Farm Management Minute: Focusing on profitability for 2015 crop production begins now
October 24, 2014
Given the current price levels seen at harvest, along with the forecast prices for 2015 crops and land costs not immediately decreasing, I see the likeliness of profitability in 2015 achieved by focusing on controlling input costs vs. going for the highest yield.
"Don't guess, soil test" is a statement I have heard and practiced for as long as I've been farming. Knowing the soil's current levels of multiple agronomic characteristics is important. The recommendations for needed nutrients are set by the yield goals the producer establishes. In the past few years with prices the way they had been, it was prudent to "shoot" for the highest yield that moisture or soil conditions would conceivably allow on your farm. This would also be true with increased spending on seed traits, or pesticide applications that easily exceeded the economical threshold by producing more yield at a high price. Many in the Ag lending/business sector have been stating that land costs must go down to remain profitable for next year. Unfortunately, this will likely take multiple years of break even or negative margins to make the rental market contract significantly.
The above paragraph may seem like obvious comments, but I will refer to some real numbers from the 2013 SD Farm Business Management Annual Report. For cornfields on cash rent I will give you some of the variances between high, average, and low return fields. All costs are stated by cost per acre.1) Seed cost: High return 20%; $85, Average; $90, Low return 20%; $106. 2) Fertilizer cost: High return 20%; $100, Average; $133, Low return 20%; $168. 3) Total direct costs per acre: High return 20%; $383, Average; $476, Low return 20%; $666. 4) Cash rent was $37 less on the high return fields than the low return. 5) Total direct & overhead expenses: High return 20%; $435, Average; $548, Low return 20%; $666. I'm sure the reader begs the question of yield? The high and low return fields both yielded 147bu. /acre! So if your field was in the high cost category of $666/acre, and 2015 harvest time bids are $3.28/ bushel, 666/3.28 = a yield of 203 bu. /acre is needed to break even!
So what to do? You need to know your total cost of production. A few years of "lean" margins are likely forthcoming, so we must manage our expenditures. Agriculture, especially the individual enterprises within it, goes in cycles and requires periods of corrections. We can only hope to weather these cycles.
For assistance in compiling your whole farm and enterprise analysis, contact the SD Center for Farm/Ranch Management. Call 1-800-684-1969, email: firstname.lastname@example.org or check out our website at http://www.sdcfrm.com. F