With margins getting tight, investments in equipment, land and inputs are being reviewed and justified
East-central Alberta farmer Dallas Vert is trying to be extremely rational with his farming decisions as profits evaporate and drought takes hold.
He’s making sure he’s running his equipment at almost maximum capacity, he’s trying to match his inputs to his particular farm and environment and he’s looking at every element of farm production in terms of costs and returns.
“It’s nice to have a bunch of equipment, but if you’re not using it to the full extent, you might as well put your money somewhere else, like buying fertilizer in October as opposed to February-March,” said Vert, who farms near Kirriemuir.
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To give himself that kind of financial flexibility, he recently sold one piece of excess equipment but also bought an expensive piece of equipment, with each decision based on maximum return on investment.
That’s the kind of thinking many agricultural economists and farm management experts think western Canadian farmers will need to employ in coming years with the boom era of 2006-13 fading into history and farmers returning to the break-even returns that were common before the boom.
Now every penny invested in farming needs to prove that it is likely to bring a return.
“Instead of having three grain trailers I use 70 percent of the time, I sold one of them and use two 95 percent of the time,” said Vert.
“I’m trying to make more efficient use of the assets that are sitting there.”
Farmers across North America spent heavily on equipment, grain storage and other systems and facilities during the boom years. High profits for average yields for most crops meant it was easy to justify spending money on production-maximizing equipment.
University of Illinois research shows that farmers in that state, which is a typical midwestern farming region, more than tripled per acre spending on equipment after 2006. Farmers there will need to return to pre-2006 investing rates in the light of today’s low crop profitability, economist Gary Schnitkey said. The experience in Canada is similar.
Vert spent a lot of money this year buying a Bourgault air drill with a sectional control, but he did it to save money.
“That saved me about $100,000 worth of fertilizer and seed inputs this year,” he said.
“The machine was expensive, but for a half a million dollars it’ll pay for itself in savings in five years.”
Farmers in his area, beset by drought, are also penciling out the risk-return of spraying for weeds and bugs when yields look low. It costs to spray, but it also costs to let weeds get out of control and create a weed seed bed for years to come.
That’s why farm management in lean times isn’t just getting the best equipment or trying to produce the biggest crop, but achieving the best balance of capital investment, capital utilization, marketing discipline and rigorous farm management, experts say.
Gone are the days when a farmer could splash some cash on a big purchase that might work out, assuming healthy profits could paper over careless mistakes.
Farming now demands almost error-free decision making.
That’s what Vert is trying to do, and he hopes it’s enough to get through not only this year’s weather challenges but also years of possibly low returns.
“I look around the farm and think about everything I have and everything I’m doing,” said Vert.
