4 Questions That Will Shape Farm Decisions in 201602/11/2016
The questions you ask are sometimes more important than the answers they bring. That’s because even though hindsight is 20/20, those revelations sometimes come too late to bring about effective change.
“If we could predict future prices, [for example], we would simply wait until the market price is at its highest level, then market an entire year’s worth of production,” according to John Berry, ag marketing educator with Penn State University. “Imagine how fun that would be. Since this ability is not possible, grain marketers are stuck with doing the best they can with what they have.”
In particular, farmers need to know their true cost of production to implement truly effective marketing strategies, Berry says. The challenge is, farmers often tell him they don’t know cost of production until harvest is over.
“I agree with this,” he says. “However, my point is we can make a fairly accurate guess of next year’s cost of production by using last year’s costs and yield well before the crop is even planted. We do not have to wait until after harvest to know the cost of operating our grain business to decide on a market price we like.”
So back to asking questions. Berry says farmers who ask – and answer – these four questions in particular will help them do the best they can with what they have.
- What does it cost for your farm to operate?
- What do you expect prices to be?
- What is your current guess of total 2016 farm revenues?
- What is your farm management team’s plan for managing your business in the months ahead?
Any time you can sell bushels for above your cost of production, you are in effect locking in “a modicum of profit,” however big or small, Berry adds. In that regard, trying to project future prices isn’t pure folly, he says.
“Remember, nobody can predict the future with any certainty, but it can offer some insight that might be reflected in our price expectations when we try,” Berry says.
Source: Ben Potter, AgWeb.com