By TIM THORNBERRY
Kentucky Correspondent

LEXINGTON Ky. — For anyone who thinks farming is a job for those with a strong back and weak mind, think again. Farmers have to be the most cunning of business professionals today, especially since there are so few who expected to serve so many at a time when the biggest of businesses are struggling.
Marketing and doing things at just the right time are critical to the bottom line. University of Kentucky (UK) agricultural economists estimate 2011 could be the year state farm-gate receipts hit the $5 billion mark. But big gross sales don’t always equate to large profits as input costs have soared – the most notable lately is the increase in fuel prices. Greg Halich, a UK ag economist said that even with those high inputs, profitability will be affected more by marketing decisions.

Case in point; since July, fertilizer prices have risen $165 per ton for Diammonium phosphate (DAP) and $225 a ton for anhydrous ammonia and potash has climbed to $75 per ton since September, according to a release from UK.

With that said, grain prices are high at the moment to the tune of nearly $6 a bushel for corn and $13 soybeans.

The information from UK went on to note that “a $100 a ton fertilizer increase across the board for nitrogen, phosphorus and potassium only decreases profitability by $12 to $15 an acre averaged over a 50-50, corn-soybean rotation. Assuming producers’ cornfields yield the state average 140 bushels per acre, a 10 cent drop in commodity prices would decrease profits by $14 an acre.”

Halich said a 2 percent decline in commodity prices is having the same impact as 15-20 percent increase in fertilizer prices.

So selling at the right time is important to getting the most net dollars out of a crop. But that is easier said than done in a market of extreme swings. “We’re seeing more volatility in the commodities market in one week than we’ve seen in several months of fertilizer costs, which have stabilized for the most part since December,” Halich said.

He added that locking in fertilizer costs now could save producers money later. But with commodity prices high and money to be made, farmers could increase acreage creating a bigger demand for fertilizer than there is a supply which will, of course, make fertilizer prices go up. It is a delicate balancing act at best for producers these days. Another factor in making a profit could come at the hands of knowing when to market the upcoming crop and purchasing crop insurance.

UK Ag Economist Cory Walters said a high corn price today doesn’t mean that will be the case when this crop is ready to sell. “With new crop corn prices so high, producers can protect against adverse market shifts by locking in today’s prices with small sells overtime. Keeping in mind that you hope these sales are the worst you make all year while planning that they may be some of the best,” he said.

In helping to guard against sudden drops in prices, crop insurance could play a vital role. “There’s no single correct insurance policy,” Walters said. “But producers may want to look at the trade-off premium costs compared to potential payoff in going to a higher coverage level. Revenue protection is recommended because of the price protection and switching to enterprise units significantly reduces premium cost.”

He also noted that “revenue-based crop insurance does not just protect against declines in yields, it also protects against changes in price.”
The USDA’s Risk Management Agency, for instance, determines the base corn price for this year’s crop insurance by “calculating the monthly average of December corn futures, which is now around $6 a bushel. A 5 percent change in coverage level, and the price floor would change by 30 cents per bushel, Walters said.