VOLIN - Like probably every farmer, Reid Jensen has a pen.
It's as necessary as the tractor, the shiny new 24-row planter and any other piece of equipment with which the president of the South Dakota Corn Growers Association farms 1,800 acres near here.
Figures scratched out with the pen help him gauge whether the money he spends putting in corn and soybeans and trying to boost yields pays off in more abundant crops and better marketing opportunities.
Some canny work with the pen could be especially important this year as South Dakota farmers face significantly higher costs for fuel and fertilizer.
"The direct cost of getting corn in the ground, I think we're talking about a 7 or 8 percent increase over last year," said Don Guthmiller, South Dakota State University cooperative extension marketing and farm management specialist. "The bulk of that increase is in the fertilizer."
Jensen says he paid 30 cents a pound for nitrogen last year and this year expects to pay 35 cents.
Typically, fertilizer accounts for 30 percent of the cost of growing a corn crop, according to Guthmiller. It is the largest single cost. The next largest production input is seed, at 28 percent.
North American fertilizer production nosedived when hurricanes last fall flooded natural gas and petroleum wells and pipelines in the southeast and put a serious crimp in the flow of natural gas, which is needed to make fertilizer.
The interruption in natural gas supply drove up the price, according to Jeff Cleveland, agronomy manager for Farmer's Alliance, a Mitchell agricultural chemical dealer that also operates in Corsica, Ethan, Alexandria and Storla.
"A lot of production was shut down between Canada and the U.S. when natural gas got so high," Cleveland said. Fertilizer producers who had locked in gas at one price would sell it back to the companies from which they bought it, "make money and shut down production," he said.
While the fertilizer supply is recovering and should be adequate for farmers on the Northern Plains this year, Cleveland says the higher cost of making it because of the price spike in natural gas is being passed on to farmers.
That sends the pens of many South Dakota farmers flying across the backs of envelopes and other available paper with calculations that attempt to determine what makes the best financial sense in 2006: Spend more money planting high-yielding corn, or reduce production costs and plant lower-yielding soybeans?
Bigger harvests
Corn yields in South Dakota have been trending upward over the past decade. Bean yields, however, have remained relatively flat.
"Ten years ago, we were getting 130-bushel corn. Now if we're not getting 150-bushel, something is wrong," Jensen said.
According to the South Dakota Agricultural Statistics Service, in Clay County in 1995, the average corn yield was 94 bushels an acre. In 2004, it was 169 bushels, and a five-year average between 2000 and 2004 was 135.6 bushels.
Soybeans, by contrast, were yielding an average 30 bushels in 1995. In 2004, that had climbed to only 41 bushels, and the five-year average between 2000 and 2004 was 36 bushels.
Statewide, corn yields in 1995 averaged 79 bushels; in 2004, it was 130 bushels; and between 2000 and 2004, the average was 112.3 bushels. Beans averaged 30 bushels in 1995, 34 bushels in 2004 and 31.9 bushels between 2000 and 2004.
Beans cheaper
If there is less bang for the buck growing beans, at least the buck is less. Jensen figures his total input costs are $300 an acre for corn and only $198 for soybeans.
Perhaps the key factor in deciding whether to bear the increased cost to plant corn is anticipated yield, Cleveland says.
"The biggest thing is if a guy's got a realistic yield goal, he can still shoot for that yield goal," he said. But this is probably not the year to be chasing super yields with added fertilizer.
"You can get carried away going for those high yields," Cleveland said.
In an era where corn struggles to climb above $2 a bushel, Jensen figures if his corn crop comes in at 140 bushels an acre, he will have to sell it at $2.14 a bushel to break even. At 150 bushels, the break-even price is $2; at 160 bushels, it is $1.88; and at 170 bushels, $1.76.
For soybeans, the break-even price is $5 a bushel on a 40-bushel yield. It might not entirely presage market developments, but an indication of what might lie ahead is that in late 2005, soybean futures for the 2006 crop delivered in November were near $6 a bushel.
In a typical year, Jensen plants half his acreage in corn and half in soybeans. Despite the anticipated increased cost of putting in a crop, his calculations tell him not to deviate too far from that this year.
Farmers do have strategies for coping with higher production costs, such as planning ahead.
"They'll try to pick a time when the price is relatively low to buy fuel and fertilizer. Sometimes, through their cooperatives, some of them can hedge fuel costs," said Matt Diersen, an SDSU extension economist.
Some farmers are adjusting production techniques. Jensen bought the 24-row planter to replace a 12-row model, he says, "because I'd rather invest the money in machinery than fuel. It does not cost me any more to pull that new one across the field than a smaller planter."
He also changed his fertilizer regimen last year after a brother-in-law who farms in Iowa told him about EarthSoils, an Ellendale, Minn., company that adds minerals and trace elements to liquid nitrogen fertilizer to produce healthier corn plants that can more readily use the nitrogen. Jensen also is planting mostly non-genetically modified corn.
"The bottom line is I'm getting about as good a yield, and I'm not paying as much for the seed corn. It's $80 a bag, opposed to $130," he said.
Yearly gamble
For all their efforts to control production costs, farmers can still get whipsawed at the end. A sharp, unexpected rise in fuel prices last fall increased harvest expenses. People had not built that into their operating budgets.
"Sometimes you have to roll with the price increases. There's not too much you can do in terms of foregoing planting or harvesting a crop," Diersen said.
For farmers in his region, Jensen said, some of the additional harvest expense was offset by the fact so much corn came out of the field dry, and farmers did not have to spend a great deal on natural gas to power grain dryers.
Many farmers, like Jensen, rent a good portion of the ground they farm. While some leases have provisions for owner and operator to share production cost increases, Diersen says more common in South Dakota are cash leases where the renter and owner agree on a rental fee, and the renter assumes all production expenses.
"The trend towards more cash leases puts the cost estimation responsibility on the farmer," Diersen said. "That puts pressure on the producer to not overbid and not pay too much for rent."
While production costs may be up this year, "it is not enough to cause lenders to worry," Diersen said. Farmers should not face any new difficulty getting operating loans, he said.
"From the lending side of things, I have not heard of any shortage of funds for lending," Diersen said.
From Jensen's perspective, the factor that helps the most to ensure his farm remains profitable is his equity in four farmer-owned ethanol plants. When the price of corn is high, he makes money selling grain to the plants. When the price is low, the ethanol plants make more money, and his dividends increase.
Each year brings its own challenges. Where farmers are looking at higher fuel and fertilizer costs this year, unusually wet weather last spring forced Jensen to replant three times, and "my yields last year weren't great.
Then, "my ethanol dividends helped support my farm," he said. "Ethanol, that's my hedge."
