Profit Potential for Sunflower Very Promising
Tuesday, January 1, 2008
filed under: Marketing/Risk Management
By Mark Holkup
I teach farm management at Bismarck State College (BSC) and farm part-time with my brother north of Wilton, in central North Dakota. We run beef cows and raise mostly small grains and sunflower in our farming operation.
Over the past few months, I’ve watched with excitement and interest as the price of most crops has risen dramatically. With excellent new-crop prices, for the first time in my 26 years of farming, it seems nearly every crop is trying to get me to plant some acres.
While income projections look good, crop expenses such as fuel and fertilizer are soaring. To determine which crops to grow next year, we need to evaluate which ones provide the best combination of the following: (1) the best profit potential; (2) a good fit into the crop rotation; and (3) the least financial risk. In our area, sunflower is a crop that fits these criteria well.
I’ve worked in farm management with farmers who have raised sunflower for many years. The data collected from the farms enrolled at BSC indicate that in our area, sunflower has had a more consistent profit than any other crop over the past 10 years. During that time, the profit per acre has been more than double that of spring wheat in the area. This past fall, I worked up crop budgets with a number of farmers — and in all instances, sunflower has shown excellent profit potential and competed well financially with other crops.
With new-crop prices near $20 for NuSun and in the upper $20s for confections, the potential for profit is excellent.
In this part of central North Dakota, soil moisture is always a concern. While we were quite dry this fall, I believe we have deep moisture left from heavy rains in late May and June of ’07. Given the opportunity, sunflower will root deep enough to not only utilize that moisture, but also to capture some of the nitrogen that many believe was pushed below the effective root zone of this year’s wheat crop. At the current price of fertilizer, sunflower offers an opportunity to “harvest” some of that expensive fertilizer.
Sunflower also handles the extremes of North Dakota summers quite well. Last summer we had 10 days of 100°F-plus heat. The ’flowers stood well while many small grain fields deteriorated rapidly.
For producers with decent proven yields, crop insurance coverage will be good for sunflower. You will need to compare crop coverage and premiums on sunflower to other crops on your farm. In terms of risk management, crop insurance coverage will be good for most crops — but few crops offer the drought tolerance of sunflower.
Farmers often tell me one of the biggest reasons for not growing sunflower is how it can hurt wheat yields the following year. There is no question sunflower can deplete the ground of moisture. However, in years where moisture is adequate, I’ve seen excellent small grain crops following sunflower. On wet years, we’ve actually noticed very little difference. In years of extreme drought, though, I would rather have a small grain crop appraised at zero than one appraised at 10 bushels per acre with no additional insurance compensation for harvesting that crop.
The Power of the AOG
A common concern for producers in contracting any crop is “what happens if we do not raise a crop due to hail or drought?” The three biggest crops — wheat, corn and soybeans — rarely if ever offer an “Act of God” (AOG) clause in contracts because they normally get enough production without doing so. Many of the smaller crops such as sunflower routinely offer contracts with an AOG clause in the contract. This decreases considerably the financial risk involved in growing a crop. It takes away the huge potential risk of having to buy production from others or making margin calls on hedges if drought or hail destroys the crop.
My marketing strategy for sunflower and other crops has been to lock in a profit whenever I can on a share of my crop. While this strategy has left money on the table in these recent “up” years, it does assure me a profit. I will never hit the season highs each and every time; but over many years this strategy has improved my income considerably.
This year, with high volatility in the markets, I want to take advantage of contracts with the AOG clause. For crops without an AOG, I generally will not sell more than my crop insurance coverage. If prices are profitable, I like having about half of my production contracted prior to harvest.
I also like to lock in some of my inputs — such as fuel, fertilizer and seed — if possible. This helps secure a profit by locking into both income and expenses. Even with current high input costs, today’s sunflower contracts offer me a good opportunity for profit while keeping my risk low with good crop insurance coverage and an AOG contract.