Although Stock prices on Wall Street and major financial markets around the world rose and fell wildly this fall, experts say that the agricultural economy is generally in good shape. “On the whole, balance sheets are good and producers have paid down debt,” says Charlie O'Brien, vice president of agricultural services for the Association of Equipment Manufacturers (AEM).
But it will take more money and credit to operate a farm in 2009. “In today's market, credit needs are greater for operating loans in the face of higher input costs,” says Mike Duffy, professor of agricultural economics at Iowa State University. “With $300-plus seed corn, $1,100 anhydrous, $1,000 phosphorous and $800 potash, the numbers are shocking. Add to that the increase in rental costs and it's easy to see the increase in credit needs.”
Growers who have their finances in order should be able to find available credit, but at a higher cost.
Push the pencil
Growers should know their cost of production and analyze if an input can provide a return on investment. For example, a $300 bag of seed is expensive, but if it provides top yields, it can be worth its cost. “But you won't know that if you don't have a good handle on how much it costs you to produce that bushel of corn,” Duffy says.
One program that's available to help with cost analysis is the Farm Analysis Solution Tools available from the University of Illinois (http://www.farmdoc.uiuc.edu/fasttools/index.asp). Called FAST, it is a collection of spreadsheets that can provide instant feedback of true input costs and true costs of production. “The spreadsheets provide university baselines that can be adjusted according to your specific farm situation,” says Garrett Stoerger, agricultural economist at the University of Illinois.
A crop budgeting tool allows you to plug in current input costs, then adjust them throughout the year to determine where your specific break-even levels fall.
Early pay and volume discounts on seed purchases help reduce input costs. Many growers already have used them for the 2009 crop. For example, Wyffels Hybrids reports that the number of customers using its 2½% cash discount for orders by September 30 doubled compared to last year.
“Ordering early helps to ensure you get the hybrid you want,” reports Brian Humphries, vice president sales and marketing, Wyffels Hybrids. The value that hot hybrid brings to the operation, combined with the pricing discounts, can take a bite out of the seed bill.
Bundled programs that offer incentives (in the form of discounts or rebates) for purchasing seed with crop protection products can help growers save on input costs. Discounts can be significant if the program is followed. The key is to be aware of how each program is structured and how to take full advantage of it.
Syngenta offers its AgriEdge program for corn and soybeans. “There is a level of complexity to these programs,” says Steve Knodle, NK Brands Soybeans brand manager. “But doing the research and understanding the program can maximize profit per acre.” For example, growers using NK Brand Soybeans and CruiserMaxx brand seed treatment can earn a $6.00/acre or $5.00/unit advantage if they purchase 120 units or more.
A lock on fertilizer prices
Many buyers have locked in much of their fertilizer orders in advance to take advantage of any discounts. Meanwhile, the recent drop in oil prices may stabilize fertilizer prices.
“I wouldn't expect a sharp decline in fertilizer prices,” says Dan Froehlich, director of agronomy for Mosaic. “Dealers and manufacturers have also had to lock in prices earlier,” when oil prices were significantly higher. The challenge for dealers will be to maintain adequate inventory. Tighter supplies later in the season could again mean higher fertilizer prices.
Another wild card is the exact number of corn acres next year. A shift to substantially more corn acreage will create a tight fertilizer supply at the local level.
Early equipment buys
This year, demand for new equipment has skyrocketed. In many cases, the delay between order and delivery has stretched several months. “The overall economic issues in the general economy have yet to impact the equipment sector,” says O'Brien of the AEM. Demand in the United States remains strong, especially in the larger 2-wd and 4-wd tractor sector as well as in combines.
Growers who still want to make an equipment purchase should take advantage of early-order programs to maximize discounts. “Companies have early-buying incentives during the year,” reports Mike Irish, general sales manager for Brillion Farm Equipment. “The key is to know when these programs are offered, and get your orders in then.”