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November 15, 2012 10:44 AM
Swingin' for the Fence
Throughout the fall I have heard differing opinions on approaching the 2013 crop year and differing strategies on how to maintain and build on the momentum gathered as a result of 2011 and 2012.
Goin’ Yard
One theory that I have been told is that the best is over, because farmers only have the opportunity to hit a Home Run 4 or 5 times throughout their career. Given that the typical farming career lasts approximately 50 years, under this scenario the farmer has the opportunity for windfall profits every 10-12 years on average. Another theory is that a producer needs to position themselves to hit the Home Run every 3 or 4 years, which would create the possibility of windfall profits 12-14 times throughout a farming career.
Under the first theory (4-5 homeruns in a career) it could be argued that 2 of these have been hit in the last 2 years, and 3 homeruns in the last 5 years if you go back to the 2007 crop with 2008 prices. Under this scenario, if a farmer started their career in 2006, experienced windfall profits as a result of the 2007, 2011, and 2012 crops, they have already experienced 3 of their 4 or 5 big years, and really should find a new line of work, because statistically their luck is due to run out.
One theory that I have been told is that the best is over, because farmers only have the opportunity to hit a Home Run 4 or 5 times throughout their career. Given that the typical farming career lasts approximately 50 years, under this scenario the farmer has the opportunity for windfall profits every 10-12 years on average. Another theory is that a producer needs to position themselves to hit the Home Run every 3 or 4 years, which would create the possibility of windfall profits 12-14 times throughout a farming career.
Under the first theory (4-5 homeruns in a career) it could be argued that 2 of these have been hit in the last 2 years, and 3 homeruns in the last 5 years if you go back to the 2007 crop with 2008 prices. Under this scenario, if a farmer started their career in 2006, experienced windfall profits as a result of the 2007, 2011, and 2012 crops, they have already experienced 3 of their 4 or 5 big years, and really should find a new line of work, because statistically their luck is due to run out.
The second theory (a homerun every 3-4 years) would be fairly consistent with what this farmer experienced in their first six crops. They just so happen to be batting better than average. Good players typically do.
If Albert Pujols had a crystal ball, and could look into it and foresee that he had no homeruns left, do you think he would waste anymore time playing baseball? Probably not, because he would understand that the history books will remember him as the greatest $250,000,000 flop to ever round the bases. Albert doesn’t have a crystal ball to understand his future fate, but one thing is very clear…he only will hit a homerun if he swings the bat, and he won’t get paid if he doesn’t produce.
So which theory is right? Which is more realistic? It all comes down to your tolerance for risk and your cash position. Those with a more of a stomach for risk will position themselves to hit more home runs, and if your cash is in order, risk is inevitably more palatable. However, opportunities can also be passed up because there is a cash cushion that allows a person wait for a better pitch, and sometimes the pitches just don’t come. Just like in baseball, the players that chalk up the most home runs or highest slugging percentage are typically amongst the players with the highest incidence of strikeouts.
What’s going to happen in 2013?
There are several things I don’t like about 2013. First of all, it is an unlucky number. Second, we will be installing an unfavorable president…..again! Ready or not, the CHANGE is a comin’. And it certainly doesn’t appear to be a favorable change for most involved in agriculture. Third, the gravy train has to leave the station sometime. To drive forward thinking that some way, somehow the economics are going to keep getting better is pretty far-fetched.
With commodity prices testing the limits of demand and our South American counterparts primed to produce with huge price incentive, it is hard to make a case that we will be given the marketing opportunities for the 2013 crop that we have experienced recently.
Now, with that being said, I am certainly not of the belief that a producer needs to run out and cover themselves for the next three crop years out of price fear. This would only limit opportunity as there are still way too many production and inventory variables to warrant drastic measures on that end. But, coupled with looming changes in government policy and tax law, producers do have a fair amount of strategizing to do in regard to 2013 and beyond.
The Tax Man is Coming to Town
Now, with that being said, I am certainly not of the belief that a producer needs to run out and cover themselves for the next three crop years out of price fear. This would only limit opportunity as there are still way too many production and inventory variables to warrant drastic measures on that end. But, coupled with looming changes in government policy and tax law, producers do have a fair amount of strategizing to do in regard to 2013 and beyond.
The Tax Man is Coming to Town
This is where the farm fields transform from food and feed production assets into tax-deferred savings accounts. There will be huge incentive to keep fertility levels high and the soil pH in balance due to avoiding the tax man. No matter the price of fertilizer, relative to paying more tax, it will essentially always be on sale at 25-35% off. All made possible by a coupon given to you by your Uncle Sam.
Swingin’ for the Fence
The incentive to forward purchase inputs has never been greater, and with good pricing opportunities, there has never been more incentive to throw the “Kitchen sink” at the crop. Rather than trying to be the least cost producer by trying to skimp by with the least amount of inputs, why not focus on being the highest output producer, with more emphasis on final yield-not necessarily for the least total cost per acre. In the end, the fastest way to reduce your costs per unit of grain is to increase your output.
Who knows…you might just position yourself to hit another homerun, and isn’t that the point?
Editor's Note:
Rob Rudolphi resides in Eastern Iowa with his lovely wife Tara, where he is involved in several agricultural businesses. They currently have no kids, no dogs, and certainly no cats, and are generally up for anything involving a good time!
Rob Rudolphi resides in Eastern Iowa with his lovely wife Tara, where he is involved in several agricultural businesses. They currently have no kids, no dogs, and certainly no cats, and are generally up for anything involving a good time!
The mission of the column is to advocate agriculture, entertain (provided that you are entertainable), serve as a catalyst for critical thinking, and challenge the status quo amongst the agricultural community.
If you have a idea that would make a good "Burn Topic" for next month's Rudolphi's Burning column, please email the idea to prburmeister@gmail.com All entries will remain anonymous.
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