Urbandale, Iowa
August 30, 2007
Don’t let high commodity prices
fool you. According to the
Iowa Soybean Association (ISA), making a profit could be
tough next year if farmers don’t plan carefully now. Why should
we be concerned?
ISA President Ray Gaesser, a soybean and corn grower from
Corning, Iowa, put a pencil to paper and he was surprised at his
projections for next year – the surprise was how challenging it
could be to make a profit next year despite healthy market
prices.
“It appears that farmers could have a break even cost on corn at
near or above $3 per bushel and at about $7.50 on soybeans,”
says Gaesser. “We definitely have much more risk than at any
other time in my 40 years of farming.”
He points out that this illustrates why it is important to
continue to work for a farm bill that will provide a support
mechanism that protects farmers during times of high risk.
Moe Russell, president of Russell Consulting Group, Panora,
Iowa, says that while gross dollars per acre have increased
dramatically, so have the costs associated with farming. Cash
rent increases of 20 to 50 percent, increased fertilizer, fuel
and machinery costs all drive breakevens way above the loan
rate.
“Traditionally we could depend on loan rate to keep us out of
the farm sale listings,” says Russell. “We probably wouldn’t
make a lot of money, but you could be assured you had protection
to keep from going broke. Not so now.”
From a risk management standpoint, Russell recommends locking in
margins to protect the downside, because farmers won’t be able
to rely on loan rate for downside protection. In addition, he
suggests developing long-term relationships and agreements with
input suppliers, which can result in savings for growers and
higher margins for suppliers. He also suggests diversification,
whether that means investing in a biofuel plant, a livestock
venture or other off-farm investments.
Dr. Bruce Babcock, Iowa State University professor of economics
and director for the Center for Agricultural and Rural
Development, says farmers should protect themselves by figuring
their projected market returns, minus their projected variable
costs (such as seed, fertilizer and fuel). The difference is
what they have left for management, land rent and depreciation.
What is left over after those costs are subtracted is profit,
says Babcock.
He recommends that producers visit
www.extension.iastate.edu/publications/FM1712.pdf to view
calculators for “Estimated Costs of Crop Production in Iowa
2007.” This can serve as a guideline when calculating costs for
2008.
ISA also invests checkoff dollars to find new ways to save
growers money. For example, Iowa State University Extension
Agronomist Palle Pedersen is conducting a three-year study that
will develop practices for planting no-till soybeans in Iowa.
One of the advantages is reducing energy costs related to
agricultural practices like tillage.
The On-Farm Network™, a program conducted by the Iowa Soybean
Association, also conducts research designed to help Iowa
soybean growers farm more efficiently and effectively.
In recent years, a number of growers have looked at routine use
of fungicides, a practice widely used in other states. The
On-Farm Network results to date show that most growers would
spend more on the fungicide and application costs than they’d
get back in increased yields.
“Much of the work we do in the On-Farm Network is focused on
corn,” says Tracy Blackmer, ISA director of research. “Nitrogen
management studies have shown that many – but not all – growers
can cut nitrogen application rates by as much as 50 pounds per
acre without an economic yield loss. This is particularly true
when growers are willing to shift timing of liquid nitrogen
applications from pre-plant to sidedress.”
With pre-season UAN prices rumored at more than $0.50 per pound,
managing nitrogen better promises some degree of cost savings.
A four-year study of deep tillage also showed that on the
average, there was no economic benefit in either corn or
soybeans. “Cutting out heavy tillage, if that has been your
practice, is another way growers might save on production
costs,” Blackmer notes.
Since most soybean growers are also corn growers, it’s important
to look at the long term benefits of rotations to the yields and
input costs associated with both crops. “Even though higher corn
prices might be enticing when you’re budgeting for 2008, it’s
important to adjust yields and inputs – particularly nitrogen –
accordingly,” Blackmer says.
For more information about planning for profit in 2008, contact
Moe Russell, Russell Consulting Group, 641/755-3848 or
mrussell@netins.net; or Tracy Blackmer,
Iowa Soybean Association,
800/383-1432 or
tblackmer@iasoybeans.com.
The Iowa Soybean Association develops policies and programs
that help farmers expand profit opportunities while promoting
environmentally sensitive production using the soybean checkoff
and other resources. The Association is governed by an elected
volunteer board of 21 farmers. |
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