Soybean growersPlan carefully for 2008 profits now
Don't let high commodity prices fool you. Making a profit could be tough next year if farmers don't plan carefully now, according to an Iowa Soybean Association (ISA) report.
Why should we be concerned? ISA President Ray Gaesser, a soybean and corn grower from Corning, Iowa, put a pencil to paper and he was surprised at his projections for next year -- the surprise was how challenging it could be to make a profit next year despite healthy market prices.
"It appears that farmers could have a break even cost on corn at near or above $3 per bushel and at about $7.50 on soybeans," says Gaesser. "We definitely have much more risk than at any other time in my 40 years of farming."
He points out that this illustrates why it is important to continue to work for a farm bill that will provide a support mechanism that protects farmers during times of high risk.
Moe Russell, president of Russell Consulting Group in Panora, Iowa, says that while gross dollars per acre have increased dramatically, so have the costs associated with farming. Cash rent increases of 20% to 50%, increased fertilizer, fuel and machinery costs all drive breakevens way above the loan rate.
"Traditionally we could depend on loan rate to keep us out of the farm sale listings," says Russell. "We probably wouldn't make a lot of money, but you could be assured you had protection to keep from going broke. Not so now."
From a risk management standpoint, Russell recommends locking in margins to protect the downside, because farmers won't be able to rely on loan rate for downside protection. In addition, he suggests developing long-term relationships and agreements with input suppliers, which can result in savings for growers and higher margins for suppliers. He also suggests diversification, whether that means investing in a biofuel plant, a livestock venture or other off-farm investments.
Bruce Babcock, an Iowa State University professor of economics and director for the Center for Agricultural and Rural Development, says farmers should protect themselves by figuring their projected market returns, minus their projected variable costs (such as seed, fertilizer and fuel). The difference is what they have left for management, land rent and depreciation. What is left over after those costs are subtracted is profit, Babcock says.
He recommends that producers go here to view calculators for "Estimated Costs of Crop Production in Iowa 2007." This can serve as a guideline when calculating costs for 2008.
ISA also invests checkoff dollars to find new ways to save growers money. For example, Iowa State University Extension Agronomist Palle Pedersen is conducting a three-year study that will develop practices for planting no-till soybeans in Iowa. One of the advantages is reducing energy costs related to agricultural practices like tillage. The On-Farm Network, a program conducted by the Iowa Soybean Association, also conducts research designed to help Iowa soybean growers farm more efficiently and effectively.