Making Input Decisions in 2022

Inputs

By Galynn Beer, National Sales Strategy and Product Management Lead

Harvest has wrapped up and 2021 was a very exciting, yet volatile year in agriculture. If you evaluate production costs versus revenue, it’s been a long time since proactive growers could lock in most inputs at low prices early in the season and benefit from rapidly appreciating commodity prices to hedge revenue during the spring. This allowed for the best potential profit margins in the past several years. But, profit creates demand for inputs, which causes costs to rise. Couple increased demand with supply issues that persist for a number of reasons and now you have demand pursuing limited supplies of many inputs. This dynamic results in a buying motivation that trumps every other reason to buy…scarcity, or fear of not being able to get something that is wanted or needed.

This Versus That

When this happens, rational decisions often become irrational. It happens in our lives more that we probably think about, such as a limited release of something that is sought after. Heck, the other day I heard of a limited release tennis shoe that would normally sell for $150 selling for over $2,000. I wouldn’t pay it, but apparently someone will because it’s limited and they want those unique shoes. I don’t need a specific pair of shoes that badly. While alternatives to a specific tennis shoe may exist, crops need what they need to grow. Some nutrients aren’t optional. Of course, there are some alternatives to a few nutrients, but all crops need nutrients of some sort. Legumes, such as soybeans, don’t require commercial nitrogen since they have a symbiotic relationship with bacteria that provide nitrogen to them. Growing a legume would eliminate a major input cost of nitrogen that is incurred for corn. However, a massive shift in acres from corn to soybeans may solve the cost of nitrogen problem, but have a negative effect on gross revenue unless an effective hedging strategy is utilized. The price of soybeans would likely drop if 100M acres were planted.

Some crops, such as wheat, tend to be nitrogen intensive for the revenue produced. High nitrogen prices rapidly increase the amount of money needed

to produce high yields. Cotton can produce strong revenue at current prices and it does so with lower nitrogen inputs than many crops. Cotton isn’t an option unless you live in an area of very high heat. In addition to nitrogen, phosphorus, potassium, sulfur and zinc top the list of other nutrients that have seen rapid price appreciation and supply shortages.

Working Through Your Options

The question presented by all of this fertilizer turmoil is, “How do growers make decisions for the 2022 growing season?” This will take some work. There are a number of tools available to evaluate what will work best. The first step, however, will be getting a soil test. Why is this important? Getting a good understanding of the inventory of nutrients in your soil will be critical in determining what trade-offs should be made. For heavy nitrogen consuming crops, such as corn and wheat, it’s easy to cover that need and see what budget is left for other nutrients. But if you work with a crop nutrition representative from AgroLiquid, they can be helpful in working through the trade-offs. Giving up 40 pounds of nitrogen to make room in the budget for P, K, S and micros may coax the best result out of the crop. A lot of questions have to be answered to determine that and someone with strong crop nutrition skills can determine the impact of residue, previous crop, soil issues, cultural practices, and available assets for applications and timing. All of these variables combine to provide a good costbenefit analysis. Diminishing returns can happen when pushing the yield envelop. It’s easy to let achieving gross revenue through maximum yield production drive a decision because it’s a simple calculation. The best utilization of fertilizer in a year when it is expensive may be a little below maximum yield, where each nutrient input is leveraged into maximum production.

What’s Right For Your Farm?

Another caution is to make sure you keep emotions in check in periods of volatility. Pressure to secure supply can result in hasty decisions. Have a process to prevent ‘I know I need it’ type of decision making. Identify what crops will work best for your farm. It’s generally good to stick with a crop you are good at producing and have a local market for. After you’ve determined the crop fit for you and you’ve taken inventory of soil nutrients through a soil test, then consult with a fertilizer specialist to understand the limitations for the yield you desire as well as determine application timing and methods and their fit in your program. Side-dress, Y-drop and fertigation are very effective in-season application methods, but is there time and do they fit your operation? And one of the last steps of the process is to make sure you don’t become a victim of ‘group think’. It’s easy when you look at social media to see how others are making decisions and assume they’ve taken all of the steps. Next thing you know, you make their decision your decision without really knowing if they made a good one. Do your own analysis! It’s your money. It’s your farm. Seek outside advice as part of the process, but don’t let outside advice be your entire process.

Yield Win Versus Economic Win

Opportunity certainly exists for the 2022 growing season. Anyone who provides transparent tools should be at the top of the list for helping you navigate the hurdles and maximizing opportunity. At AgroLiquid, we compile win-rate data on our products. That means we show the wins AND losses. Those make up our win-rate percentage. Then we apply economics. A yield win may not be an economic win. The economic win changes constantly based on the cost of products versus what that product produces. You don’t want to spend $10 to make $5…or at least I don’t.

High value crops, such as almonds or tomatoes, will need their own analysis. Crop nutrition is generally a lower percentage of overall production costs for these intensive crops. A lower power microscope may be fine in that situation. Contract obligations and produce crops that have more direct consumer feedback have different values, and those can be very individualized. A process for decisions is still prudent. Several steps I talked about in this article are still relevant.

Decisions made during market volatility often causes skewed conclusions. Just like the emotions that can take over during an auction and cause you to bid higher than you planned, those same emotions can override other decision processes when constant supply chain articles are published. Check your emotions. Have a process for making decisions. Follow that process!