On The Fence

January 31, 2009 01:10 PM
 

Brain freeze hit farm country like a blue norther this winter, and there's no thaw yet. With input prices remaining high while grain, soybean and cotton markets drag bottom, farmers from coast to coast are finding it tough to commit to 2009 cropping plans. The chill creeps across all of agriculture, especially impacting local suppliers or dealers and input companies.

A Farm Journal Media survey of corn and soybean farmers in mid-December showed how farmers are on the fence. More than half the farmers with 500 or more acres of corn had not finalized planting intentions and almost that many were holding off on soybean plans. Most were eyeing the cost-price squeeze between inputs and their crops. (Learn more on page 20.) Most say they'll make decisions by the end of March.

With no assurance of a crop price hike, farmers tried to work out ways to cut input costs—without sacrificing yields. Len Corzine, Assumption, Ill., thinks slashing inputs is not the answer. "Yield is still the huge thing. You have to get the bushels. Cutting back on inputs at the sacrifice of yield defeats the purpose," he says.

"We booked our inputs early. Put all our anhydrous down. We knew we were taking a risk on price, but we had to make a decision. Unless you're just plain lucky, it's hard to hit all those highs and lows just right."

Corzine tentatively booked 2009 seed but left himself some wiggle room. "We're hoping the seed companies will do a little better on price. The companies that have a full lineup of seed, chemicals and plant protection are doing some packaging, and sometimes those packages can be a pretty good deal. It also can be confusing because you
really have to pencil it and can sometimes be lured into inputs you may not want or need," Corzine says.

At press time, some seed companies and fertilizer suppliers were wheeling and dealing, trying to get farmers to pull the trigger. Farmers such as Corzine keep wondering if bigger breaks are ahead. When every cent counts, they don't want to lock down their acres and inputs too soon.

Last fall's price squeeze caught Jerry Demmer, Clarks Grove, Minn., in the worst way. He prepurchased both fertilizer and diesel before prices dropped. That committed him to plant 70% corn and 30% beans again this spring.

"I'm staying the course. I've got fertilizer on. This year I'll rob Peter to pay Paul. I can make ends meet if I take the land I own and not charge myself rent. I know that I shouldn't do that. But I've got to be optimistic I can see the other stuff cash flow. Farmers here are optimistic. Bankers are letting us price in $4.50 corn for 2009. Let's hope it gets there or there's going to be a lot of red ink," Demmer says.

Demmer, the chairman of the Minnesota Corn Research and Promotion Council, thinks sharing machinery, input purchasing and marketing with four other farmers will trim costs.

"We've been working on putting this thing together for a year. This will help us get leaner by stretching equipment and buying and selling larger quantities to gain a few pennies. It's a legal partnership, but we're separate entities. Stretching thinner to make ends meet should help us better survive in this environment. I thought $7 corn was going to ruin agriculture as I knew it, and it did," he says.

Planning ahead is normally a good business move, but in these volatile times, it is important to be careful when prepaying inputs. "Producers become unsecured creditors with prepayment arrangements," says Doug Jose, University of Nebraska ag economist.


"There were incidents in 2008 of firms becoming insolvent and not supplying the inputs. Deal with suppliers who have been a part of your local economy and have a history of providing dependable service to customers," Jose says.

Like farmers, agronomic consultants such as Phil Cochran, of Cochran Agronomics, Paris, Ill., are finding ways to hone management pencils that already are razor-sharp.
"I already have many regression equations, which I use to recommend all elements, for different soil types and the desired soil test values of clients," Cochran says. "But now I will be building more, considering not just soil types and rotations but land ownership and rental arrangements."

Even clients who own their land and are in a strong financial position are backing off from their usual application rates. With crop-share leases, application rates will be worked out between each tenant and landowner because they share the cost of fertilizer.

Cash rent leases will get the greatest scrutiny. "There are so many different arrangements that every situation needs to be considered individually," Cochran says.
"In the current economic climate, fertilizer recommendations for land in one-year cash rental agreements need to be very, very precise," Cochran says. "Limestone and potash don't become completely available for three or four years after application. If the operator loses the land next year, he could leave a significant investment on the table, from which only the next tenant will benefit."

A handful of farmers have negotiated land rent agreements that pro-rate lime and potash applications over three or four years, Cochran notes. That way, they receive a refund for unused nutrients if the owner changes tenants.

Two rules will apply to every client, Cochran says. One: Make sure your recommendations are built by someone you are confident has your best interest in mind. Two: Test soil every other year, rather than every three or four. That way, you can stay on top of soil dynamics.

If you're not varying the rate of phosphorus (P) and potassium (K), now is the time to start, Cochran suggests. "Nearly all dealers have variable-rate application equipment," he says. "If you need an independent agronomist to do the soil testing and make your recommendations, there are consultants available."

To make the most of the dollars you spend on fertilizer, "variable-rate application is at the top of the list," says Joe Nester of Nester Ag Management, Bryan, Ohio. It's not too late to add variable-rate phosphorus and potash to your program for 2009, he says.

"The first thing I would recommend is to see if you can eliminate fertilizer applications from your lowest-yielding areas in 2008," Nester says. "From sampling many fields by yield zone, we have found that, more often than not, the lowest-yielding areas of a field have the highest soil test levels of phosphorus and potassium.

"We have a tendency to apply more fertilizer on low-yielding areas—to try to ‘fertilize them out of it,'" Nester continues. "But often the problem isn't fertility—it may be pH, drainage or something else. Frequently, those low-yielding areas are headlands, end rows or point rows, which tend to get double rates of fertilizer, or areas located next to woods."

