2016 is projected to be a bleak year in terms of commodity prices. Although agriculture economists are recommending cutting costs across the board to balance farm budgets, it’s important to look at your operation as a whole. The key is to find places where you can become more efficient rather than blindly cutting expenses.
One tempting cut is with your soil fertility. Like every input you use, your soil fertility has value, and it may be a good place to make sure you’re getting your money’s worth.
“I tend to find that there are folks that are probably putting out more fertilizer than they need,” says Josh McGrath, Ph.D., University of Kentucky Extension soil fertility specialist. “What I find is that during the good years, many farmers invest in things like phosphorus and potassium, which are elements that tend to stay in the soil if leftover between seasons.”
Soil fertility is a vital, long-term investment for all farmers. Nutrients are necessary to produce good yields, so applying fertilizer according to soil-test results is a best practice. On the other hand, too much of a nutrient when crop prices are high doesn’t do your bottom line any good either.
“While high yields are great, maximum yield is not the optimum rate of return,” says McGrath. “You need to make sure you are maximizing your returns on investment.”
Balancing crop-nutrient needs is a science. To begin, farmers should take soil samples and have them tested to determine soil-nutrient and pH values. Those readings provide information about what nutrients need to be applied and at what rate.
“You can’t pick and choose your nutrients,” says McGrath. “The way that soil fertility works is if any nutrient is limiting, the most limiting nutrient will limit your yield. Even in times of low crop prices, you should still apply every nutrient to the soil-test recommendation.”
So, where can you cut?
University of Illinois Farm Management Specialist Gary Schnitkey, Ph.D., says it’s time to rethink your budget for the short term.
“While we hope they don’t, these commodity prices could persist into 2016-2017,” he says. “I would plan for commodity prices to lead to lower levels of returns for a couple years.”
He recommends taking a look at everything when budgeting for 2016.
“Typically, people think of an input as fertilizer, seed or pesticides, but I would throw machinery in there as well,” Schnitkey adds. “I would recommend cutting back on all of them in 2016, particularly machinery and capital purchases. This is also a time to take a look at the rate you’re paying in cash rent.”
McGrath agrees on the cost-cutting potential of machinery.
“Equipment doesn’t make yield,” says McGrath. “If you cut that, you may be slower, but you’re reducing costs. In comparison, you expect a specific return per dollar invested in fertilizer. You can make cuts there, especially if you have a history of over-applying, but make sure you’re not under-applying, either, or you’re going to lose yield. Ultimately, following sound soil test recommendations is best.”
Commodity prices will eventually rebound, and there’s nothing wrong with positioning yourself to take full advantage. That includes keeping up with fertilizer applications.
“Fertility is a long-term investment,” says McGrath. “Don’t start cutting back too far on nutrients. Follow your soil-test recommendations. If you do, you’ll be able to capitalize on future high commodity prices because you won’t have to catch back up on fertility.”