Suggestions for Planning for Rising Fertilizer Prices and Bull Markets
Rising fertilizer and input prices are the hot topic of conversation in rural coffee shops across the Corn Belt. However, there seems to be little banter about how to make crop-input purchase decisions heading into 2022. So what should savvy farmers be discussing, in addition to rising costs, to make the best purchase decision?
A large piece missing from the discussion is an individual’s personal financial scenario. Your financial standing might be different than your neighbor's. You both face the same costs, but his financial picture may allow him to react differently than you can. Maybe he has enough cash on hand to purchase inputs at these higher costs without changing his production strategy. On the other hand, he might be looking for ways to improve his cash flow by changing production practices, selling assets, getting a larger operating note or getting an in-town job to make ends meet.
Make the right financial decisions for YOUR operation. Your decisions heading into 2022 may look very different than your neighbor's. Your goal is to financially survive 2022; it doesn’t matter how you accomplish this goal.
Focus on optimizing — instead of maximizing — yield. Fertilizer costs may become so high, relative to 2022 crop prices, that you choose to apply less fertilizer. In other words, fertilizer could become a limiting factor to your production. Reducing fertilizer application might also decrease your yield expectation and application of other inputs.
Another way to optimize is when deciding what products to use and on which fields. If you have limited choices, make sure you are consciously deciding where each input would be best utilized.
Have you ever heard, “you make your money when you buy, not when you sell”? Although this phrase isn’t very common, more farmers should adopt it. Shop around for inputs and services. Reducing costs, not just fertilizer, can help create more wiggle room when it comes to marketing.
Often overlooked are costs that are not directly tied to production, such as insurance, machinery costs and family living. Take time this winter to review all your cash outflows. Look for areas to reasonably reduce expenses.
Costs are only one side of the profit equation. Crop prices should be a major part of this discussion. Profitability comes from selling above your cost of production. Marketing should be a key consideration as you look ahead to 2022.
Maybe you have already purchased some inputs. We highly recommend developing a cash-flow budget, to determine your cost of production. As more purchases are made, costs per bushel should be updated. Once you have a cost of production estimated, develop a grain marketing plan that will help cover these costs. Avoid the cost-price squeeze — purchasing inputs at a high price while selling a commodity at a low price.
Navigating 2022 input costs and commodity prices will undoubtedly be challenging. Remaining focused on your farm’s unique financial situation, optimizing not maximizing, reviewing all of your costs and developing a solid marketing plan will give you the best chance at prospering in the upcoming production season.