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Marketing Commodities
Economic Responses to the Upcoming Challenges in 2006
Management:
- Identify if farm can cash flow the operation and obtain necessary financing;
if problems exist, then consider options to restructure debt, identify fields/enterprises
that do not cash flow and consider alternatives which might lead to a positive
cash flow: these could be related to enterprise selection, production practices,
marketing or rental arrangements. Other alternatives might include interest
reduction via guaranteed loans and interest assistance.
- Rental arrangements are sometimes adjusted to reflect challenging economic
times. Rental arrangements can influence greatly the profitability and relative
risk sharing between tenant and landowner. For example the following tables
display the impact of production systems, rental arrangements and market prices
on break-even yields for rice:
Common Tenure Arrangements Used in Eastern Arkansas
Rice Production
Full Owner - Has 100% equity in land
75-25 Crop Share - Landowner receives 25% of crop and pays
25% of drying expenses
80-20 Crop Share - Landowner receives 20% of crop and pays
20% of drying expenses
50-50 Cost Share:
Landowner receives 50% of crop
Landowner pays 50% of drying, fertilizer, herbicide,
fungicide, insecticide, and aerial application costs
Landowner pays 100% of irrigation expenses excluding labor
Rice Breakdown Yields (Bushels/Acre)
Required to Cover Direct Expenses* for Select Cash Prices and Tenure
Arrangement, Clay Soils, Easter Arkansas, 2006
| Tenure Arrangement |
$2.97/Bushel |
$3.30/Bushel |
$3.63/Bushel |
| Full Owner |
150 |
132 |
119 |
| 75-25 Crop-Share |
204 |
180 |
161 |
| 80-20 Crop Share |
190 |
168 |
150 |
| 50-50 Crop Share |
158 |
139 |
124 |
*Custom drying and hauling charges are included in breakeven analysis.
Rice Breakeven Yields (Bushels/Acre) Required to Cover Direct Expenses*
Assuming a $3.30/Bushel Cash Price, Select Tenure Arrangements and Rice
Systems, Eastern Arkansas, 2006
| Tenure Arrangement |
Silt Loam |
Clay |
Silt Loam, Stale Seed-bed |
Silt Loam, No-Till |
Silt Loam, Clearfield |
Silt Loam, Hybrid |
Zero Grade, No-Till, Water Seeded |
| Full Owner |
127 |
132 |
131 |
127 |
146 |
146 |
117 |
| 75-25 Crop-Share |
172 |
180 |
178 |
173 |
198 |
198 |
159 |
| 80-20 Crop Share |
161 |
168 |
166 |
161 |
185 |
185 |
149 |
| 50-50 Crop Share |
136 |
139 |
141 |
131 |
153 |
158 |
119 |
* Custom drying and hauling charges are included in breakeven analysis.
- Try to increase off-farm income to stabilize household income and access
health insurance
- Select enterprises and production plans that do not use high energy inputs;
high energy prices have impacted rice and feed grain margins the most.
- Evaluate the cost and benefits of crop revenue insurance. Various insurance
products are available to manage both production and price risk.
- Consider all options in purchasing inputs. It has reported that new online
storefronts such as
FarmSaver.com and
XSAg.com operate with lower overhead
costs and may be able to pass savings along to producers for both name and
generic crop production chemicals.
- Since farm program payments are currently paid on 85% of base acres, consider
planting no more than FSA base acres on each farm. This may help achieve commodity
prices more in line with program targets.
Marketing:
- Always prepare a marketing plan that covers the decision making process
from crop mix to marketing of commodities e.g. the CES spreadsheet MarketingPlanSar.xls.
Utilize marketing advisory service(s). Producers do not usually have time
to do their own market analysis.
- If the problem is the market price, then the producer should focus on pricing
opportunities that would cover costs. Rice is a good example. A significant
number of rice acres will or will not be planted due to the market price.
If a reasonable pricing opportunity emerges before planting, then the producer
should lock in the price and plant the acres, otherwise the producer may want
to mostly plant soybeans or leave the acreage idle.
Production Practices:
- Reduced tillage and no-till tillage systems seem to reduce variable and
fixed costs per acre while retaining good yields.
- Zero grade land forming appears promising as a means to reduce water pumping
requirements in rice. In addition to reduce pumping costs, potential savings
in labor, repairs, seed, chemical, and custom hire expenses are possible.
Previous research efforts have revealed modest yield increases by reducing
or eliminating levees in rice production.
- Consider proper planting times and seeding rates; consider early and/or
short season alternatives to reduce risk exposure to dry conditions and high
energy prices.
- If production practices pose problems for an enterprise or filed to generate
a positive cash flow, then the producer needs to solve the problem himself
or ask for assistance from their county agent and/or consultant.
Policy:
- Encourage Disaster Assistance programs that recognize both physical and
economic losses; irrigated crops in the south can incur significant additional
expenses in drought years without necessarily encountering reduced yields.
- Encourage continuation of financial assistance programs such as the guaranteed
loan program, interest rate assistance, direct loans and emergency loans.
- Encourage legislation that explicitly excludes agricultural production
from CERCLA lawsuits.
- Help develop farm programs that provide an adequate safety net but meet
the WTO guidelines as non-trade distorting policies.
- Encourage state and federal incentives to stimulate the bio-fuels markets
that create additional demand for agricultural commodities.
- Encourage the development of cheaper alternative energy sources to heat
poultry houses.
- Encourage policies that increase the effectiveness of animal disease control
and bio-security programs and that distribute costs in a fair and equitable
manner.
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