potential to be a positive contributor to the bottom line. News headlines and commentaries speak of extremely high returns to producers. Left completely out or only slightly mentioned are the unprecedented high costs of virtually every input for every crop grown.

Conveniently ignored is the fact that about 80 percent of the retail cost of a loaf of bread is attributed to processing, packaging, transportation, marketing and labor. At an $8 per bushel wheat price there is 20 cents of wheat in a loaf of bread, up from 12 cents from the previous year

 

FERTILIZER EXPENSES

Fertilizer and fuel prices are up to four times higher than two years ago. We have not yet felt the full effect of fertilizer price increases as the majority of fertilizer applied to the 2008 crop was pre-bought at 2007 prices.

Reality will be hitting soon as fall-applied fertilizer bills begin to arrive in mail boxes.

If commodity prices stay at higher levels, producers will continue to be profitable, but if prices drop back to some of the lows we have seen, downside losses could be huge.


SOLID PREPARATION

Now that the obvious has been stated, what is the appropriate response to these uncertain times?

Over the years I have worked with many growers and observed varying management styles.

One thing I have noticed is that it is as easy to save yourself into bankruptcy as it is to spend yourself there.

If you are only concerned about spending up to a pre-determined point in your crop input budget then stopping regardless of crop need, yield and quality will suffer.

Crop demand for each nutrient may have some slight variations from year to year depending on growing conditions, but overall, fertility needs will be very similar. Utilizing soil and tissue testing with appropriate interpretation of those results for field and crop conditions will help to maximize your cost ratio.

We need to stop thinking about cost per acre and be more concerned about cost per unit of production.

Often times the individual who spends the least in dollars per acre has the highest cost per unit of production. It will be more important than ever to maximize your crop input dollar to obtain the best yield and quality possible.

Another tendency is to shift production from what a grower normally does to more profitable crops.

Remember the reason the price went up was because of the law of supply and demand.

We are seldom successful at chasing commodity prices as our increased planting lags far behind the price peaks.

The approach that seems to be the most successful over time is to stick to your rotation, with some small variations where market conditions may be favorable.

 

PONDER CONDITIONS

Additionally, growers should stick to the soil types and growing conditions they are familiar with.

Most of us in Idaho are comfortable growing on silt loam soils, but farming a piece of ground that is either sandy or heavier can come with an expensive learning curve.

When considering renting or buying a farm, you need to evaluate several areas, but often the most ignored component is the irrigation system.

What was considered adequate for an irrigation system 10-15 years ago probably won't cut it today. When the crop is growing and you suddenly realize there isn't enough water, even if some improvements can be made, it is likely that your crop won't reach its maximum yield potential.

Each farm should be evaluated for its suitability for a particular crop. Some fields will grow wheat and beets just fine but are money losers for potatoes and vice versa.

Growers should rely on sound agronomic advice and practices that have a proven track record.

Dr. Bryan Hopkins, associate professor at Brigham Young University in Provo, Utah, and former Extension/research assistant professor at the University of Idaho, once gave me some excellent advice. Referring to trying new products he said, "In God we trust.

Everyone else brings data." Over the years that has proven to be very effective advice.

Every year I see new products that promise phenomenal results at a fraction of the cost of proven products and have yet to see one that really delivered on that promise consistently.

Legitimate companies with legitimate products will have the research results from either universities or contract research groups to back up their claims. I am very skeptical when someone says the university doesn't know how to test a product.

This often means that research results-if they have any-are random at best and will not help bolster sales.

In economic jargon, we hear of two types of products, price makers and price takers. Agricultural produce has often fallen into the category of price takers. We just want to farm and not have to worry about the marketing end.

Those days are past. With skyrocketing input costs unlikely to change significantly in the near future, it is imperative to be able to market your produce at a profit.

 

CONTRACT SAVVY

Several years ago I was talking with a tomato grower in California and asked him how many tomatoes he grew for the open market.

He looked at me funny and asked what I meant. I explained that often growers in Idaho would grow a crop without a contract and sell it on the open market. As a matter of fact he stated that they don't grow anything without a contract.

Growers should have an active voice in groups that are trying to stabilize markets and stop being price takers.

Price makers have the ability to determine their own future. Price takers may survive as well, but there will be many more ups and downs and uncertainty in their future.

Personally, I see many reasons to be optimistic for the future of agriculture.

In past years we have seen a significant shift to larger producers, but niche markets and organics have opened new areas of opportunity for the small- and mid-sized growers.

Technology is enhancing our ability to produce and market a crop more cost effectively.

As we efficiently meet challenges and adapt to new conditions, agriculture will continue to meet the needs of an ever-growing and expanding population. 

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