Agriculture Online
08-31-07
Soybean growers: Plan carefully for 2008 profits now
Policy, management issues seen weighing on profits in the next year
Don't let high commodity prices fool you. Making a profit could be tough next year
if farmers don't plan carefully now, according to an Iowa Soybean Association
(ISA) report.
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 in 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%, 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.
Bruce Babcock, an 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, Babcock says.
He recommends that producers go here 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 research director. "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 says.
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.