Writing an article on 2011 crop prices may be, to a certain extent, like looking into a crystal ball. Who can predict the weather? Do you follow the Farmer’s Almanac? If so, how does that work for you?
It’s a game of luck, for sure, but there is also a scientific and mathematical approach to deciding what to plant to bring the most gain to one’s farm operation.
Farming today is not like it was in my dad’s day. Farming has become so technical, with so many different factors to consider: How does the average farmer determine what crops will earn the best profits in any given year? Then one has to factor in rotation, world conditions like the drought in Russia, hedge funds, computer-based trading and, yes, even pension systems.
Several people who know, educate and live the ag industry provide some guidance in determining crop pricing. David Bau, University of Minnesota Extension educator in the area of Ag Business Management, guides farmers to the Southwest Research & Outreach Center web site (http://swroc.cfans.umn.edu/ResearchandOutreach/FarmBusinessManagement/index.htm), which has an Acceptable Crop Price worksheet, Cropland Rental Rates for MN Counties, Flexible Crop Cash Rents, FINBIN and many other links to help make important decisions about your farm operation.
The Acceptable Crop Price worksheet (in PDF format, or in Excel for the more “techie” farmers), provides categories of information into which you can plug your figures to determine the result for the various crops you may want to grow. Some of the categories are Crop Income, Crop Expenses, Family Living Expenses and Price Calculation for corn or soybeans. Within each category are the individual items that would affect the profit or loss of the particular crop. For instance, the Crop Expenses category lists fertilizer, fuel, crop insurance, machine lease/hire, etc.
The web site also provides a link to Cash Rent Information, such as cropland rental rates per county and flexible crop cash rents. Another heading, “Center for Farm Financial Management,” has links to AgPlan, FairRent, FINBIN, FINPACK, Marketeer, RankEM and Winning the Game. Yet another category, Crop Insurance, provides procedures for delayed harvest and aflatoxin damage and utilizing federal crop insurance. Even if you do not have a computer, a trip to your local library will give you access to this information.
Paul Oehlke, Farm Business Management instructor for Northland College in Fergus Falls, predicts, “Current projections indicate increased expenses in 2011 compared to 2010, but they should be manageable increases in fertilizer, crop insurance and seed.
“Using present future prices with average yields, 2011 should be again profitable. Above average yields and increasing commodity prices at harvest, like we have seen during 2010, are not the norm.
“Agricultural lending practices should be similar to years past. Lenders will expect similar balance sheet and cash flow improvements with like-kind operations. The important thing is to begin to plan for 2011 early and keep everyone informed of your plans. Do not forget your family’s goals or creating a family memory in profitable years.
“Use your 2010 crop to pay down your short term debt and pay for more of your crop input costs. Try to do your 2010 tax estimate early so you can best time your crop sales and 2011 crop expenses or make needed capital purchases. Consider using early dealer discounts to lower your 2011 break-even prices and 2010 income taxes.
“Your goal in 2010—2011 may be to have enough working capital to finance a greater portion of your cash flow expenses. It is suggested that 25 percent or more of your annual expenses come from your own working capital. It is important not to use all of your excess working capital on capital purchases. Spread those costs over a few years in order to preserve enough working capital to withstand potential lower crop prices or yields in 2011.
“You may also want to calculate your break-even price early to take advantage of locking in part of your 2011 crop at current profitable prices. Just a few years ago many farmers were kicking themselves for not locking in profitable commodity prices for the coming crop year when the opportunity presented itself.
“For more information on crop marketing and developing cash flows,” Oehlke advises, “please find a farm business management instructor at www.fbm.mnscu.edu.”
Bill Tommerdahl, who farms near Hendrum, Minn., leaves the spreadsheets and computer-age technology to his son Jay. He feels the younger farmers use the spreadsheets and databases but most of the older farmers stay with the old methods of determining rates: listening to the radio market reports and selecting seed based on prior years’ outcomes. The Tommerdahls also take advantage of seed discounts at the start of the year.
Vanessa Kummer, vice chair for the United Soybean Board, says, “Every individual farm has its own operational needs, and I wouldn’t want to make recommendations to other farmers on how to approach the decision process. From my personal farming operation’s standpoint, NDSU can be a good resource, along with crop consultants, agronomists and marketing services. We use crop rotation needs, as well as potential crop price and expected acreage and storage capacity, to make our cropping plan. The plan also needs some flexibility as spring weather brings its own challenges.
“From the checkoff’s standpoint, the directors from around the country that serve on USB strive to provide profit opportunities for all U.S. soybean farmers, in times of strong prices and especially when the price cycle turns the other way. Price alone doesn’t determine profitability. For example, the checkoff’s Production research program at the national and state levels is doing all we can to find ways to protect and increase U.S. soybean yields.
“My feeling is, there is a lot of strength in today’s market, with demand for U.S. soy remaining strong. We have also seen markets like this change rapidly and fall quickly, so I would not want to predict 2011 crop prices. But prices, at least for soybeans, do seem to have a higher base than in previous years.
“We will have a similar mix in our crops as we did last year with sugar beets, corn and soybeans.
“From my personal farm standpoint,” says Kummer, “there are a lot of marketing services available, and we also depend on our local elevator managers. Every U.S. farmer needs to be aware that we are in a global market. And ‘global’ means markets here at home and those abroad. What takes place beyond our local elevator determines our profit potential. That’s why we have a checkoff, so that U.S. farmers can play a large role in building markets for our soybeans. What happens to poultry and pork demand here at home, or what happens in China, Brazil, Argentina, Europe and the rest of the world, affects the price we receive. The soybean checkoff also offers a market update service that comes to your cell phone as a text message. This service is free to all U.S. soybean farmers, and they can sign up on the front page of USB’s Internet website at www.unitedsoybean.org.
“From the checkoff’s point of view, our farmer-directors have an opportunity to review supply, demand and price-outlook summaries each year so that we can anticipate what kind of checkoff resources we might have to continue the programs that will increase international sales, create new uses and other activities that provide soybean farmers with profit opportunities. The United Soybean Board always budgets very conservatively. We all know on our farms that it’s much easier to adjust to having more revenue than less. That’s no different when you’re investing in soy research and promotion.”
No matter what generation farmer, the information available is at your fingertips through county extension services, seed organizations’ data and many online sources for input and information. So put away your crystal ball!