Something that might surprise those of you that know me is that I really enjoy playing chess. The strategy of having different elements and abilities in play, while at the same time trying to anticipate the opponent’s thoughts and whims gets my brain going and is enjoyable for me. I also realize that some people are like my wife, and find the idea of playing chess to be about as enjoyable as a trip to the dentist for a root canal. She certainly has the mental capacity for the game, but the strategy doesn’t just bore her, it drives her nuts, as I am sure it does for some of you. And within all of this is a not so subtle analogy for the operations we run. Our variable production expenses and how we manage them is very similar to a game of chess, and the commodity markets are our perceived opponent.
But here is the deal. This is a game of 3D chess, and we have multiple opponents at once. Yes, Commodity Prices are part of it, but so is Plant Fertility, Environmental Factors, Labor, and more. And at the end of the game (when we close the books on a year), if we ignore any one of our opponents while fighting the others, we lose. If we divide our attention equally amongst all of these factors, we probably lose also. At any one moment, one of these factors is likely to be a bigger threat than others. The secret is, all of these opponents aren’t just playing against you, but they are playing each other as well. They also have weaknesses that we can exploit to gain the upper hand in this battle.
So here is my thought for the day. Right now our primary opponent isn’t commodity prices. Commodity prices are also the biggest opponent of all the other factors as well. Fertility for instance often sees a sway in fertilizer prices that are affected by commodity pricing for instance. But, we certainly can’t take our eye off of Commodity Prices, but in the end, he is the wildcard of the group. If one opponent is going to do something out of left field, it’s commodity prices. But there also lies our opportunity.
Let’s look back one year ago today. 125lbs of 11-52-0 cost us around $34 and 100lbs of Potash was about $21. Today that same 125lbs of 11-52-0 cost us about $28 and the 100lbs of Potash is about $15. So we see an opportunity to address fertility at about 20% less cost on MAP, and about 30% less on Potash. One year ago today Dec 16 Corn closed at $4.02 on the CBOT. Today, Dec 17 Corn is at $3.87. That is a 4% decrease.
So, look at how this affects our expenditures for next year. Many of us are having soybean yields that are above what we fertilized for by quite a bit, and by the time it is all said and done, corn yields that are around where we planned for. If you eliminate your Phosphorus application entirely going into next year, what do you think will happen? Right now, I can get around $3.50 for a local cash bid on Dec 17 Corn. A $28 Phosphorus investment = 8 bushel of corn. For soybeans, it is less than 3 bushel. Is it a wise bet to put 10-20% of our potential production in jeopardy for about 4% of our crop?
So, back to strategy. Do I think focusing on Commodity Prices as our primary concern is the right move right now? No way. Looking at soil fertility and yield impact says we need to be focusing on that much more. Then if we want to protect ourselves from other opponents we talk to our ProEdge Grain team about covering our fertilizer investments with commodity sales.
But, to this point, I have ignored the bonus piece. The best way we can tip the (chess) board in our favor is to make our fertility application where we need it, and not where we don’t. Variable yield goals and differences in soil tests afford us another opportunity to be smarter than our opponents. Intensive soil sampling and VR fertilizer make more sense today than a flat rate in almost every case. Nobody said we had to play this game fairly. Looking at bang for the buck, using intensive sampling and VR application sets us up for success. Our FSA team knows how to set us up not just to play a competitive game, but win. And who doesn’t like to win?