The lowdown on high input costs

Geoff Geddes | The Word Warrior

Somewhere, farming involves static costs and steadily rising profits...just not in this galaxy. For earth-dwelling growers, fluctuating expenses are a constant concern, and that is especially true this season as the cost of everything from fuel to fertilizer is on the rise. Though adversity is nothing new in this business, producers will need to be especially vigilant in the coming months to keep high input costs and the recent drought on the Prairies from raining on their parade.

“Inputs like fertilizer have gone up drastically in the past year, driven by COVID-19, shortages, supply chain issues and threats to production,” says Mark Wobick, farm management consultant with MNP in Lethbridge, Alberta.

As well, the high prices for commodities these days are pushing up demand, and thus the cost, for other inputs like fuel, chemicals and seeds. Even things like crop insurance premiums are trending upwards, and some of these increases will catch farmers by surprise.

“The higher costs have put many farmers behind in their planning,” says Wobick. “We usually advise clients to look at these inputs months in advance of the next growing season, but many are now in reactive mode rather than being proactive.”

To weather the storm, Wobick stresses the need for liquidity, and also urges farmers to avoid a common reaction in times of adversity.

“It is human nature to withdraw and spend less when costs rise,” says Wobick. “Right now, though, there is a lot of money to be made thanks to strong commodity prices. I tell clients to look at the whole gamut, such as managing production and input risk and engaging in forward contracting. You have to consider the entire farm operation as there is great potential out there right now, but with that comes great risk.”

Though the word “risk” causes some people to retreat, it is how they manage that risk that will make the difference.

“Producers need to keep implementing good farming business practices and risk management strategies,” says Wobick. “They must be aware of the tools at their disposal and how they work. For example, if you have crop insurance, the variable price index was made to offset some short term price fluctuations. Managing in these times is about understanding the impact of different scenarios on yield and production, and how that impacts risk management. If I hedge 30 per cent of my expected production, how does risk management help me and protect my balance sheet?”

Now more than ever, advisors like Wobick stress the power of knowing your costs and being willing to spend money to make money where appropriate.

“You don’t want to stop spending at times like this; you just want to spend properly on the right things,” says Wobick. “We have one large client who soil tests frequently, to the point where they don’t think their fertilizer budget will even increase next year. Getting a handle on your cost of production, combined with good revenue projections and sound risk management strategies, is the best way to make the most of the current economic climate.”

Part of that climate involves challenges with seed going into 2022.

“Generally we will see higher costs and less availability for seed,” says Greg Stamp, seed sales manager for Stamp Seeds in Enchant, Alberta. “This is a cyclical business where you have lot of ups and downs, but in 15 years I have never seen shortages across all crop types. Everyone had a bad year thanks to the drought, so certain varieties and crops will be sold out soon after Christmas.”

For farmers, that means the need to finalize their growing plans early is greater than ever.

“The challenge I foresee is that some farmers may wait until spring so they can assess the moisture situation going into the next growing season,” says Stamp. “I don’t blame them for delaying their decision, as the drought has changed the thinking for a lot of growers. Unfortunately, things are more complicated than in a normal drought year. Because this was a widespread drought rather than a localized one, there just is not the seed out there that you would normally expect to see.”

For Stamp, this is the year to have product booked and brought home as soon as possible.

“Given the circumstances, a delayed decision could mean a forced decision, as there may not be enough seed available in the variety or crop type that you seek,” says Stamp.

If success in farming is about always looking ahead and being prepared, 2022 may separate the wheat from the chaff.

“We are moving into a year where prices are higher, but so is the risk,” says Wobick. “When you get that commodity in the bin next season, make sure it has the right price attached to it so you can afford those higher inputs.”