We all know that this year is going to be a year of managing risk and production costs. We always face a risk when farming, as we rely on our weather to bless us with a crop to harvest. However, this year we are also carrying a heavy burden of financial risk as well. With +/-$9 soybeans and what seems like higher input costs, every decision we make in our operations is a risk. With risk there is also reward and we need to figure out what our risk management plan is before our first seed hits the soil.
I work with multiple operations, and in my opinion there are two approaches for this season—managing risk by reducing inputs and managing risk by increasing yield. Before your planter leaves your machine shed you need to decide what your risk management approach will be. Don’t just follow someone else’s plan. Let’s take a look at the differences.
When taking a reduction approach we plan on hitting our 10-year average. Let’s assume an average of 55 bushels per acre leaves us a gross of about $495 per acre to work with. As you work through your plans you’ll also have to deal with cost. Working with fast dirty numbers: tillage $28, planting and harvesting $75, seed $55, replacement fertilizer $50, herbicide $40, insurance and miscellaneous $15 and land costs $200. This basic needs approach with $495 in income and $463 in cost leaves you a return of $32/acre. A 6 to 7% drop in yield puts you at break-even and a 10% loss drops you below break-even.
Let’s take a look at a risk management plan that increases yield. Instead of shooting for 55 bushels let’s plan for 65 bushels. This would give us a gross of $585 to work with. Our cost from our basic plan still applies and we’ll add to it: seed treatment $14, fungicide and insecticide $18, foliar nutrients and growth stimulators $12 and additional dry fertilizer maintenance $8. With the increase in cost, our chances of planning for success have an added expense of $52/acre. However, we have an added $90 in income (10 bu x $9), so that’s an additional $38 in income in addition to the $32/acre return. If our yield enhancement plan is successful, this gives us a return of $70 per acre. What this strategy does is allow you a wider window before you hit break-even, or 12% of your yield goal before dropping to break-even. So by investing in yield enhancement, you not only increase your yield potential, but also lessen your chances of hitting or dropping below break-even.
So the question is, which risk are you okay with? With a reduction approach, what risks are out there that can sneak up and take away your profits? Seedling disease? Decreased population? Insect pressure? Foliar Disease? Foliar insect damage? Nutrient deficiencies? If you manage risk by planning ahead to increase yield you cover the spread. You protect yourself and in return—in my opinion—lower your risk.
Adam Day is a Certified Crop Advisor working with Northern Partners Cooperative in Ottawa, Illinois, as an Agronomy Account Manager. He works directly with growers on a daily basis, providing them with information and services to help them make decisions in their operations. His goal in working with farmers is to have a partnership to increase yield, profitability and sustainability.
About the Author: Adam Day
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