Economics
Lots and lots of VRT
There seems to be the greatest interest in VRT this fall. From lime to P and K producers who never gave VRT a second thought seem to be fascinated with doing it. Its about time for many of them.
With fertilizer cost where they are and the prospect of a below normal or less than normal crop in many areas because of the heat this summer producers are looking for small ways to cut back on cost. This is funny in some ways because not to long ago when Potash spiked at $1200/t producers either put some on or didn’t put any on at all. In that year I wrote many a VRT recommendation, more than I had ever done, but it still is nothing compared to this year. This year has seed a whole new level of interest.
I think that we have found our point of “balance” between the price of an input and yield. Kind of like $4 gas for our cars. When gas gets to a point we watch our trips and how much we run in the tank. When gas is $2.50 we buy gas and don’t think to much of all the running around we do. But when gas is $3.00 we all at once buy gas and watch were we go because we know we are only going to buy what we need at $4.00.
So I think we have reached that balance here in Southern Illinois. Price is to the right of the middle. Its not as high as it has been but its going up. Yields are average to below average. So between the two, farmers say lets buy but lets buy with caution and apply it in a conservative manner. And VRT fits that line of thinking.
This is not a bad thing by any stretch of the imagination.
Wheat, Court and Shoulders
Well I have pretty much decided that I will plant wheat this fall. After making the proclamation during canola harvest that I would not plant wheat any more, the markets have swung to the positive side or more correctly the profitable side and now have me ready to plant all kinds of wheat this fall.
I have been looking at inputs and they are reasonable for the most part and between a $6 plus wheat sale and a $9 plus bean sale the cropping “system” is a pretty good money maker. So today will be spend locking in some inputs, seed and then watching the markets and making some advanced sales.
Today also begins eight weeks of being on jury duty. I suspect that I wont serve near eight weeks, but will have to serve on something. So this is a scheduling nightmare because I don’t have a clue as to when I will be on or off, and I have a lot of things to do to get ready for harvest.
Last but not least, today is the day for seeing what the MRI says on my shoulder. Not looking foward to this either.
The top 25 is only 5 better
Yea, that’s right, the top 25% of farmers are, on the average, only 5% better than the rest of the crowd.
Think about that for a minute. What does that mean? Well, it means that being consistent is everything. It means that being or doing good in a bad year makes all the difference in the world. It means that the last 25% are so far behind…. well lets just say that they are in trouble. It means that this business of farming is a lot of up and down turns.
It also means that the margins are slim at the top…………..no matter what the size.
Technology: Its a death march!
I saw a poster once. One of those De-motivational posters, I think, that said something like the road of technology is like a marathon with no finish line. Well, I think it is more like a death march: Some people can endure to the end, others fall out along the way.
Three things cause me to say this, so let me explain:
Why are there less farmers? Because of technology. Pure and simple. We don’t need a farm or farmer every section when we have technology to make up for boots on the ground: Tractors replaced horses. Hybrid seed replaced open polinated. Herbicides replaced cultivation. GPS replaced markers. I could go on, but you get the idea.
The work that one man can do and the quanity of crops he can produce on the same land that once occupied several farmers, is amazing. And his production capacity is growing by the year. Grow with technology or die.
Adapt to new technology or die! Not a nice thought, but accurate. I was at a meeting the other night and a man at the meeting said that he didn’t want or need to be a farmer after he saw the 37 acres farmed across the road from his house last week. I thought he was talking about maybe organic, or not liking chemicals, or something but he wasn’t. “You know, there were 5 different big four wheel drive tractors in that field before they planted it. They killed that ground. And the cost…how could they make money? I don’t know what they were thinking.”
What he was saying is that they might have had big iron, but they were not using the latest technology or techniques to farm the field. Technology is going to be used by your neighbors so you had better be using it too. If not, then be ready to be passed up and passed over. All of us have access to the same technology. GMO traits, GPS, consulting, tillage techniques, soil management techniques, etc..
Same in the consulting world. GPS should be standard with your practices. Email, text messages, electronic downloads and file transfer. Just because you think using it makes you look like your competition instead of unique is stupid. Yes, your unique. Your uniquely useless.
