When most farmers think about growing, it’s about adding
acres. But aren’t you ultimately trying to add revenue? What’s the best way to
Land prices are high. Maybe they’re too high. With all of
the competition for ground right now, it’s a good time to think about other ways
to increase your revenue.
The best farmers are doing many things a little bit better
than their neighbors. I’ve found that there are four areas where you can make
some of these changes. They can lead to higher profit on the land you’re already
The first is production. It’s the No. 1 area affecting your
profitability. If one farmer spends $500 an acre, without land costs, and gets
180-bushel corn and another spends $600 an acre and gets 230-bushel corn, which
is making more money? At $7 per bushel, the one spending more and getting a
better yield is making $250 an acre more profit.
Let’s be more conservative, though. If you have a goal of
making $150 an acre and you generate an additional $100 per acre, it’s like
farming 65 percent more acres. It’s efficient because you’re not spending the
extra fuel and labor to cover more ground.
Practices that can be improved to achieve more dollars per
acre include waiting in the spring for just the right soil conditions before you
plant, not driving too fast so as to have better control of seed placement and
doing the best job with soil and plant nutrients.
The second piece is insurance. That was a critical element
last year because of the drought. Did you know that eight out of 10 times a crop
insurance payout is the result of price fluctuations and not crop
This year, we may have a relatively high spring base price.
Ag risk advisors at our company are recommending high levels of coverage again
They say it will be a good idea again this year to pay
attention to unit structure — make sure it’s right for your farm — and don’t
eliminate the harvest price from your options.
Eliminating the harvest price from their options was a big
mistake many farmers made last year, sometimes at the recommendation of their
agent to save on premium. I was out meeting with farmers who were not clients
and started asking them about this.
During the course of one day, three of five farmers I met
were not able to take advantage of a better payout because of a higher harvest
price. They chose to save on premium and couldn’t get the higher harvest price.
The combined total loss of those three farmers on that one
decision: $6 million. The premium savings for the three farmers was somewhere
Two other pieces that need your attention are marketing and
financial analysis. These two go hand in hand. In order to market well, you must
have a planned strategy and keep emotion out of it.
The best strategies are those that start with crop insurance
and a financial analysis. This way, you can market forward if you need to and
have bushels guaranteed with insurance.
Good financial analysis will help you understand where you
need to be in order to achieve profitability. Using an accrual method of
accounting will allow you to plan forward so you can run your business by the
Think of a financial analysis as a benchmark fitness test
that’s given to you by a financial personal trainer for your farm. The trainer
first has to look at where you currently are. Then he can help you create and
follow a plan to get you where you want to be.
A financial personal trainer knows the outside factors that
affect your business. He knows what a healthy farm balance sheet looks like. He
can spot areas in your business where you can alter your practices somewhat,
creating a positive impact on your overall operation.
Imagine your financial analysis as a sort of checkup or
report card. You would use it to understand your risk-bearing ability and your
breakevens, helping you make crop insurance and marketing decisions.
It’s likely that we have just experienced the best five
years we’ve ever seen in ag. The danger in that is the threat of complacency,
and we must be vigilant and disciplined to avoid this.
Bottom line: If you want a sustainable competitive
advantage, you have to learn faster and adapt more quickly than your neighbors.
These four areas are good places to start.