Big argument for growers as the 2015 growing season begins to unfold. An article from the University of Wisconsin, "Do we Grow Another Bushel or Save A Buck?" outlines some of the most important management decisions that growers face in the 2015 season. The big problem for 2015 is the expected decreased price of corn commodities. Because 2014 was a huge crop year, growers face either growing more corn to earn the same amount of money or cutting costs to help raise the ROI on growing less corn.
In a candid interview with Sean Jordal, we look at what is happening within the industry and at several options open to growers. While the University of Wisconsin article opens up the discussion of what to do, Sean's interpretation of the market adds value.
If 2015 is to be such a bad year for corn prices, what options are open to growers?
Sean: Currently growers, faced with lower commodity prices can consider two potential actions. One is to spend more to grow more while looking at ways to save money by cutting grower inputs. The other is to grow less and save money while looking at savings as a way to remain prosperous. Saving themselves into prosperity is an option that has never worked. That leaves the first option of growing great crops. However, with lower prices and the historical free spending by growers over the last several years, the end profit is skimpy.
It sounds as if there no real options open to growers unless the commodity prices rise.
Sean: The real issue is not specifically the commodity prices, even though that seems like the most likely problem. The problem has been the increasing cost of growing a large yield crop of corn. Those costs come from the higher cost of GMO seed and the costs associated with crop maintenance, such as fungicide, and weed abatement. When you consider those aspects, then other options open up for growers. The consideration of reducing the cost of operations by reverting back to non-GMO seed or seed that has lesser trait and, therefore, costs less. Another option is to switch crops. Growing less corn and more soybean crops is another option for growers. However, that does not address all of the inputs that growers need to address. The biggest input is soil bank fertility.
So because 2014 was such a large crop, commodity prices have fallen and growers are left in a precarious position of having to replace soil fertility at a time when they need to grow more crops to maintain past profit margins?
Sean: From a nitrogen, phosphate, and potash perspective, the larger crop in 2014 has created a fertility deficit that growers need to overcome before they see profits in 2015. That is not part of the problem that growers face in 2015. Just to plant a crop means that the cost of that crop will be higher in 2015, and the higher cost of growing becomes coupled with a year of lower prices. In the middle is profits, and those profits are squeezed into a thin line. That is the problem that growers face. It is not just lower commodity prices, but the increase in cost of inputs just to get a crop in the ground. The higher crop prices in 2014, coupled with the loss of soil fertility, leaves growers in a situation where they must spend more to simply grow a crop in 2015.
It sounds as if simply cutting inputs is not going to be enough?
Sean: Cutting inputs is not going to be enough because inputs do not replenish soil fertility to the point where crop expectations are met. What this means is that as a grower, you can opt for a cheaper seed, but if you have not replenished soil fertility, then your cheaper seed is likely going to under perform, and that affects yield. Where does that leave growers at the end of 2015? In short, it leaves them in the position of spending more money to grow less yield. There is less profit in that.
Are their other options that mainstream growers have not considered?
Sean: The article from the University of Wisconsin does an excellent job of explaining the economics that growers face. The current situation forces growers to return to a more fundamental method of growing crops. A keyword from the article is “frugal innovation” and for growers that means finding ways to increase soil fertility without dumping a ton of money into the solution. The bottom line is that the more money you throw at this problem, the less profit you will grow in 2015.
Resources: Read the Full University of Wisconsin Article, Do We Grow Another Bushel or Save a Buck?