Keeping up takes time! Time is money. Time is valuable. Time is something we can’t make. And time will pass you by if your not making time to keep up with changes in technology. The most successful people in the world, not necessarily the richest, but most successful, spend an average of two hours a day reading materials not directly related to their occupation. They are keeping up with the rest of the world and are able to anticipate changes in their field before they happen, because they have their fingers on the pulse of new technology. Work smarter, not harder.
I try to spend two hours a day reading, surfing, blogging and listening to things not related to Ag. The results have been enlightening. I have tried to get my friends and colleagues to do the same, but they often spout the same old refusal recital: I don’t have time, I am too busy. MAKE TIME. Make time to get away from what you do so that you can see the forest for the trees. You can see the big picture andyou are not judging the world from your back door or front window.
I have had cause to think about technology the last few days. How I am not using it, how I am using it and how I should be using it. My crooked rows on my first field of corn show me that I should have been thinking all along about my auto-steer in the sprayer being in the planting tractor as well. My accounting software shows me where the money goes and for what. It keeps track of profit and loss. It tells me if I am a healthy operation or not. And my management practices show me that if I implement the latest technology that I am not seen as an outdated farmer or someone who is not “with the times” but rather as a forward thinker who is ahead of the herd.
Technology is a death march: how are you enduring?
Thoughts on Crop Insurance
Three unrelated events into one topic today: Crop Insurance. As I start to type this I realize that this might take a while. I also realize that some of the visitors to this site won’t care. I also realize that it might take, you that are interested, a while to see how all three of these events fit together. Hang with me……….
First off, the issue of Farm Journal that I received in the mail on the 18th of March had an article on using Enterprise Units in place of Optional Units for crop insurance. It was a pretty good article and may have been useful to many a farmer, if the editors or publishers had some fore-thought and put it in an issue that arrived prior the to crop insurance deadline on March 15.
Then, event two, this weekend I got my issue of Prairie Farmer. On the cover is a small block of comments by three individuals who are featured inside. Emerson Nafziger, U of I crops and extension educator, makes the following comment: “We have half a million acres of wheat that weren’t planted. They’ll have to go to something, so I don’t think well see corn and bean acres go down this year.“ That folks is a comment for the “Big Red Truck File”. Yea, half a million acres of non-planted wheat is going to get planted to “something”. Want to bet to what? Beans Emerson, that’s what, beans!
No, it has nothing to do with the agronomics of beans vs. corn. It has nothing to do with the possible returns right now on beans vs. corn. It has everything to do with the possibility that those half million acres are prevented planting acres on crop insurance. Corn is a “first crop” and you can’t follow a first crop (wheat) with a first crop and get your full insurance payment. 99% of farmers will take the “guarantee” of the crop insurance PP wheat and then plant beans, a second crop, and get full insurance coverage on that.
Hang with me because we are going to tie this all together with #3.
The third event is a conversation I had with a farmer friend who for anonymity purposes we will call Sam. I don’t have any friends named Sam so were safe with that one. I have a sister named Sam, but that’s another story for another day. Anyway Sam doesn’t read this site, he is technology challenged so to speak, which might be part of the problem.
Back to Sam and our conversation. Sam has a problem: Sam doesn’t know much about crop insurance. Part of Sam’s problem is his agent or I should say former agent. See, Sam views crop insurance the wrong way. Sam doesn’t see that crop insurance pays. The result is that his agent, in my opinion, just sold Sam a policy based on cost and not benefits. And Sam has never had the benefits, the pros and cons, the reasons why or why not, the what-ifs and if-nots and forward selling opportunities explained to him in a timely, concise, coherent and plain English manner that would allow him to understand that when crop insurance pays you the most, is when you don’t collect on it.
You don’t buy home owners insurance and then pray for a fire so you can collect, do you? In the same vain you don’t buy crop insurance and hope for a crop failure. The insurance is a tool, a risk management tool, that allows you to market and conduct business on the farm knowing that if things end up in the tank, your going to get compensated for the loss. NO, your not going to get rich, your not going to be as good off as if you had raised a crop, but your not going to go broke.
