Most farmers in Wisconsin are enjoying better than average yields for soybeans and corn. Unfortunately, many farmers are not all smiles over the bumper crop, due to less than stellar prices for these commodities, and the outlook for major price increases on the horizon remains bleak. Everyone wants to see farmers be profitable. The bankers, farm suppliers, machinery dealers and other businesses all know when farmers are profitable they pay their bills on time and circulate dollars throughout the entire local economy.
So, the big question for each farmer looms, "How do I stay profitable to ride out low crop prices?"
It is not wise for farmers to count on ARC and PLC government payments to provide the profit for their operations. These programs are not designed for that purpose and expecting insurance to keep you profitable year after year is not a very good business plan.
In order to stay profitable or become profitable requires the use of proper tools. Start with your crop record system. Critical decision making is knowing your "break even" price. When do I start to make money? This can only be determined when you have trusted information at your fingertips. Take time to identify all the costs associated with producing your crop, including land, seed, planting, fertilizing, pest management, insurance, depreciation, repairs, fuel, and labor costs. Your county Extension agriculture educator has some great spreadsheet resources to help you identify these costs and compare them to state averages.
Once you know your "break even" price, you may begin to develop a marketing plan and follow it. No one has a crystal ball to see into the future, however, it is pretty common knowledge that unless a new market opens up somewhere in the world, we do not expect a large price rally for the 2016 crop. Therefore prices look somewhat stale for the next year or so. Once you know your costs, and your probable income, you will know your probable profit margin. If that number is zero or less, you need to make some changes.
The next step is to identify which costs you can control or change. Beginning with seed, consider purchasing only the traits you need for your farm or fields. If you rotate your crops, you may not need double or triple stacked traits. If you are growing continuous corn you may need them. Work with your seed suppliers, they want you to be profitable so they get paid and so they can retain you as a future customer.
Consider soil fertility. Have you been checking your soil's fertility gauge every four years by soil testing? If so, you might have soils that are showing very high to excessively high levels of phosphorus and potassium. You might wish to draw down your "soil bank nutrient account" a little bit in 2016 by cutting back on purchases and applications to those fields. Don't starve your crops, but don't overfeed them either. Overfeeding is hard on both the profit margin and the environment.
Be sure to understand the law of diminishing returns. Everyone supports using fertilizer on fields that need it and crops that need it, to increase crop production. However, at some point, adding more fertilizer increases yield by less per unit of fertilizer. Realize also, that you can even add too much fertilizer to a point where it can reduce yields.
Land ownership and rent tends to be another major consideration. If you cannot make money on some parcels due to high rent or other factors, renegotiate or stop renting the land. That is a hard thing to do, but it just doesn't make sense to work hard just to lose money. It is a farmer's human nature to not want to let go of a piece of ground they have been working. Have your heard the saying, "Farmers don't want to own or control all the land, just the land that touches theirs?" Hmmm! Be willing and be able to walk away, with no hard feelings.
Do you want or need help evaluating the cost of production or marketing of your crops? Call or stop in and visit with your county Extension agriculture educator. They are available to provide you with university backed, unbiased research and are committed to assist you with making sound economic decisions.
If your goal is to obtain the highest yield possible from your fields, year after year, you might want to rethink that goal. If your goal is to maintain a reasonable and comfortable profit margin each year – you will most likely be in business and enjoy farming for a long time. Get frugal – it's OK!
Koepp is the Columbia County Extension ag educator.