Drops in commodity prices and increasing land rental rates often raise major concerns for farmers, leaving them in search of ways to save money during tough financial times.
A common cost-cutting maneuver for farmers is the reduction of inputs. However, one must ask: To what point do input reductions go from a cost-cutting strategy to a decision that is negatively affecting a farm operation as a whole?
North Dakota State University extension farm management specialist Dwight Aakre says growers must be careful not to make their situations worse by reducing inputs and consequently reducing yield.
The input that has bounced around as the one most likely to see reductions next spring is fertilizer, which, along with seed and pest control, represent three of the most yield-impacting inputs.
It’s no secret that fertilizer is critically important to crop yields and long-term capability of soils, but it is also one of the largest input costs farmers have.
Fertilizer can represent as much as 55 percent of total crop input costs on many farms in the northern Great Plains, according to Dr. Thomas L. Jensen, northern Great Plains director for the International Plant Nutrition Institute.
Jensen says that one of the most important economic strategies for growers is to apply sufficient fertilizer to increase crop yields to the point where net returns are maximized. However, he notes, cutting back too much can reduce net income.
Other expenses for growers that prove harder to reduce include land costs, machinery ownership and family living expenses.
Aakre said not only is land rent a bigger cost item in recent years, it’s also one of the more difficult costs for farmers to reduce.
“If you’ve got a multi-year contract and you’re not at the end of it, you’re obligated to continue that unless you lose the contract,” said Aakre in a recent interview with the Red River Farm Network. “You risk, even if you’re at the end of the contract, negotiating down that you’ll lose the land. Chances are, when you do lose land, you don’t get it back. There’s some room there, we can bring it down, but it’s going to take some negotiation.”
Land rental rates are always a sticky situation for both farmers and landowners. And though fertilizer cuts are more than likely going to be the primary cost-cutting choice, growers may be better off in the long run by finding other cost-cutting avenues.
Source: Farm & Ranch Guide