The three events fit together here: For some reason there are many, many people who believe that decisions for crop insurance on spring seeded crops are made between the 1st and 15th of March. ????? What the ……….? Why can’t the crop insurance agents (in general), educators and media get it through their heads that they can do some meeting and planning with their clients, students and readers/listeners and potential customers prior to the deadline of 15 March?
Mind boggling to me!.
Why can’t they explain that your choice of insurance might influence your choice of second crop, if you can’t plant?
Why can’t they explain all of this in plain English?
Why is it that coffee shop talk, most often by fellows who have no clue themselves, is viewed as the gospel on such a serious topic?
Because of a lack of communication, farmers either don’t buy crop insurance because it doesn’t pay; don’t buy the right coverage because they don’t understand the policies and programs of each type of insurance; or they listen to “Fred” at the 1000 acre club table at the coffee shop and report the corn as prevent planted and then plant beans because Fred told them he did that before. (yea, happened last year………)
And in the not to distant past, I was “one of those guys” who was looking at what it paid. Not anymore. There is too much risk in the business. There are too many unknowns. Having a risk management plan and studying and analyzing that risk management tool is more important, in my opinion, than choosing which corn hybrid, or how much N to use, or if you should trade iron or buy the next farm. Without crop insurance, the right crop insurance, your one crop failure away from never having to worry about those other decisions ever again.
Luckily I have a very good agent who communicates with me on a regular basis and we engage each other to make each other to think and study prior to March 15. We play “what ifs” and “why not” and” how come” and “here’s why” and sometimes I am wrong and sometimes he is wrong, and we will think again and try it again. And when we get done, I know what I have, why I have it, what it will or will not do for me and a peace of mind to go out and market and conduct the business of farming knowing that I have a safety net under me.
Just in case………….not in hope of.
Thoughts on Soil Sampling
I wrote a short statement of philosophy on soil sampling for myself and some other consultants in Illinois a few years ago in hopes of changing the minds of some university and government bureaucrats. It didn’t work, but I still think this holds true for me and some others who don’t subscribe to the “grid sample the world” mantra of the Land Grant University and the “sell fertilizer at any and all cost” retail industry here in Illinois.
So here is my “thesis” with a few things thrown in for Ed Winkle’s questions…….
Robertson Philosophy on Soil Sampling
Each soil sample should represent a uniform soil area with similar past management. It is recommended that each sample represent 10 acres or less. Sampling areas should be determined by the soil type, soil color, topography, drainage, past management of the field, manure applications or presence of livestock, and productivity. Maps of soil electrical conductivity (EC) and GPS yield maps can aid in distinguishing between field areas with contrasting soil properties or crop nutrient removal.
Consultants should use field observations at the time of sampling to determine which local site factors should guide their sampling pattern within each field. Soil survey maps, GPS yield maps, bare soil images and input from the farmer as to past land use (fence rows, pastures, building sites and old field divisions) can be used to create geo-referenced zone maps of these factors prior to soil sampling. This will help guide the consultants sample locations in combination with his or her field observations.
Soil sample zones should be recorded via GPS or geo-referenced maps to insure location and repeatability of sampling. This also aids in refining the sample zones as more information becomes available about the field or soil, and allows the zone to be used as part of a directed nutrient application (VRT) program.
Soil sample probes should be taken to the depth of the furrow slice (6-7 inches) or modified based upon tillage practices or the lack of tillage (no till) for the farm. Each sample should consist of between 10 and 15 cores with cores being collected in a zig zag method thought-out the sample zone. Each core should be examined prior to placement into the sample bag to insure that it conforms to color, texture and depth for other samples in the management zone.
Each soil sample should be air dried and all cores in the sample should be ground and thoroughly mixed prior to submission to the laboratory for analysis. Doing so insures that each sample is truly a representation of the sample area.
Soil samples should be collected on a regular sampling interval based upon crop rotation, fertilizer or manure applications, or tillage practices. In many instances under high management it would be appropriate to sample fields every year. Fields with high test levels or fields receiving manure should be tested every year. In other cases sampling every two years under a corn-soybean rotation or under a bi-annual fertilizer application would be appropriate. No more than three years should elapse between sampling intervals.
