With 2019 before us, make strategic planning opportunities to improve the bottom line a priority. What are your goals for 2019? What areas of your production need improvement? Are you a disciplined marketer? Is your budget clearly defined? If you haven’t set some specific parameters for improving your margins, it’s not too late. Consider establishing three primary areas of focus: production capacity, marketing and business efficiency.
No 1: Production Capacity.
Of the three categories, this one is probably the most impactful to your bottom line. Yield isn’t everything, but the fastest way to lower your cost of production is to increase yield. For example, just a 10-bu. increase on 1,500 acres of corn lowers the cost of production by 14¢ a bushel. That adds up to a bottom-line improvement of over $40,000. Obviously, Mother Nature has to cooperate, but attention to details can make all the difference.
Too often we can be seduced into thinking more acres are better, when instead more yield on our existing acres improves profitability much more rapidly. Additionally, those who focus on the details such as managing compaction, soil health, timeliness of planting and crop protection, seed selection, spoon feeding nutrients, the right equipment for the job, season-long crop scouting and a timely harvest are much more likely to capitalize on their production potential. Skimping on any of these basic areas doesn’t save money but rather comes at a big expense.
“Yield isn’t everything, but the fastest way to lower your cost of production is to increase yield.”
No. 2: Marketing.
There are two different philosophies on marketing among producers. One philosophy revolves more around risk management. The second philosophy revolves around capitalizing on opportunities. Not that one is better than another, but managing risk should come first and trying to capitalize on opportunities by outguessing the market can easily backfire.
Applying some type of minimum price objective is wise. Some choose a put option strategy while others might set some cash sales targets. Some might do both. Additionally, basis management can add significant dollars to the bottom line, especially if you can deliver the majority of your grain at the convenience of the processor rather than at your own convenience.
Know your production cost on a five-year average yield, establish a realistic margin goal, add that to your production cost, set your sales targets, and stay disciplined. Too often as prices get close to targets people tend to pull them off. Just make the sales, you’re in the business to merchandise your grain. Just improving the marketing plan by 10¢ per bushel on the 1,500-acre corn farm mentioned above would add an additional $30,000 to the bottom line.
No 3: Business Efficiency.
The best results in this category come from the producers who manage each line item on its own merit. Saving money on any line item that has a direct impact on production can have an indirect cost. Just because one bag of seed is cheaper than another doesn’t mean cheaper is better. Some products or services might require a certain level of cost to ensure quality. Conversely, repairing an older piece of equipment instead of an expensive trade for a new item might save a considerable amount of money in a given year. Consider the 1,500-acre corn farm mentioned above. Just a 5% total cost reduction could equal over a $50,000 savings.
Big Savings. Cumulatively, with these three categories of revenue improvement, we have either saved or improved income by $120,000 for a 1,500-acre corn farm. In other words, that’s an $80-per-acre improvement. On an average 200-bu.-per-acre yield, it reduces the cost of production by as much as 40¢ per bushel. Just a small tweak here and there can make a lot of “cents!”
Need to cut production costs? Chris offers some tips at bit.ly/CutCostTips
Chris Barron is director of operations and president of Carson and Barron Farms Inc. in Rowley, Iowa. He is also a financial consultant for Ag View Solutions.