Develop a detailed production and marketing plan – then stick with it.
With a few tweaks here and there, Michelle and Larry Kuhlwein farm by that philosophy on their central Ohio corn and soybean operation. They capitalize on his production expertise and her marketing savvy. The usual results are strong yields and selling prices that meet or exceed their profit goals.
While Larry runs the planter, sprayer or combine, Michelle monitors a bank of two desktop computers and one laptop. He depends on auto-guidance and variable-rate application technology (VRT) to fine-tune his agronomic practices. She uses marketing and other financial software to keep up with market trends and make final decisions on when to sell and which marketing tools to use.
“Virtually all of our land is rented, so we determined that it’s essential to use the resources we have available to make our program work,” says Michelle.
“That meant updated equipment, as well as better marketing,” adds Larry.
They farm 30-in. rows for corn and 15-in. for soybeans on various types of soil. Before a swing around the first turn row is made, every possible input cost is fed into farm-management software, which eventually yields data that identifies their production cost.
Take advantage of resources
After raised-in-the-city Michelle married her farmer husband, she picked his brain for some basics of marketing. She then tapped Extension and other online seminars and training. She also learned that an outside expert was necessary, as was a good farm-management software system.
“We began working with an ADM analyst and started using the Advanced Agri Solutions (www.aasc.com) management system, and later Allied Environmental Group for field mapping,” she says. “These services help determine what we need to do and where we’re going.”
The Kuhlweins enter variable and fixed costs into the software to pin down production costs. “Many people don’t look at everything they have in a crop,” says Michelle. “We like to know our cost of production by October or November for the following year to establish a target profit level or price.”
The Kuhlweins use EHedger (www.ehedger.com/), an online brokerage and consulting company. For 2010, they figured corn costs at $470/acre to produce an average yield of 162 bu./acre. The soybean cost is $370 for a 45-bu. crop.
With those numbers, Michelle began early 2010 marketing. “I try to market one contract (5,000 bu.) at a time,” she says. “The first 2010 sale was last February: a $4.52 December futures contract. I made six more corn sales in May (in the $4 range),” with more July 6 through Aug. 31. “The later sales were at $4.55 on the March 2011 futures contract, a level we hadn’t seen in a long time,” she says.
“There’ve been a lot of great opportunities in the 2010 grain markets. I made additional soybean sales at $9.76 on July 15, $10.34 on Aug. 5 and $10.41 on Aug. 12. Those sales were in the January 2011 futures.
“All of our beans are non-GMO and will be stored to get a $1 premium for them after the first of the year,” she adds.
One EHedger program identifies crops and targets yields, cash prices, futures, options, government payments, crop insurance guarantees and other pricing information. “The program tells us what percent has been sold, the average price and what you have left to reach the target,” says Michelle.
The program continually updates open futures and options positions based on current cash, futures and option prices. Unsold cash grain is valued at your nearest cash market from the main EHedger database. Michelle says she can enter any targeted price she chooses and the system will monitor the price needed for unsold corn or beans to achieve that price.
“You also know your return on investment,” she says, “which drives the next year’s budget and targets.”
She has consistently monitored crop-enterprise budgets from Barry Ward, Ohio State University (OSU) agricultural economist. Ward says OSU’s enterprise budgets, available on downloadable Excel spreadsheets, are similar to others offered through the University of Illinois, Iowa State University, Purdue University and other universities.
“Our enterprise budgets use common, workable combinations of inputs designed to achieve a given output,” says Ward. “Amounts of seed, types and quantities of fertilizer and chemicals and other items reflect our university recommendations and the experience of many Ohio farmers.
“The specific combinations of inputs and prices presented likely won’t precisely reflect any given farm. Actual costs will be higher or lower than shown. Thus, the most important column is ‘Your Budget.’”
Michelle used information from the OSU budget and other reports to determine which software package she wanted.
“I’m as excited about using the online marketing service as Larry is with his clutches,” adds Michelle, noting that they use crop revenue coverage (CRC) insurance at the 70-80% price level.
“This farm has never been without crop insurance,” says Michelle. “It’s a tool that’s very important. The percentage of CRC we take out depends on the price per acre.”
They aren’t enrolled in the ACRE program, but do have SURE coverage, which makes up the difference between the farm’s actual crop revenue and the guarantee. The actual crop revenue includes not only the estimated value of the crop produced, but also other USDA payments and crop insurance indemnity payments received. USDA says this prevents farmers from receiving double payments for the same losses. “I stay on top of government programs,” says Michelle. n