Other random notes by GKR:
1. If your not going to GPS your sample locations, don’t even pull samples. Your waisting the farmers time.
2. If you not using or making GPS/geo-referenced maps, your waisting the farmers time and money.
3. If you not doing VRT recommendations based on ECONOMICS but on just lbs. applied, then your waisting your farmers time and MONEY. Whole field recommendations are appropate when there isnt that much varation to justify the extra cost of applicaiton.
4. If you can’t collect samples in good soil conditions then your waisting your time and the farmers money.
5. Find a good lab that can provide you with good quality control, good turn-around time and give you the data set in a format you want, not what they want to do.
6. Get rid of the paper. Go electronic. You can make recommendations, track history and do analysis so much easier in digital than analog. Paper is still king when delivering your recommendaitons but poor for analysis. Digital is king.
7. If you can’t get your head around the ECONOMICS of your recommendations, but only on balancing the soil or applying some magical formula of inputs, your waisting your farmers MONEY.
But as Dennis Miller Says: Then again, I could be wrong.
E Commerce follow up #2
I said that I found a part locally that would work, and I did. Nuff said on that I guess.
However, I have been playing with my camera and trying to learn how to get the macro focus to work and thought I would try to take a better picture of the part I made vs. the one I purchased. I am getting better with the focus and need to work on the light aspect a bit.
But here is the best picture I took of the parts. The one on the left is the one I made on the lathe with the “teeth” a little too long. The one on the right is the store bought one showing just how shallow those teeth are. I think I can file down the teeth on the one I made and make it work. A job for a night sometime in the near future, when I am not that busy.
Anyway, just showing that I am learning the macro on the new camera and what can be done with a little work on the lathe.
E Commerce Follow Up
Well I first tried to make the part I needed on the lathe. I had some success, but the prongs were just a bit off. So much for the hour I took doing that. I think I could do it again and get it right now that I know how close the prongs have to be made to work.
I then made my way to a local establishment where I thought they might have something that would work. And guess what? They did. It is a bit longer than what I was looking at online, but I can make that work.
Here is the funny part though, the part was $7.95 and with tax it was just a bit over $8.40. I didnt miss my online part plus the “small parts handling fee” by much!
But I did save $6 shipping!
The cost of E Commerce.
Let me say first off that I love being able to come in from the shop or field, sit at my computer and search for the part or what ever I need to fix what ever I am working on. I love it, I can’t help it. I like E Commerce.
It is so nice to search, find, compare and order without ever having to leave and drive miles to find out they don’t have it or can’t get it or what ever. It is nice to see the UPS truck pull in and drop off a box and you can go to work.
However this is only good on parts and pieces you use often and you know are the right parts or pieces you need. It is not very good when you need the expertise of the parts man to help you figure out what part will substitute for that 14 year old part that broke that they no longer make.
Or in this case, it is a real pain in the butt as well. You see I need this part. Only problem is that this part is not the right part. The part I need has four evenly spaced prongs on the top, not five. Four will work, five doesn’t. Before you think anything, I can’t just file off one prong, because the four must be evenly spaced. And more importantly, I need this part for another project where it was made to work originally.
So off to the internet, where I found the part in question for a whole $5.35, a whole two dollars cheaper than the five pronged one. Great! Just what I needed and cheap. However (and there is always a however in life) if this is the only things I order there is a “small parts handling fee” of $3.00. Plus shipping for $6.00.
So my $5.35 part cost me $14.35 when it shows up at the door. I can order something else to go with it and get rid of the $3 “small parts fee”, but I cant find anything big enough that is about $3 to get rid of the “small parts fee”.
So my small part cost me three times its value if I order it. It cost me four times as much if I drive to pick it up.
Or I get to wait until I need something else and then order or drive to get it, and average the cost out to get it below the 3X factor we are at now.
I am guessing they also have a “large parts handling fee”………….
Scientific Discovery of the Day
Today I learned something that should be in every textbook, reference book and scientific journal.
