Understand Your Land Expenses with Granular’s Land Cost Benchmarking Tool
Mike Preiner and Iris Shim | May 4, 2017
Granular’s new Land Cost Benchmarking tool helps farmers quickly and easily understand which land agreements are their best deals and which are their worst.
In our previous post, “Stop Negotiating Your Land Rents By The Acre”, we showed how properly analyzing your land costs (per unit of production) can help growers better understand how much “bang” they were getting for every buck spent on rent. This analysis helped answer the question “how do I compare rent costs on two different fields with two different yields?” After that blog post we received a ton of interest from farmers who are looking to use data to better negotiate with landowners. We learned a lot from talking to those farmers, and today we’re excited to introduce a new analysis tool into our Farm Management Software (FMS): Land Cost Benchmarking.
Benefits of Granular’s Land Cost Benchmarking
Our Land Cost Benchmarking tool lets growers quickly compare their landowners (and specific fields) in a core efficiency metric: $ of rent paid per unit of production. When growing corn, for example, this metric would be $ of rent paid per bushel. Regardless of the rent or yield, you will generally make less money from landowners with high rent per-unit of production. Our Land Cost Benchmarking tool uniquely helps growers analyze their rent in 3 ways:
1. Automated analysis: at a certain scale, keeping track of all of your field-specific rental agreements and yields becomes a challenge. Analyzing the two together (to compare rent and yield) is even tougher. While it is possible to keep track of 50 or 100 (or more!) agreements with spreadsheets, Granular’s Farm Management Software simplifies input while helping to eliminate mistakes.
2. Better yield estimates: it is critical to use good yield estimates in this analysis. Since land is negotiated one landowner at a time, enterprise-wide yield estimates are too coarse to find the pockets of efficiency gains. Additionally, it is important to use long-term estimates: averages are clearly better than a single year of data. Granular’s Yield Model combines the best of both farm averages and field-specific data, and delivers a yield number at the resolution that is most helpful – at the field level. The model uses a farm’s historical yield data (we find that farms often have 10, 20, or even 30 years of good yield data) and runs it through a robust statistical analysis to estimate the long-term expected yield on a field-by-field basis.
3. Diagnosis of bad deals: after seeing that a landowner is a good or bad deal compared to the rest of the farm, the first question a farmer usually asks is “why?”. Our benchmarking analysis helps a grower quickly see if a problem landowner is due to unusually high rent, low yield, or both. Knowing the root cause is really important when having a conversation with landowner about a piece of ground.
Figure 1. Our Land Cost Benchmarking report lets you quickly compare $ of rent per production unit across landowners and fields. It also lets you quickly diagnose why you are marking more money on some fields than others. For example, on this farm Patrick Jones is the best deal for land, with a rental cost of $1.35/bu when growing corn, which is below the farm average of $1.70 bu/acre. This is driven by the fact that the Jones’ fields are the lowest rent (in the best 10% of landowners in terms of $/acre), and despite the fact that they are some of the lowest yielding fields.
Rabobank’s recent report “Farming the Efficient Frontier,” declared that the current economic situation “leaves land, the largest single-expense item for producing the crop, as the primary focus for cost reduction.” We agree, and believe it’s clear that growers who can best understand and manage their land costs will be those who succeed in tough times. That is why we are so excited to introduce Land Cost Benchmarking for our farm management software customers!
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