By: Thom Weir
This topic may not be very popular but needs to be discussed. I know most of you will have visited one of the major ag tradeshows this winter. You will have returned with your mind full of exciting new products available on the market that promise to make you tons of money.
There is no doubt that, in general, high yields are more profitable. Because of land, machinery, crop insurance, family living costs – farming or more specifically crop production is a high fixed-cost business and lowering your cost per bushel is a function of spreading those fixed costs over more bushels. When grain prices were at all-time high prices, it was easy for growers to pull the trigger on every input that might result in a yield increase.
I have also heard from a lot of farmers over the last couple of years reporting they have grown the best yields ever. The reasons for this are varied – great weather during the growing season, new high yielding varieties or hybrids, better fertilizer management, and long term no-till to name a few of those reasons. Being able to brag at coffee row about that field of canola that went 70 or an oat crop that touched 200 is very satisfying. With the prices we have seen in the last six to seven years, there has been a lot of profit in farming. However, lately prices have gone into a funk. We are seeing a new level that possibly isn’t quite as rosy as it was in the past.
The problem is that we have gotten accustomed to producing big yields. The funny thing is – as a grower pointed out to me the other day – “I used to look at 30 bushels of canola as break even, then 35 and now it’s probably near 40.” This isn’t farfetched. Looking at the Guidelines for Estimating Crop Production Costs 2018 from Manitoba Agriculture, average costs for growing a crop of canola is around $400/acre, (fixed and variable) using $11.00/bushel and you have 36 bushels to cover costs. What has changed? Two things – increases in input costs and a price decrease.
Let’s look at what really makes you yield and what it costs.
How much nitrogen does it take to grow a bushel of spring wheat? The sharpies out there are hopefully saying 2.2 lbs. In most circles, that are correct, but you may also be incorrect. This number is taken by deriving the amount of N to grow a 50-bushel crop for example. Studies have shown that 110 lbs of Fertilizer N and Soil N to grow that 50 bushels. However, if you look at the first 45 lbs, you will find that there is much more than a 20 bushel increase. It may be more like 30 bushels. I call this area of response the sustainability area. It produces great returns but will only get a yield that may or may not cover your basic costs.
The next 45 lbs N will return more likely close to the 20 lbs expected but you will notice from the illustration below that each lb of N applied is producing less grain than the lb before. I call this zone the zone of profit. This is a very important zone as not only does it provide jingle in your jeans, it also makes every other input on your farm more profitable. For example, if it costs you $15 to spray an acre of land with a herbicide and you grow 30 bushels of wheat on that acre, it costs you $.50 per bushel. At 45 bushels, the cost has been reduced to $.33 per bushel.
So, we are at 45 bushels on our crop and we now add 20 more lbs. This 20 lbs only gives us 5 bushels of yield. This is only half the 2.2 bushels/lb N. In fact, the last 4 – 5 lbs N, while still showing an yield increase, may actually be losing you money! The cost of the N to increase the yield may actually be more than the value of grain produced. I call this the zone of risk and rope.
So, back to the not-so-popular topic of discussion- do you need to have the highest yields? Or can you sacrifice the last 5% of your yield and make more money? I work under the general guideline that you should expect an average of a 2:1 return for your inputs to cover risk. I may bend this to 1.5:1, but not lower. That means that if a fungicide treatment costs you $15, you should want on average $22.50 – $30.00 in yield. The premise is that you don’t want to be trading dollars with your inputs and there should be an expectation of returns to cover the incidents when you aren’t making money from your treatment (and yes there are times).
In order to strive for profit and not higher yields, you must exercise self-discipline and question every input you are using. For example, I know of several growers who annually put down potash on their canola. The Canola Council of Canada states, “Canola rarely responds to applied K, even under conditions where cereals normally respond. Critical levels are often stated to be around 280 kg/ha of K (250 lb./ac.) or 112 ppm in the top 15 cm (6″), but research indicates that canola will not consistently or economically respond to fertilizer K unless the soil test is very low — 78 to 112 kg/ha of K (70 to 100 lb./ac.) or 35 to 50 ppm.” This is sound advice, yet many fertilizer dealers and agronomists continue with the philosophy that “it won’t hurt to put a little on.” It may not hurt the yield but it does hurt your balance sheet!
Another example is the use of fungicides. Last year, tens of thousands of acres were treated for FHB even though the forecasts were very low based on prediction models. Why? Because growers had FHB the previous and they were going to do everything in their power to avoid it in 2017.
The bottom line is – this isn’t the year to throw everything at your crop – hoping that enough will stick to pay for the rest. Stick to the tried and true basics. Everything else –to borrow from Obi-Wan Kenobi- “trust the force.” I’m suggesting you to trust the science.
For nitrogen fertilizers, we get a yield curve that looks something like this.
Profit margins for Canadian farmer for the past few years.