Robertson’s Time/Climate/Dress/Chore Relationship. This relationship demonstrates that the amount of time needed to accomplish even the simplest chore on the farm is related to the time multiplied by X where X is equal to the number of layers of clothes one wears to accomplish it.
So say it normally takes 10 minutes to prep and start a tractor. You are wearing three (3) layers of clothes because it is cold. Then 10 minutes times 3 layers equals 30 minutes to prep and start a tractor.
Even the simplest of task seem to take infinitely longer than usual when your cold, wet and dressed in multiple layers.
If Obama can get a Nobel prize for doing nothing, I am surely a winner next year for my scientific discovery!
Record Keeping and Managerial Accounting
Good records are important, real important, and getting more important every day in agriculture. ACRE and SURE payments depend on good and accurate records. Crop insurance payments depend upon good and accurate records. Getting financing depends upon good and accurate records. So, based on this alone, we would assume that farmers are keeping good and accurate records, right?
Wrong, for the most part.
There is a great void it seems between those who are keeping good and accurate records and those that are not. First, the problem is that a lot of farmers only understand IRS accounting. That is the accounting processes necessary to prepare and file a tax return. Cash accounting if you will. But so much of our eligibility for a SURE payment is tied to a crop year, not a fiscal or calendar year. Figuring break-evens for marketing and cost analysis is also tied to crop year, not a fiscal year. If you purchased fertilizer last year, you take it off of last years taxes, but it is an investment in this years growing crop. The cost counts against the crop growing this year, not last year.
Accurate records are also necessary for yields when it comes to crop insurance. Without accurate records of yield for fields and farms, or units, you may be short-changing yourself in your coverage. Or worse yet, as happened this last year, you may end up having to pay back insurance payments if you get audited and you can’t prove the yields you claimed.
This has been a focus of mine with some producers the last few years because I have seen the need for better record keeping. Even what fertilizer you put and where is necessary so you don’t over-fertilize or double-up because you are unable to remember what or where you fertilized. I remember the time last summer when a farmer realized that he had forgotten to apply N to one field on his farm. Everyone thought the “other guy” did it and no one (without a list or records to check) knew otherwise.
Good, accurate records tied to crop year production (managerial accounting) is necessary.
That is why I was thrilled tonight to have been asked to make a short presentation at a meeting in a few weeks on what needs to be done to keep accurate records. Now, I just have to put together a good presentation that will get the job done in 20 minutes!
Contemplation of a sick man.
So here I sit in front of my computer, venturing not far from room down the hall, thinking about the events of the last two weeks and trying to tie them all together. Seems like that should be pretty easy to do, doesn’t it? Well, not so when you are not with it, so this blog entry carries a “read at your own risk” tag. It most likely will make tremendous sense to me when I type it and I will regret it tomorrow when I am coherent and see just what I have typed.
I have been pondering what Moe Russell said at the Farm Futures meeting and agree that farmers must build alliances with their input suppliers. It is the nature of the beast that now more than ever you need to have a reliable supply of product, not just a cheap one to put out your crops. But why is this concept so hard for a farmer to grasp or implement? Well I have what I think is the answer. Our suppliers have trained us not to be loyal to them. They have taught us not to get to cozy and share too much. And I think it mystifies them to understand why we are not more loyal than we are.
Let me share a few examples of the training farmers have received from their suppliers:
Why should I commit to buy all my seed from one dealer or brand? As a loyal customer I don’t get the same free pallets of corn or beans that my neighbor gets just to “try” the brand, saving him tens of thousands of dollars.
Why should I continue to pay more for that chemical because it includes “service”? What services? What would they cost if I wanted the service without the chemical? And why is my neighbor getting his chemical cheaper and getting more service from the same dealer? And the company rep. even came by his farm and visited his fields with him?
I could go on, but I think you get the idea. While the supplier could argue they didn’t do the training, and I expect them to argue that, Pavlov would be proud of whoever did the training. We hear the “bell” loyalty and see our neighbor getting the “feed”.
