Survival Skills in Another Low Price Year
Greg Roth
Department of Crop and Soil Sciences
Penn State
February 1999
The other day I managed to find myself in the unusual position of being awake at 5:30 in the morning so I tuned in to the Ag Day program on TV for something to do. One of the first things featured was a commodity analyst describing how he thought the outlook for corn prices continued to be bleak throughout 1999. Initially, I thought about going back to bed. Then I thought back to the recent Top Gun Conference we held in Mercer in December and some of the strategies that came up at that meeting for coping with low prices.
One strategy was marketing skills. There was considerable discussion among producers and speakers there about positioning yourself in the market as best as possible. This included developing a reputation as a quality supplier of grain by having good quality high test weight corn. Picking hybrids carefully, not planting late and not drying too hot were all mentioned as ways to avoid that problem. The need for a reputation will likely increase in importance as new specialty hybrids come on the market. Developing a better knowledge of marketing skills was another hot topic. One of the presentations focused on the benefits of a marketing club approach. This is an effecitve technique to learn how to market corn and to try to be in that top third of the price each year. One producer shared his experience in a club and indicated their club members made a significant amount of money on their own crops after being members of the club. Several producers indicated they used the internet to do mock commodity training as another approach to learning more about marketing.
Another key concept discussed was developing an accurate corn production budget. This is important not only for marketing purposes, but also to decide if you are making money at all in the corn business. Also, budgets can be used to identify how you are spending money on corn production. One speaker, Extension Agent Al Shoener, indicated that he has done a number of budgets for corn producers in his county and he has seen a wide range in the amount of fixed costs per acre. In some cases fixed costs have accounted for more than 50% of the corn production budget. Fixed costs are things like land and equipment that are present if you produce 50 bushels/acre or 200 bushels/acre. According to Al, generally producers with a lower percentage of their costs in the fixed category are more profitable and more able to tolerate low yielding years.
Another presentation focused on ways to manage fixed costs more effectively. Renting land at cost effective rates over the long term was one idea. Taking care of tenants needs and getting a lease were two other suggestions. Utilizing equipment to the fullest extent possible was another suggestion. One of the dilemmas that came up was that there is often not the skilled labor available to operate some of our equipment. Because of that we have expensive equipment sitting idle during key times of the year. It was pointed out that it may be more cost effective to pay higher wages to attract operators of this high tech equipment than to have it sit idle. Utilizing equipment for custom farming arrangements was also discussed. This can be a good method of reducing fixed costs, provided you can charge enough to cover your costs. Figuring your costs is an essential part of this process, and our Extension agent Don Fretts went over a worksheet on how to do this. If you don't go through this process you can lose money on every acre of custom farming. And it has happened already.
Another innovative approach to reducing fixed costs and improving marketing was highlighted by a dairy farmer who participated in the program. He recently contracted to have all of his corn silage custom grown on his farm. A corn producer now supplies him with corn silage for about the same cost that he incurred when he grew it himself. The corn grower now has more acres to spread his cost over, a consistent market, and an expanded harvest window now that he is harvesting silage. The dairy farmer has more free time and better quality silage. It seems like a win win situation.
The bottom line from the conference was that there are some innovative ways to take advantage of our situation in Pennsylvania that can help us to tolerate these years with lower prices. After all that thinking about the conference, I was surprised at what I remembered, and what a good conference it had been. And then I started thinking about breakfast.