About This Episode
Shay Foulk records a solo February 2022 episode with three office-season priorities. First is cost of production. He argues that by early February you have fertilizer, herbicide, and crop protection quotes in hand, so you should know your cost per bushel to about 95 percent certainty. He insists on per bushel rather than per acre, because that is the unit grain is sold in, and it lets the same method work across lentils, mustard, peanuts, or cotton.
Second is stress testing that number rather than filing it. Foulk wants growers to run the plan against prices falling a dollar or two, against an exceptional yield year, and against a normal year, then ask what each scenario does to downside risk and to forward contracting decisions. He also pushes updating actual sales in whatever tool you use, old crop and new, so marketing decisions rest on a current average price rather than a stale figure.
Third is crop insurance and office work. February sets the spring price, and Foulk warns of sticker shock on supplemental products, since revenue protection is heavily subsidized and shallow-loss options are not. His reframe: judge them as a percent of cost of production, roughly 4 to 6 percent, to guarantee revenue on 85 to 95 percent of dollars at risk. He closes with pre-planting meetings, ordering wear parts early against supply chain delays, and fixing last year's recordkeeping gaps.
“Sometimes it's what happens behind the desk, sitting behind the computer that makes us the most money.”
— Shay Foulk
Key Takeaways
By early February you should know cost per bushel to about 95 percent certainty, because input quotes are already in hand.
Foulk works in cost per bushel, not per acre, because grain is sold by the bushel and the method transfers to lentils, mustard, peanuts, or cotton.
Stress test the plan three ways: prices a dollar or two lower, an exceptional yield year, and a normal year.
At roughly 4 to 6 percent of cost of production, crop insurance guarantees revenue on 85 to 95 percent of dollars at risk, which no seed or fertility purchase does.
Expect sticker shock on shallow-loss products. Revenue protection is heavily subsidized and the supplemental options are not.
Schedule the pre-planting meeting now and order wear parts early, since supply chain delays were pushing operations to buy in advance.
Full Transcript
Shay: Welcome back everyone to another episode on the Ag View Pitch. Today you have Shay Foulk, and I wanted to outline here just for a few minutes 3 things that are top of mind as we move into February of 2022. A lot of you are probably stuck inside with the snowstorm here we've had the last couple days, or maybe it missed you. It seems like sometimes weather people don't know if we're going to have 2 inches or 72 inches, but A lot of you have some office time and it's a good time of year to be looking at some of these things. And the 3 things we're going to look at is cost of production, mapping out how that is for 2022. Second thing is, as we move into crop insurance decisions, we want to be thinking about, you know, what's top of mind, what are progressive operations thinking about, and maybe what's the key things we need to focus on here in February.
And then the final thing is just, you know, finalizing those cropping plans, getting caught up on some of that office work we haven't had time to do, and just really getting ourselves in the mindset as we head into the spring here. So the first thing I wanted to outline is that cost of production management. And probably some of you are listening to that and thinking, well, yeah, you know, we know our cost of production is, or we got a pretty good idea. But I would encourage you that if you're listening to this, and you're thinking, man, I don't really know what that is for 2022, let this be your wake-up call or your reminder to get those costs dialed in right now, especially the last week or two. We've seen good rally in the markets, exceptional prices compared to what we've seen historically. And even though those costs are up, we're seeing a lot of opportunity in the marketplace.
Now, we don't give marketing advice, that's not our role. But just from a point of perspective, we're seeing a lot of opportunities that exist there. So the first thing is just getting those expenses dialed in, you know what the prices are going to be. By now you've gotten quotes from your fertilizer, herbicide, any of your crop protection that you're going to be putting on. And you have a really good idea of where those final expenses are. So you should know the cost of production on a per-bushel basis within about a 95% certainty for this 2022 season. If you know that number and you see that there are marketing opportunities out there, even if you choose to not make any sales, there are other options of protection out there. Some things that you may need to be considering.
So maybe get in touch with whoever you work with on the marketing side, other trusted advisors, and just say, hey, what are some of my options? How do I protect myself from it, from the downside in this whole thing? If you don't have your cost of production dialed in, you maybe don't have a good system for that. Of course, Chris and I speak the universal language that we call Profit Manager. And that's just a way that we take about 27 or 30 variables, tied in with your farm numbers and arrive at that cost per bushel. And it's so important to get it back to that as opposed to a cost per acre or what you're writing a check for, because we market our grain in bushels or we market it in pounds. And regardless of, you know, whatever crop it is, it doesn't matter if you have lentils or mustard or peanuts or cotton or, you know, we speak that same universal language with Profit Manager.
So if you don't have that dialed in, reach out to me, shay@agviewsolutions.com. I can help you get set up on that. But probably the most important thing is, in addition to knowing what that cost of production is on a per-bushel basis, we want you to take this opportunity to stress test this plan as we move forward. Because the biggest unknown, as always, is what's the weather going to do? And then the second thing is, what are the markets going to do? So we encourage people this time of year, when you know what those costs are, you have a pretty good idea of, you know, where the markets are right now. And you know, your average production history there, stress test the plan and say, well, what happens if markets drop by $1 or $2? You know, how does that affect what we have in place here? And what's the downside risk?
