Will we make a profit in 2012?
Rising costs of production puts field crop production at high risk in a volatile market.
Just a few years ago it would have been a dream to have soybean future contract prices over $12 a bushel and corn prices over $6. There would be no doubt that the field crop producers would think that the coming year should be very good. The last three years have been exceptional for most. The reality for 2012 is that although these are the current contract prices, the cost of production has risen so much that the bottom line could become very tight. In completing a projected budget for our major crops, it is humbling to see that excellent yields and strong prices will be needed to cover expected expenses.
Farmers have a lot invested and at risk. It will not be uncommon to have nearly $500 per acre invested into a corn crop in 2012 before land costs. Land costs, seed, machinery, repairs, fertilizers and most other inputs are increasing. Seed and fertilizer expenses make up nearly one-third of the total costs of producing most field crops. These two items also have a great deal to do with how successful the crop production will be. So what should producers do? Everyone’s strategy will likely be a little different depending on their own risk situation and preferences.
The first step is to develop a crop budget or cost of production based on your own farm operation. Relook at alternative rotations and special use crops and premiums. Put a realistic marketing plan in place and then follow it. The current prices we have now are not guaranteed to continue through harvest. Our markets will likely be very volatile.
Another key action to take, which we have stressed for years, is to base your fertilizer program on good soil testing and crop needs. There is a huge variation of nutrient levels throughout your fields. It is unwise to under apply needed nutrients or over apply nutrients. You will not know this without a good soil test program. Everyone needs to also recognize that soil fertility is more than just nutrient levels. Good soil quality has active soil biology, stable soil structure and effective organic matter levels. These are affected by crop rotations, tillage, cover crops, manure use, and soil conditions during tillage, planting and harvesting.
Take time and analyze the best yielding and most economical varieties adapted for your farm. Most producers have their seed ordered and are set for 2012. Be intentional and plan out your own variety comparison test on your farm. Replicate it on uniform ground then take the time to collect yield data and analyze it for 2013. Additional information can be gained by looking at other local on-farm variety trials. Both the Mid-Michigan area and the Thumb area have numerous on-farm variety comparison sites coordinated by the local MSU Extension educators. Also take advantage of the MSU statewide variety testing program which compares hundreds of varieties at dozens of sites.
Make certain the rest of the crop program is sound. Weed control, pest management, crop insurance and machinery are the next items on the budget list that are also critical to get right. Work with agri-professionals for advice with each of these items. Plug everything back into your budget and make certain it works. Run “what if” scenarios to assess your risk if prices or yields are less than expected. Reevaluate on a regular basis and make changes as needed.
Our overall economy seems to be very volatile and hard to predict. Although agriculture is currently very strong, there are mixed opinions on what is in store for us. Events in other parts of the globe can change our bottom line over night.
Individual assistance with any of the above mentioned items including cash flow projections is available by appointment with MSU Extension educators.