Now is always a good time to start managing your farm decisions at a finer scale. If someone were to ask you if you know your cost of production, you’d likely have an idea. But, when I say it’s time to manage at a ‘finer scale,’ the question that precedes it is, “Do you know how much it costs you to raise a bushel of grain in each unique part of your field—that is—as your productivity changes across the field?”
Most growers focus on understanding their costs and profitability based on assumed averages with an understanding that some ground is subsidizing other ground. Growers understand diversification and spreading risk.
How could your management decisions change if you started to understand your field profitability based on actual field performance? While knowing field averages is important for marketing decisions in season, layering your costs with your actual yield data tells a different story.
Not all fields are created equal, we know that. But how does it change our farming practices? Understanding breakeven cost per bushel at a finer scale compared to the overall operation can change how you manage those fields. Here are our 4 key takeaways that drive how we help growers understand their profitability and plan for the next year.
- There is drastic variability within each field
- Higher yields are key to success
- It’s important to know the ‘why’ behind profitability
- Look deeper into average production costs across your operation
THERE IS DRASTIC VARIABILITY IN EACH FIELD
There are certain parts of your field that consistently outperform the field average. On the other end of the spectrum, there are parts of the field that produce well below the field average year after year. This shows that variability in your fields is real, so how are you going to manage this variability? We do this by using variable rate prescriptions to drive down your breakeven cost/bushel at the sub-field level. Below you will see an example of a field that had variable rate fertilizer and planting applied to it using our Management Zone method. As you can see, this grower invested $33.24/acre more into the A zone of the field versus the C zone of the field, but he was still able to lower the breakeven cost/bushel by $0.37/bushel.
One grower we’ll use as an example had not yet invested in variable rate seeding. He was variable rate spreading fertilizer based on actual yield combined with soil test data, but his seed costs were not always being covered by the bushels raised. He ran the numbers on how he could use technology to adapt his seed costs to the productivity of his fields, and decided to put electric drives on his planter for the next year.
HIGHER YIELDS ARE KEY TO SUCCESS
You can’t save your way to prosperity. Choosing to cut costs in a way that is contrary to what is agronomically correct will not gain you bushels. Without bushels to cover your costs–ultimately you will not be profitable. Lenders can be quick to encourage cost-cutting. But cutting nutrient, plant health and pest management investments can cut yields and profitability.
We frequently lead our customers to spend more input dollars only on the best field zones creating higher margins. That is possible when you can track and record those cost/investment differences, then share a profitability analysis (see graphic above) at the end of the growing season.
In corn and soybean production, you can spend your way poor but you can’t save your way into prosperity. Frequently, the only way to lower your cost per bushel and increase profits is to produce higher yields.
FIGURE OUT THE ‘WHY’ BEHIND PROFITABILITY
Here is an example of a time where soybeans cost the grower more to raise than the grower had planned. Even when the average yield was 60 bu rather than the 50 bu estimate the banker used, the actual costs ended up just over $12/bu. We needed to figure out why, and what could be done differently to be profitable on soybeans. By looking at each breakeven cost per bushel map, the grower found some major problem areas in a few fields, mostly related to weed pressure and sandy soil. While he knew there were some issues in weedy areas, he could now visualize what it was truly costing –upwards of $19 per bushel on over 7 acres. Contrast that with an adjacent high yielding area that only cost $7-10 per bushel of beans–it got their attention.
LOOK AT AVERAGE PRODUCTION COSTS ACROSS YOUR OPERATION
Using the same grower from above, his owned acres were covering high costs on their rented acres in a bigger way than he realized. By looking at each fields’ cost per bushel map alongside a rank of their fields’ average production costs against each other, he found that his rented land was costing them $.50 more per bushel for corn and $.71 more per bushel on beans (when still assigning some value to the cost of owned land).
Through transparency with multiple landowners and sharing of information, they had productive conversations. While rent was not lowered, it wasn’t raised on any of his acres. They also were able to show specific areas of fields that needed tile and could articulate what it was costing them. One landowner signed a new flex lease agreement including execution of cost sharing for tiling.
If you’re a grower reading this, you might be comparing your own breakeven costs to this example and thinking “I’m doing better than that.” Our question to you would be—do you know that for sure? Have you analyzed it to this degree? You might still be leaving dollars on the table that could be in your pocket.
One of our biggest takeaways for understanding your field profitability is the understanding that managing differences in productivity is key. You need to increase profitability on every acre. The best parts of the field can’t be relied on to cover the costs for the rest. Using technology and data analytics to prove what works in each unique environment so that it can be managed will be critical to your successes. If you don’t measure it, you can’t improve it!