More than the bottom line

As costs climb and markets send mixed signals, farmers are looking more closely at the numbers behind each acre.

Agriculture is an industry of familiar refrains: producing more with less, navigating more volatile markets, and farming in a less-forgiving environment.

Clichés aside, those phrases reflect a real shift. Advisors, economists, and extension personnel are increasingly pointing to cost-of-production (CoP) calculations as a critical tool for understanding risk, returns, and long-term decision-making.

Tracking CoP factors is challenging enough, with seed, fertilizer, and fuel costs, weather-related decisions on planting, and weed, disease, and pest management concerns. And those are the common on-farm factors.

Add the effects beyond growers’ control, such as tariffs, conflicts in Ukraine and Iran, and the uncertainties of global trade, and the need for a better understanding of the aspects that can be controlled increases.

It’s not that CoP hasn’t always been important; it’s that the variables in the equation, and the value each grower assigns to them, have grown in number and complexity. It can also be hindered by good years, when complacency can seep into decision-making, countered by the optimism of farmers hoping they can grow themselves out of tough times.

For Dr. Al Mussell, the “less-forgiving environment” picture is a reflection of Canadian agriculture’s rise in economic value. The industry recently surpassed $100 billion in farm cash receipts and $1 trillion in farm assets.

“Producers have much more in terms of dollars at risk and assets in play that affect risk,” says Mussell, research lead with Agri-Food Economic Systems.

“Some farmers are fairly leveraged relative to those dollars at risk, and we have new sources of risk — geopolitics affecting agricultural input and output markets, embargoes, and market disintegration.”

Mussell likens the current volatility to the early 1970s, with an OPEC-driven energy crisis, a food crisis caused by the “Russian Grain

Robbery,” the U.S. moving off the gold standard, and the Arab oil embargo against the U.S. It took nearly a decade to recover from those influences, slowed and punctuated by interest rate hikes that are unthinkable now.

That’s actually a benefit within today’s agricultural climate: lower interest rates have made money easier to borrow, but such a trend is unlikely to continue, and Mussell is concerned about how that could affect some growers. Fixed and variable costs become harder to manage, especially when corn can cost up to $1,000 an acre for planting alone.

MIXED SIGNALS

Another change Mussell cites is how markets tend to default to blaming “the funds” for unknown effects on stocks and pricing. Mid-summer weather in the U.S. Great Plains and Europe should have driven corn and wheat prices higher, yet many in the market were saying, “stocks are too high.”

Speaking with colleagues in the U.S., Mussell learned that perceptions about stocks have less of an impact compared with years past.

“The old benchmark has changed; you have to look at it in terms of stocks-to-use,” says Mussell, suggesting some in the trade are over-reliant on information that’s close at hand, including “very high” stocks. “Every time we can’t explain what’s going on with the markets, it’s ‘the funds’.”

WHERE TO CUT, WHERE TO INVEST

The immediacy of a growing season takes priority, and how the markets develop and react falls behind decisions on seeding and fertility rates, at least in the spring. Colin Elgie has been getting more questions about fertilizer applications, especially with the same rates as previous years running 30 to 50 per cent higher in cost in 2026.

The question becomes: where can I cut back?

“There’s a risk to under-applying, but there’s also a risk to over-applying,” says Elgie, field crop soil fertility specialist with the Ontario Ministry of Agriculture, Food and Agribusiness (OMAFA).

“With the price of fertilizers, over-application is a riskier thing now than it was two or three years ago. At best, it is simply building up those levels.”

However, doing that without a soil test can be the difference between building fertility and losing it. To help improve part of that process, the ministry is working to update soil fertility recommendations, particularly for phosphorus and potassium. Along with micronutrients, those are investments with more than a single-year payback.

“It’s one thing we’re working on, and when we have updated recommendations, that should bring a bit more confidence in knowing what those soil test values mean and having them line up with an expected return and response,” says Elgie.

He acknowledges that some growers are reluctant to test regularly, due in part to the cost, but also because many find it challenging to read the soil test results. Elgie knows there are growers who pay to have a field tested, yet once the results are returned, they often opt for what they’ve done in previous years.

“If you’re a farmer who’s wary about soil testing because you don’t understand it, you don’t have to,” he says. “There are a ton of good, certified crop advisers and agronomists who read these tests all the time. They understand them and can help with fertilizer recommendations and plans.”

THE SOIL TEST QUOTIENT

If there’s a benefit to higher operating costs and more growers “sharpening their pencils,” it’s that more are seeing the value of regularly testing their fields. Nearly 20 years ago, anecdotal evidence cited 20 to 25 per cent of growers sampling a field once every three years. According to some estimates today, that number has crossed the 40 per cent threshold; however, different scenarios affect that rate, as well.

Jack Legg sees both ends of the spectrum, where a septuagenarian farmer with one or two smaller farms may defer soil testing and continue farming the same way, producing enough to live comfortably. At the other end is the larger-scale operation with thousands of acres to manage, which may also default to applying a flat-rate fertilizer to every field.

“They might only soil test if there’s a visual problem they’re trying to diagnose,” says Legg, agronomist and manager of business development for SGS Canada Inc.

“In the middle of these two is the most likely to soil sample — a farm with hundreds to a few thousand acres — managing each field to maximize returns. Sampling a third of the acres each year is a good strategy to keep soil testing current and spread the cost over every year.”

He believes that in spite of the rationale against testing, the practice is increasing, influenced not only by the rising cost of inputs but also by the future uncertainty of what those costs might be in a new, and less-stable, global economic environment. He also sees a difference in comfort levels with soil testing among the next generation of farmers, who tend to be more adept with technology, tools, and the use of data. “That’s helping farms make business plans that understand the cost of production,” says Legg. “The younger farmer has the advantage of data collection and software to capture and record this information, and help with decision-making. Understanding soil fertility is just a piece of the puzzle, but it’s an essential piece.” •