Farming is tied up in emotions. Growers love the land, they’re often running a multi-generational business, and they’re trying to do better every year. It’s impossible to completely separate feelings from decisions, but doing a little more analysis can help growers make more rational decisions based on data.
How to decide
There are a variety of factors that affect price, including rental agreements, land costs, and equipment costs. With annual crops, we have a great degree of latitude to change, but how does a grower decide between wheat, corn, soybeans, cotton, hemp, or other annuals?
Ask yourself:
• What crops can you realistically grow?
It can be tempting to grow crops on the fringes of the growing geography and assume all will turn out. One success story is usually over-generalized to become assumed success in all years.
• Where is the closest market?
If it’s too far, freight charges will erode the projected profits. If your buyer is far away, even in an export market, he will likely protect that distance and risk by lowering what he’ll pay.
• How big is the market?
Can it easily be overdone and create excess supply? Some crops can look attractive, but a swing of 100,000 acres is huge in a specialized crop. Consider these possibilities.
• Is the crop insurable in your area?
You need to protect your risk. Also, you have to consider the impact on capital. Don’t assume that your banker will agree with what you consider a good decision. If you don’t have capital to finish what you start, then the outcome will fall short of expectations.
Doing the math
You can establish an expected value by multiplying the potential profit by the probability of achieving it. This prevents outlier bias, where a single great year throws off your long-term financial planning. Also, this removes the emotion from the decision.
| Crop Option | Potential Profit | Success Probability | Expected Value |
| Cotton | $150/acre | 50% | $75/acre |
| Corn | $100/acre | 80% | $80/acre |
Timing
Choosing a crop also matters based on when you get paid. For example, corn can provide cash immediately at harvest, while cotton payments can be delayed for an entire year due to the long ginning and marketing process. Even if a crop like wheat has a low market price, it can still be valuable because it provides cash during seasons when no other money is coming in.
Even if two crops earn the same profit, the one that pays you sooner is worth more because inflation reduces the buying power of money over time. It is usually better to choose a crop that pays a steady, reliable amount than a crop that rarely hits its big goals.
Of course, switching to a new crop is expensive because you often have to buy specialized equipment at a high price when demand is peaking. If the market drops and you try to sell later, you’ll potentially lose money since everyone else will be trying to sell theirs at the same time.
Overall, making a rational decision takes into account reliability and timing. You have to balance the speed of your cash flow and the costs of inflation against the price of new equipment. By prioritizing steady payouts and avoiding expensive risks, you protect your farm’s long-term financial health – and take emotion out of the equation.
Next steps
Before finalizing your planting plan for the next season, run your ideas through this checklist:
• Run the numbers on averages: Don’t plan based on your best ever harvest – use a 5- or 10-year yield average to calculate a realistic expected value.
• Check your cash flow: Estimate when you’ll see the first and last dollar from each crop.
• Calculate the actual cost of equipment: If you need new machinery, determine if the profit from the new crop can pay down the debt within a realistic time period.
• Audit your insurance and capital: Confirm that the crop is insurable and that your lender is on board with the risk level of the new plan.
• Use a second set of eyes: Talk to a trusted peer or advisor and ask for an honest opinion.
The best way to protect your business is to consult people who want to see you succeed and will challenge your ideas. By doing your homework, you can help your farm stay financially (and emotionally!) stable for the long term.
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Ryan Harbison is a field agronomy manager for AgroLiquid. He covers the Northern Midwest and Great Plains regions.
