AGRI-BRIEFS
  AGRONOMIC NEWS ITEMS
From Agronomists of the
Potash & Phosphate Institute
655 Engineering Drive, Suite 110
Norcross, Georgia 30092-2837
Phone (770) 447-0335

Spring 1999, No. 2

PROTECT YOURSELF AGAINST LOW CROP PRICES

This is no time for knee-jerk reactions. Low crop prices are causing enough economic stress as it is without aggravating the situation with poor management decisions.

What is a poor management decision? How about basing this year’s fertilizer program on anticipated crop price rather than on expected benefit from the fertilizer…or other essential production inputs for that matter. In other words, it is not good business to abandon sound agronomics.

So, what to do? How do we make the most of a difficult situation?

Once the decision has been made to plant a certain crop, it becomes a matter of making the most of the opportunity. This is done by planning a program to produce at maximum efficiency…to produce maximum net return per acre. A term once popular in the press for this goal was maximum economic yield, MEY.

Farming is a complicated business, but the basic economics are simple. Gross income (i.e., crop price x total yield) less total cost of production determines profit. So there are only three basic factors to look at: 1) crop price, 2) yield level, and 3) production cost. The question becomes, which ones can be significantly controlled, or at least influenced to a meaningful degree, by the grower?

Of those three basic factors, growers usually have less control over crop price than the others. However, if a premium is paid based on quality, then here is an opportunity that should be considered when planning the production program. And, of course, any marketing strategy that increases crop price should certainly be employed.

Yield level is a key component to profitability and one that the grower can definitely influence. Greater profits come from higher yields. But higher yields also demand greater inputs that mean increased financial risk. But let’s come back to financial risk. First consider the risk to the crop of cutting back on inputs to less than optimum…perhaps as a reaction to an anticipated low crop price. This is analogous to pulling money out of the stock market when the market is down, disregarding the basic soundness of the investment.

Production inputs such as fertilizer are investments that should be managed wisely, according to soil and crop needs. Crop price should have only a minor impact on such decisions. Research has shown many times that the optimum rate of fertilizer is somewhat inelastic relative to both crop price and cost of the fertilizer itself.

The importance of high yield cannot be overestimated. After all, this is the entire basis for the income to offset…hopefully, more than offset…the costs of production. Stop and think a moment. How often do growers make much profit producing at the county average yield level? Oh sure, there are exceptions, but, for most of agriculture, crop prices do not change much over a period of weeks or months.

It has already been acknowledged that higher yields demand greater inputs which in turn means greater financial risk. But how much additional risk are we talking about? There is a certain amount of cost involved regardless of yield level. In fact, the fixed costs (mortgage, taxes, etc.) are incurred whether the field is planted or not. It is only that relatively small incremental increase in variable costs for additional fertilizer, more irrigation water, extra insect spray, etc., above that typically incurred for a lesser yield goal that is at risk.

Sound agronomics with a view toward efficient high yield production is a grower’s best protection against low crop prices. The bottom line is…beware of knee-jerk reactions.


—AEL—

For more information, contact Dr. Albert E. Ludwick, Western Director, PPI, P.O. Box 970, Bodega Bay, CA 94923. Phone: (707) 875-2163. E-mail: aludwick@ppi-far.org.
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