Use those higher commodity price to invest in your operation

Higher prices bring a different management mode than lower prices. Take the opportunity put something back into your soil and your equipment

by DAVIS TOWNSEND

If you want to be successful growing crops under higher commodity prices, do not make too many changes from your practices last year. Things like early planting, good seedbed preparation and wise genetic choices are still the basics of high yields and high returns. As I write in early December, commodity prices are higher than they have been for a while. Higher prices bring a different mode of management than lower prices.

There are some items that warrant purchasing with higher commodity prices. The obvious things are equipment repairs and replacements. Tile drainage is another. There are other more direct inputs in which to invest. The first is nitrogen. For the 2006 crop year, many growers reduced nitrogen rates because of lower commodity prices. The current nitrogen calculator suggests that you should apply more nitrogen as commodity prices rise. The next is investing in soil, first with a soil test.

This practice has been put off by some of you as a cost-cutting tactic. Over the last three years, soils have been mined as producers worked to stay afloat. That was a good strategy, but at some point you have to put those nutrients back. On top of that, yields were good last year, and good yields take more nutrients from the soil than low yields. The higher commodity prices won’t last forever. Now is the time to replenish some of this P and K and micronutrients to get ready for the next round of low commodity prices. Land rent is more of a discussion point than last year.

This is especially true for landlords who are removed from agriculture and look at their land strictly as an investment. For these folks, try to talk up a variable rate rent. Try to tie it to commodity prices. You can argue that, as prices go up, the landlord could get even more for his land.

On the other hand, if prices go down, you have some protection. I am told that there is a tax incentive for some landlords to have a share-cropping arrangement instead of straight rent to help reduce their income taxes. And there will be land that you will have to walk away from. As Kenny Rogers sang, “Know when to walk away, know when to run.”

I have been told by more than one producer that this year they gave their landlord a bonus because of good returns. Other more subtle investments include buying better genetics. This fall, I spoke with a grower who was excited about the yield of 165 bushels an acre he got from seed that only cost him $78 per bag. I did not have the nerve to tell him his neighbours were getting 185 bushels per acre. That cheap corn seed cost him $150-$200 per bag.

Bt genetics are a good investment. Over the last seven to eight years, Bt hybrids have out-yielded non-Bt by about four bushels per acre. Once corn gets above $2.40 a bushel, investing in Bt corn borer resistance is good value. So is investing in fungicides.

You need a certain yield increase with fungicides to get a payback. Higher commodity prices mean you need a lower yield increase to offset the cost of fungicides. One of your biggest challenges will be not getting caught up in the old line that “with higher commodity prices, you can’t afford not to try this new product.” The underlying message is that even though it may not work, you can afford to take the risk of using it. This should be the case with all products not tested or researched. Finally, remember your family. They, too, have been through tough times.

Consider investing some of those extra returns on a family holiday. It’s a bit like investing in your soil. You do not know when harder times will return. BF

Pat Lynch, CCA (ON), is head agronomist for Cargill in Ontario.