Beware the Rising Input Costs

I’m not a big markets person. I know, I know, it’s agriculture, how could I not be into markets? I have a basic understanding of charts and outlooks, of course, but by my heart is in the soil, plants and animals — the futures market is rather Greek to me. Still, it’s difficult to attend a conference like Grainworld and not have my interest in markets piqued. Of particular note, was the Tuesday lunch hour speaker Harold AGJ Davis, with Prairie Crop Charts. Somehow this man made charts easy to understand and, dare I say, even entertaining.

Davis, a seasoned chartist (if there is such a title), explained patterns and trends of several different commodities, from wheat and canola, to barley, corn, oil and rice. While his message of dropping prices into the growing season and at harvest (seasonality) mirrored that of many others, he also traced lines on these charts that suggest a big move upward — mirroring 2008 — for many commodities, like wheat, corn and soy. Many farmers smiled and nodded. This is excellent news.

In the face of this very good-news story comes the balance, however — energy prices, be they oil or natural gas, are showing a similar chart formation.

The long and the short of it is, even if there is a bit of lag, high crop prices will have margins eaten by high input prices if farmers don’t safeguard that margin in some way. But how? Can we eliminate oil and inputs from our farming practices? Absolutely not. But can you, if you really put your mind to it, decrease these input bills? Quite possibly.

But how? By working on efficiency, of course. Now, normally I hate the term as it seems too vague, but in this context there’s actually some very concrete ways to build energy efficiency into a cropping system — spring vs. fall nitrogen application (a 20% gain right there), using pulses in rotation (and not just soybeans) to fix nitrogen, decreasing total passes on the field and decreasing tillage, or variable rate fertilizer applications. For ranchers, there are similar gains to be made, perhaps through extended and winter grazing strategies so as to decrease the haying bill.

The bottom line is, high commodity prices are only a boom if your margin increases or is maintained in the face of those prices. What could you do this year or next to decrease your farm’s energy bill? We’d love to share your feedback here in the comments.