The past road of loyalty is lined with the potholes of trying to increase sales and the bottom line. As one company man told me “that sales department isn’t talking to the guys in the field”. Maybe so. He also said that there is so much pressure to make the next sale, especially to a “new” customer. Again maybe so. I don’t live in retail so I can’t speak to that.
But you will go broke worrying about your neighbor. My margin is what counts, not his. Sorry, but that’s the way the games played. And if supplies are tight or late or whatever and without that product, I can’t grow a crop, all the “extra stuff” doesn’t matter.
Moe is right. Find a supplier with whom you’re comfortable with and build a relationship with them and quit worrying about the “better deals” the neighbor is getting.
Worry about your margin, not theirs, and make $100/ac your profit goal.
Farm Futures Conference this week.
Lots of work to get done the next few days before heading off to the Farm Futures Conference in St. Louis. This is a great conference, I think the best one going, for the information you receive. David Kohl will be there, I never miss a chance to see him and so will Moe Russel who I also think is great on farm management.
Anyway here is a teaser on the conference.
Not the same as being named Miss State Fair Queen?
Found this interesting this morning, if not comical in some way.
From www.IlFB.org IFB News………..
Sangamon County Wins Cash Rent Crown
Monday, May 04, 2009
Sangamon and surrounding counties are wearing a new crown – the highest average cash rent values in Illinois. The Illinois Ag Statistics Service on Monday issued its first-ever county survey on cash rents.
Sangamon County’s value of $224/acre was the highest, closely followed by Logan, Macon, Macoupin, Piatt, and Moultrie with average values between $204-$213/acre.
The service said it was unable to calculate a reliable average cash rate value for several counties in deep Southern Illinois, although Perry County had the lowest county rate of $74.50/acre.We have the full report available.
Click on the file below to view.
For More Info Contact: John Hawkins,
News Service Director Phone 309 557-2237 Fax (800) 640-1995
E-mail jhawkins@ilfb.org
Wonder how many of these $400-$500/ac rent guys told the truth?
It is good to see that I live in the sane part of the state with a ~$150 lower cost per acre out of the starting gate.
I was told a few years ago by a guy whom I trust that cast rents in a couple of these counties went for 1.25 times the APH corn yield. So a 200 bu APH would be $250/ac. So if you take $224 and back it out that is 180 bu corn ground. Which I would say is pretty close on a lot of that ground.
Using that math, that makes my ground worth $180/ac. That is where I will start taking bids. I don’t know, $106 more than the average? Don’t think I will get it………
Its beginning to look a lot like last year
Then again I would take last years yields again with no complaints.
Then again last year is still not over either it seems. Still dealing with grain, fertilizer, soil test, seed decisions and a lot more.
Last year………………….what did we learn?
Two note worthy items today that caught my eye: Farm Program Decisions and Risk Management.
Art Barnaby at KSU is back on the stump about ACRE and SURE and has a lot of good points to make. I have to agree with Art, ACRE is not a “No Brainer” as a lot of university (small U there) professors are saying. You need to really think this one through. Really. Unlike some of the experts at the meetings I have been to, Barnaby breaks it down, painfully in some cases to show you exactly how it will effect your operation.
SURE requires crop insurance. Ok, not a big deal unless you have crops that you cant insure with traditional crop insurance products………..I am afraid that some will miss out on SURE because they didn’t insure that field of clover or hay.
Search out other Barnaby articles on the KSU website. Well worth the time on a rainy day.
Related to this is a survey done by Rabobank on farmers outlook for the next year. The survey shows that more than half of U.S. farmers have recently implemented or plan on investing in risk management or marketing strategies, like pre-selling crops and hedging future commodity. Additionally farmers are looking for input to come down (aren’t we all) and are more interested in used equipment. The report shows that farmers are looking to make smart choices to weather the current economic storm.
With those two stories in mind and the current weather forecast in place, what about last year and your risk management plan needs changing? Last year prices were on their way up hard. This year prices are moving sideways for the most part. Will we get good weather this summer like we did last year to produce a big crop? Or will be bake like we are capable of?
Are you informed on how your crop insurance will play out this year against your forward marketing if you cant plant? Have you sold at or above your margin?
While its raining, you might want to think about this.
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