Changes in planting intentions have short- and long-term impacts.
Planting decisions have received a lot of publicity lately, particularly about whether to substitute soybean acres for corn. That deserves some analysis.
Last summer there were ideas floating around to attack the supply side of crop profits by planting more beans and less corn — the concept known as Plan B. The logic was that if beans were profitable at loan rate, and if enough acres were taken out of corn, that might possibly rally corn prices and improve overall profitability.
This year farmers are still thinking about swapping beans for corn. But the issue is production costs rather than supply control.
One question is, can you afford to plant corn acres with increasing fuel and fertilizer costs? The other question: Will you be able to get fertilizer at any cost?
Last December my partner, Terry Jones, and I were doing projections for 2001 on his operation to determine how much impact fuel and anhydrous prices will have on profitability. And, how much corn will have to increase in price to equal what can be made on loan-rate beans.
It looked like December 2001 corn would have to rally to $2.70 to make the same $50/acre profit he could with loan-rate beans. As I write this article, corn prices have dropped from a recent high of $2.62 to $2.51. So the issue worsens.
Corn would have to nearly reach its contract high of $2.75 to make corn equally profitable. Plus, the government programs have you covered on all your soybean production at loan rate. But with corn, you have to capture that price and still manage the price risk.
Other issues also impact your decision. Most of you have 50-50 corn-bean rotations so any change messes up future rotations. Herbicide issues impact whether you can change even if you wanted to.
You also need to consider conservation plans so that you don't jeopardize future government support. Soybeans add nitrogen to the soil, which reduces fertilizer costs and adds yield potential for next year.
The availability and quality of seed beans may prevent acres from switching to beans. Two of our clients are large seed dealers and they have run out of seed beans. They have received what they had last year but cannot get any more.
Regardless of the issues, you need to run the numbers on your operation to determine your actual and opportunity costs. Then evaluate supply, logistics and the long-term impact on your operation. You can do this by downloading the cash rent feasibility spreadsheet from our Web site (www.russellconsulting.net) and putting your own numbers in it.
The cost impact of $340/ton anhydrous and other energy-related costs will be dramatic. Knowing your numbers going into next year will be important in developing your plan on how to maximize return from your resources.
You may ask: “This is a lot of work. Why don't I just stay with my 50-50 rotation?”
Other businesses are constantly evaluating the best mix of limited resources. They also consider the ramifications of any change and the impact it will have on other operations in their companies as well as implications to the environment, the public and community.
They still keep their long-term goals and strategic plans in mind. They have to do this to keep their stockholders happy and their quarterly and annual earnings on track. At the end of the day it all needs to make sense. If it doesn't, someone else will be in their chairs.
Your decisions are really no different.
Moe Russell is president of Russell Consulting Group, Panora, IA. Russell previously spent 26 years with Farm Credit Services as a division president. For more risk management tips, check his Web site (www.russellconsulting.net) or call toll-free 877-333-6135.