Jerry West, the farmer, not the former NBA player, recently explained risk in farming this way: It's like going from playing quarter machines at the Casino in Cherokee, N.C., to playing high stakes poker in Las Vegas.
Jerry, who farms with his sons, Brad and Craig near Fremont, N.C., knows a thing or three about risk. They will produce their first crop of peanuts in 2008 — 600 acres worth, having parked their cotton equipment because of — you guessed I — too much risk.
Brothers Wesley and Bryan Foster who farm a few miles from the Atlantic Ocean in Columbia, N.C., not only grow 3,000 plus acres of grain crops, but they are also in the grain buying business. Wesley says the problem with grain these days is that no one knows the true value of it. The other problem is everyone (in farming) knows the true cost of fertilizer, diesel fuel and anything else that comes from fossil fuel and is needed to grow a crop.
The coming of Roundup Ready crops, followed by Bt technology and other technological breakthroughs made it possible for a small farmer with a few hundred acres to become a large farmer with a few thousand acres. The risk at that time was minimal and the cost of being so stretched out by increased acreage was often efficiency. Smaller equipment, smaller labor force and low volume and highly efficient pesticides saved farmers millions, if not billions of dollars over the past couple of decades. And these things, kept many farmers in business, who would otherwise have become ex-farmers.
As University of Arkansas Weed Scientist Ken Smith says, “Roundup Ready looked like a real gift, now we realize it wasn't a gift at all, it was just a loan.” Now, for many farmers, payment on the loan is coming due.
Though Roundup and Monsanto get most of the negative press for current resistance problems, other companies that produced high tech breakthroughs share both the accolades of keeping many farmers in business — and profitable — with the downside of today's risk that is a side-effect of past prosperity.
Efficiency is the natural nemesis of risk. In farming today, a producer better be efficient. The days of cheap farming are gone. The Roundup Ready generation has seen glyphosate, regardless of the trade name, doubling and tripling in cost over the past few months. Breakdowns in resistance that farmers were told would never happen are happening on a grand scale in the Southeast. The result is farmers are forced to find new approaches to managing these pest problems — new approaches that usually cost more money and add more risk.
The cost of buying back the plows and the big tractors needed to pull them are now beyond the means of most farmers. Even the current high prices of grains, cotton and peanuts can't bring back profitability in the short-term sufficient to finance new tillage equipment.
Farmers with pigweed resistant to glyphosate, or stinkbugs left to thrive as Bt technology became popular, have to make choices that will reduce risks. Not reacting to these, and other unexpected technological snafus is a good way to increase risks.
The profits can be good. Soybeans and wheat at $9 per bushel and corn at $5.50 allow growers to make good money. The corresponding high input costs also allow a farmer the opportunity to lose big money, too.
Jerry, Brad and Craig West are likely to do well with peanuts — they have a long history of doing well with all their crops and growing peanuts has been a two or three year planning process. Other farmers jumping on one bandwagon or the other because of price, likely won't be so fortunate.
The 2008 wheat crop in the Southeast will likely be a good bad example of jumping on the price bandwagon. In some cases farmers planted wheat seed straight out of the grain bin, because seed was so scarce.
Likewise, many farmers planted wheat on land not ideally suited to grain, because it was the only land they had and wheat was selling for over $10 per bushel. Despite the price of wheat, planting seed of questionable quality on ground not suited to grow even high quality wheat seed is a big risk that should not be taken.
Driving around the Southeast, you will see wheat in places it's never been before, and likely shouldn't be now. If this wheat doesn't have a home, chances are real good the farmer will lose money. Prices are still good, but no one is buying wheat.
In many cases the same is true for soybeans. Wheat for livestock feed is still $4-$5 per bushel, which is good, but nothing like the price many farmers expected when they rushed to plant it.
There is no question 2008 will be an interesting year for row crops in the Southeast. For those who manage risk well and get the cooperation of Mother Nature, it can be one of the best years on record.
With the high costs of inputs in the ground, Mother Nature holds the real trump cards. A drought, a badly-timed hurricane or other natural disaster could be devastating, even for those who manage risk well.