Marketing Tools to Make Cropping Choices Easier

Introduction

A farm manager’s decision of what crops he or she intends to grow is really that manager’s first marketing decision. It’s a tough decision. The decision must be based on a number of considerations including crop rotation, herbicide "rotation" and, more importantly, expected crop profitability.

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A farm manager must have three decision tools available in order to make cropping decisions based on expected crop profitability.

Costs of production
It is very difficult to successfully market anything, whether it is canola or canola oil or hamburgers, without knowing the actual per-unit cost of production. A per-unit cost of production for any product has only limited value if it is based on estimates or community averages. The most valuable costs of production values are based on a business’s own records.

Farm target prices
Prices of farm commodities change continuously as perceptions of available supply and expected consumption change. Normally, there is a significant difference between the high and low price each year for each farm crop.

Calculating per-unit target prices, based on farm costs of production, for each potential crop has tremendous value in helping make cropping decisions. Target prices that are helpful are a survival price, an acceptable price and a favorable price for each possible crop choice.

The Survival Price is the cash outflow per unit of product sold. The Acceptable Price is the cost of production plus family living costs, if the farm pays those costs. The Favorable Price is the Acceptable Price plus a return on investment or a return on equity or some other value of the manager’s choice.

A grid showing the three target prices versus low yield, expected yield and high yield is an invaluable crop-planning tool. See Table 1.

Table 1. Crop Target Price vs. Yield Grid

	Low Yield	Expected Yield	High Yield
Favorable Price
Acceptable Price
Survival Price

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Quality market information
The third invaluable tool for crop planning is quality market information. Quality market information includes four elements. They are:

• current "spot" cash and forward prices
• market analysis
• market outlook
• market strategies

1. Figure the projected Target Prices for each potential crop.
2. Write down current forward prices for each potential crop.
3. Study short- and long-term outlook for each potential crop.
4. Compare the Acceptable Price, current forward price and short- and long-term outlook for each potential crop.
5. Choose crops based on two criteria:

• Crops which meet or exceed or are most likely to meet or exceed Acceptable Price.
• Crops which meet crop or herbicide rotation requirements.

• CropChoice$ Computer Software