Cover crops are a way to diversify production practices
By Jean Caspers-Simmet
Date Modified: 02/24/2014 11:24 PM
DES MOINES —Farmers need to readjust their thought process when it comes to corn and soybean production and farm profitability, Elaine Kub said at the recent Iowa Power Farming Show in Des Moines.
Kub, a grain marketing analyst and regular on Iowa Public Television's Market to Market, said agriculture is moving into an extended period of lower prices and farmers need to look at optimizing rather than maximizing production risk.
Kub said optimizing will come from diversifying production risk. Cover crops are one way to make managing market risk easier.
Farmers Kub talks to who use cover crops see benefits from weed suppression, soil erosion protection, and some yield increases.
"Those who have tried cover crops are very positive," Kub said. "Those who haven't tried them call them a fad. We can think about cover crops the way we thought about no-till 20 to 25 years ago. People who weren't using no-till called that a fad, too, but it has become an important part of a lot of people's production systems."
Iowa State University Extension's 2014 cost of production estimate for corn in a corn-soybean rotation is $4.29 per bushel based upon a 180-bushel yield. Continuous corn based on a 165-bushel yield is $4.97 and the estimate for soybeans after corn is $11.14 based on a 50-bushel yield.
"Your own costs may be higher or lower, but this provides a nice benchmark," Kub said. "Is this profitable? The answer is no. The markets are not offering you a profit. If you look at futures price outlooks, corn losses could range from $15 to $125 per acre and bean losses $20 per acre."
Kub said the goal will be to grow as many low-profit bushels as possible.
Historically, there have been significant times when farming hasn't been profitable, Kub said. The probability of going two years without a chance at profitable prices is greater than 90 percent, and the chance of going five years without getting back to a profitable level is 65 percent.
"You might as well start operating your operations as if you'll spend the next five years in a scenario where you will not be making a great deal of profit," Kub said.
Studies show that diversification lowers risk.
A state like North Dakota has many crop options — corn, soybeans, durum, canola, sunflowers, barley.
"They are very well diversified," Kub said. "My lesson is not that Iowa should grow wheat or sunflowers instead of corn and soybeans, but if you believe in diversification to minimize your overall risk, the lesson is to diversify your production practices."
Maximizing the number of bushels grown helps keep revenue stable.
"If you can grow 185 bushels instead of 165 bushels using less inputs because you had cover crops, your revenue may remain pretty stable," Kub said.
With cover crops farmers need to think of how they are protecting soil and nutrients, which in a spring like 2013, they could lose and never get back. Extension's Mike Duffy estimated the cost of Iowa soil erosion at $12 to $15 per acre per year.
"You won't have the same options for diversification if you don't manage all your resources the best you can now ," she said.
Kb's marketing advice for 2014 is to focus on classic marketing strategies.
"The past few years the strategy was to wait for $7 corn, sell off the combine and hit the high price," she said. "Going forward, you're back in the early 2000's time frame where you're focusing on very classic goals like building storage, storing on your own farm to capture the carry and watching your basis carefully. You absolutely have to be on the cutting edge of production technology because the rest of the world is going to be chasing after you."