Perrin: The key elements of a good plan
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- Published on Thursday, February 7, 2013
By: Steven Perrin
myWestman.ca
It's the time of year when farmers are making their seeding decisions, which means we marketing advisors are receiving plenty of questions from them about what they should consider growing.
The short answer (“it depends”) can be frustrating for farmers, especially those who are essentially asking us what we think is going to be selling high. Having a good sense of what the market is likely to do is definitely important, and a good starting point for drafting a seeding plan, but the reality is that 10 farmers using the same market predictions are probably going to come up with 10 different plans, because the approach to a good plan tends to incorporate a number of factors unique to each farm.
If a farmer wants to analyze these factors, making a budget is a good place to start, and a major part of that process is to figure out the farm's fixed and variable costs. For many people this is the hardest step. Many farmers think they have a good grasp of their costs and see the process of putting them down in one place as unnecessary (not to mention boring).
But doing it can be a revelation about the profitability (or lack thereof) of a farm's typical planting decisions. Cost accounting also allows farmers to look at the estimated prices for various crops and, combined with average yield expectations, start playing around with break-even values and potential profitability of each crop.
From there, a logical next step is to consider factors specific to the farm (or the farmer) that might influence planting choices. One such factor is the limitations of a farm's rotation. A strong set of financial indications that you should plant more canola may be irrelevant if canola is already pushed to the maximum in your rotation or you like to maintain a diversity of crops to manage risk.
There are many factors to consider.
If you're considering a new crop, do you have the right equipment, and is it field ready? What's your level of risk tolerance? How does your access to labour vary at different times of year? Which markets are closest to the farm?
Approaching a seeding plan this way, farmers can avoid the trap of assuming that a crop's predicted profitability in the futures market will translate to predicted profits for the farm. Like any good marketing advisor will tell you... it depends.
