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High input costs change the risk management playbook

An ag economist says some typical risk management strategies may not be as effective in the current volatile price environment.

Brad Lubben with the University of Nebraska-Lincoln says forward pricing can be effective for commodities, but not necessarily for fuel, seed and fertilizer. “In some cases, there is still’s still some availability and some questions and concerns whether forward prices can be honored. There are also questions about the fact that it is difficult to hedge some of those inputs for multiple years.”

He tells Brownfield farmers may need to take a closer look at what price and application rate provides the best return on investment instead. “The fertilizer recommendation tied to yield goals tied to traditional rules of thumb really don’t work when prices have moved around as much as they have. The rule of thumb was built during a typical price relationship. We’re not in a typical price relationship right now.”

For example, he says, “Optimum nitrogen rates or optimum phosphorous and potassium rates change when price ratios between the crop and the fertilizer input changes.”

He says that’s why soil testing has become more popular because that helps producers target specific needs in an effort to lower expenses.