What crops should farmers be seeding this year? That depends. Besides prices, there are lots of agronomic factors to consider
It’s the time of year when farmers are making their seeding decisions, which means we marketing advisors are receiving plenty of questions from them about what they should consider growing. The short answer — it depends — can be frustrating for farmers, especially those who are essentially asking us to tell them which crops are most likely to maximize their profits.
Having a good sense of market fundamentals and the long-term outlook is definitely important, and a good starting point for drafting a seeding plan. But the reality is that 10 farmers using the same metrics are probably going to come up with 10 different plans, because the approach to a good plan tends to incorporate a number of factors unique to each farm.
Making a budget is a good place to start, and a major part of that process is to figure out the farm’s fixed and variable costs. For many people this is the hardest step. Many farmers think they have a good grasp of their costs and see the process of putting them down in one place as unnecessary (not to mention boring). But doing it can be a revelation about the profitability (or lack thereof) of a farm’s typical planting decisions.
Cost accounting also allows farmers to look at the estimated prices for various crops and, combined with average yield expectations, start playing around with break-even values and potential profitability of each crop.
From there, a logical next step is to consider circumstances specific to the farm (or the farmer) that might influence planting choices. There are many issues to consider.
One factor to consider are the limitations of the farm’s rotation. A strong set of financial indications that you should plant more canola may be irrelevant if canola is already pushed to the maximum in your rotation or you like to maintain a diversity of crops to manage risk.
How’s your risk tolerance
Your tolerance for risk should play an important role in the crop planning process. How much risk can you stomach in the pursuit of higher returns? Are you willing to plant large acres to speciality crops without locking in on a contract, based on speculation of higher prices after harvest? Or do you prefer to trade the potential of lower returns for the relative predictability of futures or deferred delivery contracts?
The case of green peas this year provides a good example. Prices are riding high at the moment because 2012 production has lagged behind high demand. Many farmers are probably wishing they had grown more last year, and are considering putting more acres to peas in 2013. But will prices remain high next fall, or will the increased acreage going to peas bring prices back down? Green peas are a smaller market that can be very volatile. Or how about the choice to grow soybeans in a region in which crop insurance won’t cover them? This is a decision many Saskatchewan farmers are facing as they become tempted to plant a crop that has been so strong on the market.
Do you have the right equipment
Another factor in planning the year’s crop, particularly if new crops are being considered, is whether you have the right equipment. Are you tempted to plant corn or soy for the first time in a serious way? Both have been performing so strongly that farmers in Manitoba and southern Saskatchewan are giving the idea some serious thought.
Both crops, and particularly corn, require specialized equipment though. The high cost of buying it new can be prohibitive for growers who want to start out with a trial on a quarter section. The bottom line: figure out your equipment needs, and their cost, before planting season begins.
Will you have marketing opportunities nearby?
The profitability of a given crop can differ based on how far you are from buyers of the crop. Many farmers fail to consider extra shipping costs for their farm and instead only focus on the high price a crop is expected to fetch. Barley provides a good example.
The potential profitability of a crop grown for malt will depend on the specifics of the contract, if you sign one ahead of time. If you’ll be expected to pay the cost of shipping, how far away is the buyer? And if your crop fails to meet the standards of the maltsters, is your farm close to livestock operations or other buyers of feed barley? Excessive shipping costs can quickly eat up margins that already may be fairly slim.
Approaching a seeding plan this way, by considering as many factors as possible before making planting decisions, farmers can avoid the trap of assuming that a crop’s predicted performance at market will translate to profits for the farm. This is why you should be encouraged by a marketing advisor who answers “it depends” when you ask what will be profitable to plant. It means they understand that it all comes down to a farm’s specific situation, and don’t just want to tell you what you want to hear. †