The many variables of farming
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There’s much that farmers cannot control about the kind of year they will have in 2023.
They can’t do a thing about the weather, the wide swaths of drought across Western Canada, the U.S. and Argentina, or the war over Ukraine. Nor can they predict the cascading effects of these and other factors on their growing and marketing conditions.
One area where they can exercise some control is their costs, but even the cost-of-production ledger has been skewed by inflation that no one seemed to see coming.
Despite historically high market prices, their margin for profit, or rather their room for error, looks awfully thin by the time they factor in the cost of borrowing, seed, fertilizer or pest control products into their budgets.
One place they can turn to for guidance is the Manitoba government’s cost-of-production budgets, where analysts assemble a benchmark reference on a crop-by-crop basis for growers to compare their own experience against.
These budgets are necessarily conservative because the people putting them together must apply certain assumptions in an increasingly uncertain world. For example, how do you factor in the unthinkable, such as the unprovoked invasion and outbreak of war in a region that is one of the world’s largest exporters of key food commodities?
And while analysts base their calculations on farmers using the recommended rates of fertilizers and chemical inputs, those are generic recommendations. The farmers who soil test regularly would likely deviate towards applying what their individual farm requires.
However, these budgets do send some clear signals to farmers about where they might find hidden profitability and costs. It’s now more than ever important for farmers to know their true costs of production, so they are strongly advised to do their own analysis.
The good news is that all but three of the 17 crops evaluated are showing potential for a positive return on investment (ROI) in 2023, although on some crops, it has shrunk to a sliver. For example, canola, which now surpasses wheat as the biggest crop in the province by acreage, is ranked No. 6 on the profitability scale. Based on these estimates, it will cost farmers more than $700 per acre to grow it. If all goes well, they might clear $45 an acre once it’s all sold. That’s a lot of risk to carry from the time they pick up their seed in the spring to when they vacuum out the bins up to 18 months later.
As for wheat, the second-largest crop in the province by acreage, it depends on which class of wheat the farmer grows. There are five listed in the crop production budgets and all require the same basics by way of management and inputs but profit potential ranges from more than $50 per acre to a negative $44 per acre.
That seems like it would be an easy choice. However, while potential ROI is important, it is but one factor in the farmer’s decision to grow a crop. Hybrid fall rye, for example, is ranked at the bottom for profitability. Winter wheat is ranked No. 9.
These crops are sown in the fall, providing coverage that helps keep the soil intact and maintains living roots that promote soil health over the winter. They add biodiversity to the cropping system and provide habitat for nesting waterfowl.
They can help break up weed and disease cycles, which reduces the need for herbicide and fungicides. They also spread the workload during the peak busy seasons of seeding and harvest. Including these crops could enhance the profitability potential of other crops on the farm either by increasing yields or reducing costs.
The marketplace doesn’t know how to express that in dollars, but it’s still valuable, increasingly so when the sustainability of agriculture is under the microscope.
By far, the biggest variable in a farm’s profitability from year to year is the farm manager, who must overcome changing odds with a winning strategy based on their individual capacity, resources and skills. You can’t put a price on that.
Laura Rance is vice-president of content for Glacier FarmMedia. She can be reached at firstname.lastname@example.org
Laura Rance is editorial director at Farm Business Communications.