Or the alternative is, what if we have a really good year, and we see exceptional yields like a lot of areas did last year? How are we going to manage that? Or what should we be thinking about differently? And then also, again, just having that average, here's what normal is, here's what we can, you know, make good marketing decisions on if we're going to forward contract anything. You know, just to be thinking about that. So again, that stress test, what's the average? What happens if we have really good yields? What happens if things kind of, you know, tank? And how do we deal with that? I've mentioned it a couple times, but just taking the markets into consideration as that cost of production. Again, we've seen a really good run up here recently.
We don't give marketing advice, but with the profitability that's on the table, I think we would be remiss if we didn't mention that you should at least be taking a look at it. And then also just updating sales. So whether it's old crop or new crop, You know, whatever system you use, if you're using Profit Manager and you're looking at the marketing tool and you want to update your average price of grain or how you wrapped up for 2021 on the sales, or as you make, you know, 10, 20, 30% sales as we move into 2022, update those numbers, make sure you have them current, that you're using the best information possible. The second thing that we want you to consider, as I mentioned here at the beginning, is crop insurance decision making. As we know, February is the pricing period for the spring price.
It looks like we have pretty strong markets right now, which is going to bode well from a revenue protection standpoint. But we also want to understand what else is out there. You know, there's a lot of supplemental coverage options. You can go back and listen to the podcast we did with Steve Johnson after our conference here that posted a few days back. You know, he mentions in there, don't worry about the ARC PLC decision too much. 98% of producers are going to be better off We're best off, you know, probably just selecting our county. But it's what other decisions are we making on top of that? What shallow part of the pond do we want to be fishing in? And those shallow loss protection products create a lot of opportunity this year. Now, don't be surprised if there's some sticker shock on what you're paying for those products.
The revenue protection is a heavily subsidized product, but some of these other ones are not. So think of it less in terms of what are we writing a check for in the total dollar amount versus what is it as a percent cost of production. Chris and I joke we're not insurance salespeople, we could play one on TV probably. But we're big believers in the fact that, you know, for 4, 5, 6% of your cost of production, you can guarantee revenue on 85, 90 to 95% of the dollars that you have at risk. No other purchase in the operation can do that. Not your seed, not your nitrogen, not your fertility, not your agronomic services that you hire. Crop insurance has a huge impact and provides you a lot of protection. So again, as we move into February here, understand the crop insurance decision-making process that's going on.
Feel free to reach out to us for any other resources, and we'd be happy to put you in contact with some others. The final thing is just delving into the office work that we all have the responsibility for. We dread it. If you're sitting there looking outside at snow, there's probably things that you might think, well, I could be doing that, but it looks awful cold out there. Double down on the office time and get your house in order. And the reason that we say get your house in order is a lot of this other stuff we're really good at. You know, we're really good at planting corn. We're really good at going out there and getting side dress on. We're really good at keeping the sprayer running when we need to. But sometimes it's what happens behind the desk, sitting behind the computer that makes us the most money.
So things like, you know, getting a pre-planting meeting put in place so that you can talk through strategies, you can talk through SOPs, you can talk through the plan with your farm operational team. Take the time to map out an agenda, sit down and go through those pre-planting meeting items, get it on the calendar and make sure you have everybody on the same page. You're going to have continuing shop work, you know, so keep going at that. Or if you have other people doing that, that's fine. One thing to consider on that end, we've seen a lot of people, you know, ordering wear component parts or trying to get advance on things that they're going to need in season just because of the supply chain issues. So I'd probably just nudge you a little bit on that.
If you've made a list or, you know, there's things that you need to be ordering, this is just a friendly reminder to be thinking about that. And finally, you know, from that office work standpoint, there's things that we get to the end of the year. It wasn't that distant, right? A lot of us have fiscal year ends that lined up with calendar year end. And you're sitting there thinking, cussing yourself on, man, I should have been doing this, or I should have been tracking this better throughout the year, or why wasn't I more organized here? You know, take those hard lessons learned, spend the time in the office, get that stuff taken care of, and ensure that you have a good plan set out for 2022. So again, just, just wanted to touch base here. Chris and I are going to be traveling a fair amount the next few weeks, seeing clients and facilitating peer groups.
These are just some of the things that have been on our mind and want to make sure that we're touching base. As always, you can give us a shout anytime and would love to chat with you about what we're seeing, what's going on, and just provide that perspective. So in conclusion here, you know, just have those projections ready to go. Make sure you have your cost of production dialed in, and if you need help with that, give us a shout. Keep those crop insurance decisions in mind. Understand that there's a lot of dollars at risk this year, so If you don't understand those as well as you should or haven't had time to get with your crop insurance agent, make sure they know what they're talking about.
Make sure that you're keeping the right decision and, and not worrying as much about the checks that you're writing, but the level of protection that you can provide in a year where we're probably going to see a lot of volatility as we move forward. And finally, just keeping your house in order, getting that office work completed, finalizing those cropping plans. And getting ready to do what we do best. We're great producers. We can work through almost anything. The American farmer has proven that. The Canadian farmers have proven that. We're really good at production. So let's just get through that portion, get our house in order, and be set up for a good 2022 here. Thank you everyone for listening, and we'll catch you next time on the Ag View Pitch.