As the calendar flips to March, I continue to hear from farm suppliers that producers have been slow to commit to seed purchases for 2014 plantings. Most likely, this indecision is due to lower 2014 prices that can be booked for harvest delivery. The profitability outlook is tighter than it has been the last couple of years.
I imagine a lot of fence sitting between what crop to raise was decided the last week of February in Tennessee as corn planting time will soon be here. I generally see several key factors that influence a producer’s planting decision.
Financial Position - Although a more capital-intensive crop such as cotton or corn may appear to be the most profitable, if financing or a producer’s funds are not available to purchase the needed inputs then a less capital-intensive crop will need to be raised. It is fortunate that soybeans can have as much profit potential as the more capital-intensive crops.
Land – Whether the land farmed is owned, cash rented or share rented can have a bearing on the crop raised and its profitability and if there is any flexibility on the crops planted. Producers with owned- or cash-rented ground can generally plant the crop that best fits their operation while share-rented farms also need to incorporate the landowners needs and goals. A good relationship between producer and landowner is always needed, but is particularly critical on share-rented ground.
Seed Availability – There have been some years where a shortage of high-quality seed has influenced the crop planted. Producers waiting until the last minute to decide on a crop may find the top varieties not available. Producers need to study closely university trials as well as commercial trial data, visit with their Extension agent and work with their seed dealer on obtaining the best variety for their farm.
Rotational Needs – Farmers are excellent stewards of the land. Generally speaking, those who follow the rotational needs of their farm come out ahead in the long run. Occasionally, deviating from their rotational plan because of prices or projected profits will work in the short run, but should be carefully considered for long term viability.
Crop Insurance – At times it can be important from a crop risk management perspective to examine which crop can offer the best protection from either a drop in price or yield or combination of both. I don’t foresee at least in Tennessee in the short term where crop insurance can guarantee a profit but it can be used to limit risk exposure and that will depend on an individual producer’s situation.
Several moving parts to profitablity ... and a table showing them
Profitability Outlook - Probably one of the factors that producers look at closest is the profitability outlook of each crop. Making a projection on profitability outlook is not an exact science as this does have several moving parts. Prices, yields, and input cost all have to be considered.
With prices, I usually start at what is being currently offered for harvest delivery, however, I think it is also important to look at a projected season-average price with a range both lower and higher. For yields, I would use a 3 to 5 year average as a starting point and like prices look at higher- and lower-than-average yields. Producers should use their own cost of production but as a start can use their Extension’s crop budgets.
In assisting producers in making informed decisions regarding their cropping plans, examining the returns above variable costs is useful. This method is used when there is very little equipment changes being made and fixed costs are not changing. If the farm is making operational changes then a whole farm plan should be examined. If the farm is share rented, that particular share should be considered as a cost.
As has been evident the last few years and throughout time, a sound cropping plan should include crop diversification – different crops, different varieties, and rotation. We don’t know what crops and or prices will be the bumper crop or best price. Producers who have a successful production plan should stick to that plan at least on their core acres. That would probably leave 15 percent to 25 percent of a producer’s acreage to be somewhat flexible and more dependent on conditions before planting.
From the above numbers it is evident to me that on the average we could be looking at a tough year and many analysts have prices projected much lower than I am using. This will put additional pressure on achieving above average yields and managing cost at the same time. If you need assistance in developing your cropping plan, contact your local County Extension office. Look here for Tennessee crop budgets.