By Brian Hefty

Here are some things that positive thinkers have been saying recently:  Attitude is everything.  It’s not what your circumstances are, it’s how you deal with them.  The farm economy will likely continue to be good for many years thanks to a growing world population and affluence.

You’ve heard all these things recently, but after seeing corn prices get cut in half over the last year, there is likely a part of you that is concerned, and rightfully so.  Many of us lived through the early 1980’s, and we sure don’t want to see that happen again.

On Ag PhD TV and Radio, in our newsletters and at our workshops and field days, we are always talking about things you can do to improve your yield.  Many of these things require a financial investment.  From time to time, I hear from our skeptics who usually say something like, “All you want us to do is spend more money.”  I can certainly see how someone would reach that conclusion, but our goals are the same as they’ve always been.  In order for us to make a recommendation to you, it must meet these 3 criteria:

  1. It should help your yield
  2. It should improve your profitability
  3. It should improve the environment

Again, many naysayers like to talk about how “harmful” pesticides are, but when you look at the facts you can quickly see that most farm products today have dramatically improved human safety compared to 30 years ago, along with low use rates and small environmental footprints.  By controlling weeds, insects, and diseases in crops, you actually LOWER THE RATES OF NATURAL CARCINOGENS FOUND IN THOSE CROPS.  That’s huge.

Coming back to the economic concerns going into this next year, I realize everyone is in a little different spot.  Maybe you own 100% of your ground and equipment, and it’s all paid off.  Maybe you rent 100% of your ground, your cash rent is high, and all your farm equipment is leased.  Certainly those things have a huge impact on your overall bottom line, but when it comes to the return on investment on any one individual crop input investment, those other costs don’t matter.

For example, if you want to spray a fungicide in corn, here are the only things that matter for calculating ROI:

  • The yield gain you’ll get from spraying
  • The price of corn
  • The total treatment cost (fungicide plus application)
  • The time from when you invest the money to when you get the return

Example 1 (with $7 corn):

(5 bushel yield gain X $7 corn – $18 treatment cost) /
$18 treatment cost X 100 X 12 months /
4 months (amount of time you invested the money)
= 283% Net APR ROI.  That’s pretty good.

Example 2 (with $4 corn):

(5 bushel yield gain X $4 corn – $18 treatment cost) /
$18 treatment cost X 100 X 12 months /
4 months (amount of time you invested the money)
= 33% Net APR ROI. 

That’s not bad, but to only gain a net of $2 per acre on an $18 investment makes this option relatively unattractive.  However, maybe you are gaining more than 5 bushels per acre.  Maybe you pre-sold some 2014 corn for more than $4 or you expect the market to go up.  Maybe your treatment cost is less than $18.  You need to run YOUR numbers for YOUR farm.

Here’s my point.  Every year we encourage you to run ROI calculations on every input decision you make on the farm.  Things change.  Costs change.  The main thing is to avoid getting optimistic about everything when times are good and pessimistic about everything when times are bad.  Does Warren Buffett quit investing when the economy looks bleak?  Does Bill Gates go on a wild spending spree without regard for ROI when times are great?

I know that you know all of this stuff already.  I’m just bringing it up again today because sometimes we let our emotions take over, and we briefly forget that this is just business.  Some people make money every year through smart investments.  We’ll talk more about some of the good and bad investments for 2014 at our free Ag PhD Winter Workshops, and we invite you to join us.