With nitrogen (N), you can become more efficient in 2010 by running test plots in 2009. "Apply various rates of nitrogen on some of your high-, low- and medium-yielding areas, based on your yield maps and knowledge of the soil," Nester says. Your most economical fertilizer rate on each soil type is the highest rate at which the extra yield pays for the additional N.

The results of Nester's study, which involved five rates of N and three replications across various soil types, surprised him. "We are finding that areas that yield the highest year after year actually require less nitrogen," he says. "The reason high-yielding areas need less nitrogen is that those soils have better soil structure, which leads to bigger root systems," Nester says. "With better roots, the crop recovers more nitrogen from the soil. These same soils are capable of providing more nitrogen because they have more soil life; more organisms do a better job of composting crop residue and recycling nutrients. On these soils, excessively high nitrogen rates actually can reduce yield."

Make decisions acre by acre. If you apply manure and sidedress N, you may be able to save money by taking soil nitrate tests before you sidedress. "We often find 20 lb. to 180 lb. per acre of available nitrogen where manure has been applied," Nester says. "It depends on the soil, and how fast nitrogen from the manure is recycled into nitrogen available to the crop."

As you read this article, Ken Rulon, his brother, Roy, and their cousin, Rodney, who farm near Arcadia, Ind., are studying the 2010 price outlook for P and K as they fine-tune their plans for 2009. Based on soil samples from one-acre grids, "our fertility program is kind of complicated," Ken says. "Usually, we apply phosphorus and potash to about 75% of our land every year. This year, we plan to apply P and K only to the acres that truly need it, about 25% of the total."

But that could change. "We'll be studying the fertilizer price outlook for next year versus how much prices decline this winter," Ken says. "If it looks like prices could recover by next fall, we may apply more P and K this spring."

Setting realistic yield goals can prevent using unneeded resources, says Dwight Aakre, North Dakota Extension farm management specialist. "I'm telling farmers to look at what's real, not what they'd like to get. With a realistic yield goal, maybe you don't need as much nitrogen or all those genetic traits stacked into seed," he says.

"Fertilizer looks like it will be significantly cheaper but will be partially offset by an increase in seed cost. I've never seen prices on both the input and output sides move as fast as this," Aakre says.

Renegotiating land leases holds potential for savings this year, says Craig Dobbins, Purdue University ag economist. "There still is time to renegotiate leases. I suspect in many cases farmers haven't done that," he says.  Some landlords may still not be aware of just how hard-hit farmers are right now. "It depends on how tuned in landlords are," Dobbins says.

Rickey Bearden, Plains, Texas, says the past six months' events make decision-making particularly tough for him and his neighbors. "We've thought about everything, from not
doing anything this year, to gearing up to produce as cheaply as possible, to just sitting and waiting to see what happens," says Bearden, who grew more than 8,000 acres of cotton in 2008 along with much smaller acreage of grain sorghum, wheat and peanuts.

"The big key is to get financing. If farmers can't do that, we'll see grain sorghum or wheat on those acres, grown as cheap as they can get by with. A lot of farmers here in the southwest part of the High Plains had a bad crop in 2008, with carryover debt," Bearden says.

"Most bankers realize this is more than a one-year operation. They're figuring how to make it work, to cash flow at least on paper before they delve off into it. We have strong lenders here who have good guidelines in place. That's the reason they are where they are and not in the shape of those Wall Street bankers," Bearden says.

He anticipates further problems facing agriculture in his region. "Anytime you have the volatility we've had, when price is down but inputs have not gone down as much, there are problems. I'm concerned that we're looking at chaos, that some people are going to get wiped out. There are not enough risk management tools to handle that much risk. They can't get their hands around it. Boom and bust is not a good way to do business," Bearden says.

Know the bottom and aim for the top. Putting together an accurate crop budget for lenders could be particularly crucial this year, says Greg Kalinoski, farm business management instructor at Northland Community and Technical College, Red Lake Falls, Minn.

"You need to know exactly where you're at with working capital. And once you put together budgets, know your break-even costs. Then, if there is an opportunity to make a profit, you can lock in a price," Kalinoski says.

Your situation may be different from your neighbor's. "We're in new territory. Each individual situation is different. One size does not fit all," says Rick Costin, University of Kentucky farm business management specialist.

Each farm is unique, but unusual times bind them together. Pat Gallichio, Los Banos, Calif., says the thing linking farmers in San Joaquin Valley is their indecision about 2009 plans.
"We're as confused as anybody. We're no different from the Corn Belt or the Mississippi Delta or anywhere else in that respect," Gallichio says.

"We do have some options, but what inputs do we book in? It's hard to figure it when input prices have not dropped like the prices for our crops. We're traditionally cotton farmers, but acreage has been falling and price still hasn't come up. If price is below 70¢ per pound, that makes it tough to grow cotton. We're all watching and waiting to see what happens. It's a pretty unusual situation," Gallichio says.

Most grain producers are in fairly good financial shape, thanks to strong years in 2007 and 2008, says Michael Langemeier, Kansas State University ag economist.
"They're going to weather these prices OK. However, there is a group of farms that ought to be careful. Some have fairly high debt and need to be extremely cautious and make decisions based on liquidity," Langemeier says.

Being cautious these days, fortunately, seems to come naturally for farmers across the country.



You can e-mail Charles Johnson at
cjohnson@farmjournal.com.

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