Many early harvesters are seeing lower-than expected yields as they bring their crops in this fall. In a year that is expected to produce high yields and high profitability, many are concerned for their bottom-line.
“This can be discouraging for farmers to see so early into the season,” says Thomas Eatherly, Pinion farm and ranch advisor, “but there are strategies and ways to manage profitability (beyond yield) so you’re on good footing even if the outcomes are less than expected at harvest.”
Here are five key areas that can make your farm more profitable despite harvest outcomes:
- Understand your 3-to-5-year Actual Production History (APH). Actual Production History is the cornerstone to a farm’s planning and budgeting. It determines what a “normal” crop yield is for that operation over a multi-year period and is imperative for maintaining a consistent profit margin – especially for growers. “We encourage farmers to look at the average of three to five years to get the clearest understanding of their overall yield capabilities,” says Eatherly.
- Set input budgets according to your APH. With fluctuating prices of fertilizer, seed, and other inputs, it’s critical to maintain an input budget that correlates with the APH average. If a producer has an APH of 200 bushels, but they budget for 250 bushels, they elevate their risk significantly and reduce their profit margins if the 250-bushel yield is not achieved. If you wish to increase your yields per crop, Eatherly recommends starting with test plots on a yearly basis to make input adjustments. This allows you to decrease your risk when implementing new practices.
- Manage capital expenditure (CapEx) budgets. A CapEx budget essentially defines your goals and limitations for cash flowing capital assets like machinery and farmland. “Start with your Christmas list — don’t hold back. Write down everything you wish you had on the farm,” Eatherly advises. “Rank them by what will contribute most to profit, then look at profitability for the next two years. Carve out some money from the cash flow to assign to your list of capital improvement projects.” The timeline of these expenses is crucial if your farm is subject to major fluctuations in yield. Don’t strain your cash flow on big CapEx’s assuming you will yield higher than your three-to-five-year APH.
- Tie out your budget at the end of the year. Most people have and use a budget. But many have never tied out the budget. Most will harvest into Thanksgiving and then roll into the next year’s plans with land prep and fertilization. But taking the winter to analyze the past year’s budget and actual spending will pay back in dividends. Perhaps labor costs were higher than expected, an input was over-applied, or a certain tractor racked up maintenance costs. This insight could drive changes that increase your margins and long-term profitability.
- Adapt farming products and practices. You can also manage inputs with alternative products and practices. You may switch to generic or blend inputs, change tillage practices, and have test plots to try different methods of growing the same crop. You may change your crop rotation. For instance, a couple years ago, a row-crop client with a 50/50 rotation of beans and corn wanted to increase profitability. They had great yields but smaller margins than expected. So, they trended data from the past few years and realized that while their corn crops had higher yields, their beans had better margins and overall higher profitability. The next year they switched to a 70/30 rotation of beans and corn and their operation became significantly more profitable. Many farmers are also finding that conservation practices enhance profitability over time by increasing farm resiliency.
“The recipe for true profitability can be boiled down to knowing your cost of production, fine-tuning your budget, shooting for your three-to-five-year APH, and adapting your practices from historical data,” says Eatherly. “Whether yields are strong or they’re dipping in your region, you can take these steps to increase your margins and protect your legacy.”
If you need a proactive partner to evaluate and manage your farm-operation profitability and options, Pinion has the specialized ag resources and expertise – we call it ‘AgKnowledge’ – to produce results. Contact a Pinion advisor if you have questions or concerns around profitability this season.
How good are your numbers?
With the amount of factors limiting farm and ranch productivity today, it’s important to take notice of areas for improvement that can increase profitability. Wondering whether you could improve your bottom line?
