Controlling the Controllables02/01/2019
Steve Johnson, an Iowa State University Extension farm management specialist, in January finished his annual winter series of “Growing On” meetings with farmers. His theme this year focused on “Controlling the controllables,” encouraging growers to manage the things they can control, such as input decisions, crop rotation, crop insurance, crop marketing and others.
“It’s too easy today to blame someone else for your circumstances — the weather, government shutdowns, trade policy, tariffs, etc.,” says Johnson, who worked as an ag lender in the 1980s. “Those are factors you have no control over. Make sure you are taking responsibility for the management practices and business decisions you can control (see story below).
Marketing plans important
Many growers treat cutting costs as a main goal without considering the bigger picture of managing crop risks, Johnson says. In developing a marketing plan, he recommends farmers calculate their 2019 actual production history breakeven price to help determine a reasonable new-crop futures price minus basis for pricing new-crop corn and soybeans.
That APH breakeven price is calculated as estimated fixed costs plus variable costs, divided by APH production. Then after harvest, the actual breakeven for each crop that year is calculated. That’s the actual fixed costs plus variable costs divided by actual production.
Despite low prices and tight margins, farmers have generally “busheled their way to profitability” the past few years, Johnson says. “Actual breakeven prices have been the good news, as a lot of growers have had record farm yields with relatively low breakevens. As a result, the good risk managers who used preharvest marketing strategies for the majority of their crop production each year are still making money.”
Putting it all together for 2019
Brothers Peter and Alan Wicks, farming near Adel in central Iowa, are prepping machinery and preparing for spring planting. They normally try to pre-sell a certain amount of their corn and soybean crops. “I try to get priced the amount I think I won’t have room to store,” Alan says.
The brothers say with recent trade policy changes and other government issues, it’s not just supply and demand determining prices. USDA’s Marketing Facilitation Payment will help this year. “We don’t have any plans to make any major machinery purchases right now, and we do as much of our own repairs as we can,” Alan says.
The brothers no-till much of their land. “For several years, we’ve no-tilled all our corn into bean stubble, and we’ve no-tilled quite a bit of the bean acreage,” Peter says. “But we do use a disk ripper on some of the cornstalks.”
The brothers use grid sampling and variable-rate application to reduce fertilizer expenses. They note that many farmers are assessing their fertilizer management this year, applying less P and K if they have fairly high testing soils. Some are considering split applications of nitrogen, and more farmers are evaluating ways to reduce herbicide costs.
“We applied most of our nitrogen last fall, and were fortunate to get it pre-priced and get it done with such a small application window due to the wet, late harvest,” Alan says. “Nitrogen prices have increased significantly this spring.”
For more information, check out Estimated Costs of Crop Production in Iowa, 2019 at ISU Eetension.
Tips to save $50 per acre
Cash-flow projections for 2019 are tight. ISU’s 2019 crop production cost estimates show an increase of over $30 per acre for soybeans and over $40 per acre for corn. Increases in nitrogen fertilizer and herbicide prices are the main drivers for this year’s rising cost of production.
“Farmers face huge challenges with these tight profit margins,” says Johnson. “But those who are doing a good job of managing risks are excelling today and are making money, despite these tough times.”
As farmers set goals for 2019, Johnson believes many of them can achieve $50 per acre in savings. “It starts with keeping good records and analyzing them as a benchmark, so you can set reasonable breakeven price objectives,” he says.
He offers five strategies to reach that $50-per-acre savings:
- renegotiating cash rents to save $5 to $10 per acre
- using soil testing and variable-rate fertilizer application (N-P-K) to save $20 to $50
- maintaining equipment to cut $10 to $30
- shifting to minimum tillage, strip till or no-till, saving $10 to $30
- purchasing seed using cash, volume and early discounts to save $5 to $20
Source: Rod Swoboda, Wallaces Farmer