Consider Price, Cost and Yield When Deciding Crop Mix for 201812/05/2017
A lot can change between now and spring planting season, but as farmers complete 2017 harvest and start figuring out 2018 crop acreage, cotton and soybeans pencil out better than corn and wheat for Tennessee farmers.
“I’ll be interested to see, as we get into the winter, how interest in cotton acreage moves,” says Aaron Smith, University of Tennessee Institute of Agriculture Extension assistant professor and crop marketing specialist at Knoxville.
“Cotton has come up in recent weeks, relative to corn and soybeans, but it’s too early to suggest that we will see an increase in acreage.”
Smith says if cotton futures stay where they are, and corn and soybeans improve little, if any, during the next few months, “we could see a bump in cotton acreage.”
But determining the proper crop mix can be more complex than just looking at crop prices, Smith says. “Price ratios, help,” he adds, “but I prefer to look at three factors — price, yield and cost. We can see acreage changes based on any of those three factors.
“Farmers can’t do anything about price.” They do have some control over yield and costs, however. “Consider yield, for instance. Something like adding rotation may provide a yield benefit.” If a producer has been planting continuous corn and rotates to soybeans, yields may improve because of the benefit of rotation, he says. The reverse may also be true.
“But producers have to look at the tradeoffs carefully,” he adds. Corn markets may not be as attractive as they are for soybeans, so a producer should look at a reasonable yield goal and the potential gain or loss in market price.
He adds that yield-enhancing practices will often vary from field to field and may depend on factors such as weed populations, soils or fertility. “A weed issue could mean extra production costs or the need to switch to another crop,” he says.
Crop production costs in Tennessee are all over the place, Smith says, and, again, vary significantly from farm to farm and field to field, possibly even within a field. He says land rental rates range from reasonably cheap to very expensive, “especially in northwest Tennessee and near the Nashville area.”
Machinery costs also differ significantly from one farm to another. “Some producers use newer equipment, trade often, and have higher recovery costs, interest and depreciation, but fewer repair and maintenance costs. Others use older equipment and have lower recovery costs with machinery that has already been depreciated. They have no loans or very low ones. But repair and maintenance expenses are higher.
“Look at the differences and check the numbers to see which option works best.”
Smith says fertilizer prices are down compared to last year. “They have ticked up a bit in recent weeks, but are still lower than at this time a year ago.”
He does recommend soil sampling as a good practice to “get a good bang for your buck. Identify the areas of the field with nutrient deficiencies. Cotton farmers, for instance, can get a yield bump by applying sulfur in fields that are deficient. Soil sampling is a fantastic practice for return on investment. Identifying areas that are deficient may show where you need to add more inputs or, perhaps, switch to another crop.”
Precision application technology also may provide opportunities to improve product efficiency. Smith says precise application of chemistry, for instance, prevents waste from over spraying and also increases confidence in adequate coverage. He does advise producer to consider the cost of upgrading application equipment.
Cost cutting can result in unintended consequences. “Don’t slash costs,” Smith advises, “but use a scalpel approach to save yield potential. Cost decisions should be a line-by-line procedure. Watch for inputs on a field-by-field basis, and conditions can change within the field.”
He says some areas in a field may be making money and others are not. Identifying which areas fail to produce yields that cover cost may mean cutting back on inputs or changing to a different crop.
From a price perspective, Smith says at this time, corn and wheat are “not looking profitable for 2018. Soybeans, with futures around $10 a bushel, would provide some producers an opportunity make some money with average yields. Not everyone will be able to do that.
“I will be interested to see what cotton does after several years of low prices. Cotton equipment is expensive, so it’s not easy to get in and out of production. Will we see new farmers or farmers who have been out of cotton for a while get back in? At 70 cents, probably not. But at 75 cents to the upper 70-cent range, we could see some new growers or those who grew cotton in the recent past.
“We can see a lot of changes before it’s time to plant,” Smith says. Wheat and corn farmers will be looking at those changes over the winter. “With wheat, producers will decide in early spring whether to take the crop to grain or use it as cover.”
Tax, crop insurance costs, and finance issues also could affect crop decisions. Crop insurance decisions are several months off, Smith says.
“But, depending on enterprise production costs, financing availability could mean a pull back to less expensive crops.”
Smith doesn’t believe ag lending issues will be significant for the 2018 crop, for most Tennessee producers, however, following a good crop year. “Our farmers are not flush with cash,” he says, “but we did have record corn and soybean crops and a near-record cotton harvest. That will make it easier to get financing for 2018 production.”
That seems to be the case for most producers, he says. “But for those who have been teetering on the edge for the last two or three years, it will be tougher to get financed. Some may have to exit row crop production.”
He recommends that a farmer who is “riding the line should go into the lender’s office with a plan in hand to show how he will overcome the cash shortfalls of the past few years. If a producer is proactive, lenders are more likely to stay with him,” he says.
Smith says now that harvest is complete, or almost complete, farmers need to start working their pencils — creating their spreadsheets— to develop a cash flow plan for 2018. So far, cotton and soybeans look better than wheat and corn. But he cautions producers to watch markets and input prices and to examine production practices to see if any costs can be reduced without sacrificing yield.
Source: Ron Smith, Delta Farm Press