Early budgets show favorable crops for 2008

So, what’s it going to be, soybeans or corn? With so many factors in play — futures prices, fertilizer and seed costs, fuel expenses, bankers, on and on — Arkansas farmers are concerned they get the right crop planted in 2008.

Each operation is unique but there are tools to assist in making those decisions.

Back in October, a Newport-Ark.-area farmer contacted Randy Chlapecka wondering whether corn or soybeans was the smarter bet for next growing season. It wasn’t the last time Chlapecka, Jackson County Extension agent, would be asked that question.

“With this particular farmer, I asked for predicted yields and crop price. What was his realistic yield and price?”

Those numbers were then plugged into a spreadsheet that Scott Stiles, University of Arkansas Extension economist, has developed.

The Newport farmer is “really good at his job,” says Chlapecka. “But the goals and yields he’s shooting for are very realistic for the area. We were looking at 160-bushel corn and 40-bushel soybeans. That’s not outside the norm around here. In fact, many farms exceed those yields.”

This year, around Newport, there were “plenty” of 200-bushel corn yields and 50- to 60-bushel soybeans. Such yields aren’t uncommon with irrigation and good soils.

Based on October numbers, the Newport farmer found his return on corn would be around $220 and the soybean return would be $143.”

Every day, Stiles is “approached by farmers about crop budgets — especially what’s the better choice between corn and soybeans.

When I sent Randy that budget, we still weren’t done with final 2008 numbers. (The charts) don’t reflect the exact situation today with fertilizer and fuel prices — but it’s close.”

Stiles, interviewed on Nov. 30, recently plugged updated numbers into the budget. “The gross returns ranking shows, based on today’s cash prices, that rice is at the top of the list. Cotton follows and then there’s a virtual tie between wheat/soybeans double-cropped and corn. Next on the list are early soybeans.”

When looking at net returns, rice is still king — particularly in areas with the lowest water-pumping costs.

“The current numbers (net above operating costs) rounded off would be $372 for rice and $297 for corn — better than a $70 per acre difference. Now, you must consider the yield and price. I’m using 160-bushel rice with a cash price of $5.31. The corn is put in at 175 bushels at $4.”

After rice, there’s a statistical tie between wheat/soybeans double-cropped, early soybeans and corn.

“Those last three are a coin toss. For the double-crop soybean budget, I didn’t include any allowance for a fungicide. That could be an issue, so farmers should consider that.

“But who knows if Asian soybean rust will be an issue. This year, though, the double-crop beans proved more susceptible to ASR.”

The threat of ASR could be a deal-breaker for Stiles. From a risk management standpoint, if returns are the same between double-crop and early soybeans, “I’d look harder at the early soybeans. Based on what’s happened in recent years, ASR seems to be more of a risk late in the season.”

Also, it must be noted that the net returns quoted do not include land costs (rents).

By now, growers have made their wheat planting decisions.

“Obviously, wheat acres are going to be up and we’ll see the majority of those acres double-cropped with soybeans. As growers make their double-crop soybean budgets I would encourage them to look at the cost of ASR fungicide applications and how they might affect the bottom line and marketing plans.”

What about tightening soybean seed supplies?

“There are rumors of seed prices increasing. If that’s true, these numbers may need tweaking. I assume the seed cost will be up because from all indications the United States needs to gain 6 million acres just to maintain ending stocks at current levels. Some private estimates aren’t showing that much of an increase yet. That doesn’t matter, though. Six million is what we need (and) the futures market should work to ensure that.”

Chlapecka says word is reaching farmers about a shrinking soybean seed supply. “It used to be that everyone would wait until the first of the year to study the variety information from the previous year’s tests. Now, you almost have to sit on some of the hot varieties before harvest is finished. This is a unique situation that has evolved.”

How does cotton fare in Stiles’ evaluation? “If you look at the state average yield between 1,050 and 1,100 pounds, there’s little incentive to plant cotton. But for the grower who has yields averaging at least 1,200 pounds, returns will rank up there with corn and early soybeans.”

That’s one reason why cotton continues to be grown in the state. “Many of our cotton growers are capable of great yields. Those farmers can still make a good return with the crop.”

Increasing fertilizer prices are also factored in. “Our budgets are showing that P and K blends — in corn and grain sorghum budgets, such as 0-75-75 and 0-60-70 — have gone up at least 50 percent over the last 12 months.

“Urea delivered to New Orleans in January of this year was $315 per ton. As of last week, that same ton was $430 — that’s $115 more, or 37 percent.”

And fertilizer prices could jump even more. “I follow the numbers weekly and the price of Gulf-delivered urea has risen every week since Nov. 1. We’re importing more N than we’re producing currently.”

The world fertilizer market has “put us on the opposite side of the transaction from what we’re used to. Fertilizer is now a commodity we’re competing for with rising nations like India and China and some Latin American countries.”

Chlapecka says farmers he speaks with are “very concerned about fertilizer prices. Sometimes, looking at rising costs can scare them off crops like corn and rice since they require so much nitrogen.

“But it’s very important that farmers don’t make cropping decisions based on the fertilizer price alone. Plug the numbers in because the bottom line may not be as bad as you think. It’s a bad idea to just say ‘urea price is high so I’m automatically leaving high-N crops alone.’ Don’t be turned off so quickly.”

The weakening dollar is also playing a role this fall. Stiles agrees that a weak dollar “is great for farm commodity exports. But when you have to buy a commodity with U.S. dollars, it’ll burn you. We’re importing more N and paying for it with weaker dollars. And remember, ocean freight costs have recently been at all-time highs.”

The Middle East and other regions will soon be providing more nitrogen to the market. Several companies have announced plans to build new ammonia plants in Brazil, Egypt, India, and Venezuela. That could add supplies by the end of 2009.

“So, we may not only be beholden to many OPEC countries for fuel, but also a nitrogen supply.”

Meanwhile, in central Arkansas, soybean/wheat double-cropped will be a hot combination. “Nowadays, it seems we harvest wheat a bit earlier than we used to,” says Chlapecka. “Farmers can plant beans the first week of June. If the land is irrigated, there can be some excellent yields.”

Even so, Chlapecka goes to great lengths to warn farmers off making decisions based on other operations.

“It’s so important not to rely on these budget numbers for anything beyond seeing a trend. It’s true that the general figures are solid and something our Extension economists take pride in providing. But farmers must have a handle on their own production costs.

“Get those numbers and then make use of this spreadsheet. It’s available in county Extension offices across the Delta.”

Growers are also increasingly worried with economic exposure.

“One farmer I spoke with said even though the forecasted corn numbers were pretty good the exposure was a worry. Yes, it’s true that it’ll cost more to produce corn and that must be considered.

“Some farmers will say ‘Well, if I have to spend more to make a little more, I’ll still go with another crop. I want to keep my spending down as low as possible.’ In the vast majority of those cases, the farmer will plant soybeans.”

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