Some measures to reduce input costs can be penny-wise and pound foolish

Prairie farmers need to evaluate so-called cost-saving strategies when planning rotations for 2009, says an Agriculture Canada ag economist.

There can be a tendency to change production practices when crop input costs are high, or when commodity prices are low, says Elwin Smith, a bio-economist at the Lethbridge Research Centre.

Particularly when input costs are high, some producers consider leaving land fallow as a way to reduce costs.

“If you farm in an area where you are likely to get decent rainfall during the growing season –have good likelihood of getting a crop, then leaving land fallow is not profitable,” he says. “In general you are further ahead to produce a crop, even at higher input prices than to leave the land fallow.”

Even though input costs have come down considerably since late last year, similar economics would apply as crop prices come down too. Even at lower crop prices continuous cropping is more profitable than fallow.

His scenario is based on favourable growing conditions, which most years produce a crop, however, he says there can be other factors that might influence this decision. Fallow may still make economic sense in areas like the eastern Prairies where timely rainfall is less predictable.

“Also you have to look at the financial situation of the individual farm,” he says. “If the inputs have to be financed, or if a producer uses some type of savings to buy inputs and then there is a poor growing season that can be a disaster too. A large part of the problem is that some of these decisions have to be made well ahead of the growing season, so there is a risk factor depending on how the growing season develops.

“The main message to producers, is don’t go into summerfallow just because input costs are high (or crop prices are low), other factors such as financial risk have to be considered,” he says.

Smith also says in times of higher input prices it may be possible to reduce nitrogen costs, for example, by taking advantage of nutrient levels stored in the soil. “If your past production practices have produced good soil fertility there is nothing wrong with cutting back on applied nitrogen and drawing down some of those soil nitrogen reserves,” says Smith. “But, that is not a long-term strategy and you’ll need to get back to a proper crop fertility program in a year or two.”

In looking at canola inputs, for example, Smith says on average producers are further ahead to put resources into growing a higher yielding hybrid canola crop, than trying to cut input corners some other way.

Smith says open-pollinated canola varieties, for example, are less expensive to produce –require lower inputs –but on average hybrid canola varieties are more profitable.

He says even with canola at about $250 per tonne (about $5.60 a bushel) a farmer can afford to pay two to three times more for hybrid seed and still be more profitable than growing open-pollinated (OP) canola.

One example of growing hybrid canola versus open-pollinated canola, showed the F1 hybrid canola netted $50 per acre more than the OP variety.

“The qualification there, may be in areas where the crop is seeded late, or there is increased risk of an early frost,” says Smith. “It may be too risky to grow an Argentine variety that needs 110 to 115 days for maturity. OP may have a good fit. But on average it is more profitable to pay more for hybrid canola seed and crop inputs, for the potential of higher yield. As crop prices increase, the spread between OP varieties and hybrid varieties increase.

“Some caution…is required in drier regions or areas with a short growing season,” he says. “The majority of studies comparing canola genetics were done in the canola growing region of Western Canada. In drier areas, yields will be more variable and lower, with the full yield potential of hybrids not always realized. The investment in seed and technology use agreements needs to be measured against the financial risk from drought.”

Also, Smith says (regardless of the legal ramifications) the economics of growing farmer-saved, second-generation (F2) hybrid canola seed doesn’t pencil out either.

Even if this could be done legally within a seed company’s agreement, Smith says, “the profitability of growing the F2 seed was found to be lower than from purchasing certified F1 seed. The one exception would be if canola prices were low and F1 seed costs were high.”

The strategy of blending F1 and F2 seed and increasing the seeding rate doesn’t pan out either. Not only would yields likely be lower, but there is a big quality factor too, says Smith. Farmers would have to factor in the cost of higher green content and the cost of potentially losing grade on a seed batch.

“If we just look at a situation where someone buys hybrid seed and grows a field of it compared to a field of F2 (farmer-saved seed), on average the F1 hybrid will return $35 per acre more, after seed and input costs are deducted, than the crop grown with farmer-saved seed,” says Smith. And that is based on canola at $325/tonne or $7.40 per bushel.

While several factors such as local growing conditions are important, on average if conditions are favourable to produce a crop, putting resources into growing a hybrid is the most profitable.

Lee Hart is a field editor for Grainews in Calgary, Contact him at 403-592-1964 or by e-mail at [email protected]

About the author

Field Editor

Lee Hart

Lee Hart is editor of Cattleman’s Corner based in Calgary.

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