Control What You Can: 3 Tips from Profitable Farms
By now, crops are in, bushels are counted, and you’re planning your next crop. Whether you’re wrangling spreadsheets or using digital tools like Granular to sift through the numbers, profitable farms are taking time to review 2020 and analyze the decisions that made them money.
Where you fall on profit for the year will be influenced by crop demand and market timing, and plenty of factors that you can’t control like COVID-19. So how do you make a profit focusing on things you can control?
“As farmers, we always worry about what we can’t control,” says Steve Hettinger, owner of Hettinger Farms in Illinois. “We talk about the same things every year — weather, market, government — those things I really can’t do anything about. So I’m trying to overcome my human nature and actually focus on things that I can control.”
According to Steve and Dan Manterbach, leading ag economist, there are plenty of factors you can control. Recognizing these factors can be the difference between a profitable farm and one that loses money. They shared their insights in our recent roundtable, “Farming Profitably in 2020: What We Learned.”
Profitability Tip #1: Evaluate Your Profitability by Field
“It’s very important to know your cost of production per field,” asserts Hettinger. “We are in the business of manufacturing grain. With Granular, I’m able to think about each piece of ground like a factory. If that factory does not produce, what do I have to do differently to get it to produce? If it never produces enough to get a return, then I have to consider giving that piece of ground up and moving on.”
Knowing your costs of production by field allows you to make smarter management decisions. It allows you to dig deeper into why a field performed like it did. More importantly, adds Dan Manternach, you learn some tough management lessons.
- The highest yield doesn’t always mean the highest profit. Manternach says that focusing on yield instead of profit is a common profitability mistake that farmers make. “Treating your acres all the same and ignoring the law of diminishing returns is bound to hurt profitability,” he said. “You have to understand what’s going into those yields and when you’re spending more on them in terms of inputs and time then you’ll ever get back with yield.”
- Because you’ve always done it that way doesn’t mean you should. And you can’t improve what you don’t measure. That’s why data is so critical, adds Hettinger, “I’ve got to find a way to make fewer passes on my field, and I gotta find a way to use fewer inputs. It’s not so much about yield. Yeah, I get excited about yield — that’s how I compare myself. But I have got to control my costs. And if I don’t know my costs, I can’t control my costs. It’s hard enough when I know my costs to control my costs.”
- Put your money where you’ll get a return, and minimize your investments in less productive ground.
Profitability Tip #2: Make Time to Analyze and Benchmark Your Results
It’s basically a two-step process. First, put together a “report card” on your performance. Look at yield variations field-by-field and how differences in tillage practices, hybrid choice, planting date, inputs, soil type, slope and drainage, impacted yield.
“It seems like you know what a field is going to do,” explains Hettinger. “But you really don’t until you see the outcome from a decision — whether it’s fungicide or no fungicide, hybrid differences, land agreement negotiations, cash rents. Small things add up quickly and until those numbers are right in front of you on your Granular sheet, it’s hard to see it.”
Second, do some performance benchmarking. Compare your yield to the county average. Look at how competitive your returns per bushel are and your costs (direct, indirect, fixed). There are benchmarks for every line item. And make sure to include opportunity cost for family labor. Manternach recommends a robust benchmarking program called FinBin coming out of the University of Minnesota, which can generate endless report variations and allows you to see how you rank among hundreds of farmers in multiple states.
Most important? Use these insights to inform your decisions for next season. Says Hettinger, “I’ve learned that prescription farming should be just that — we should be varying what we’re doing according to what it needs and that’s tough to do sometimes and why you gotta have data.” Also important, knowing your breakeven and recognizing that it’s a moving target depending on your growing season.
Profitability Tip #3: Know When and What to Outsource
It’s a pretty simple question: Does it take less time and money for you to do something yourself or to hire it out?
“My greatest strength is knowing my weaknesses,” said Hettinger who says he farms out agronomic and tax advice, but does his own hybrid selections. He also admits he’s lucky enough to have his son Casey step in on the technology side. “I see it day in, day out. Farmers want the easy button. It’s not easy to use your data, but you have to make an effort. It’s coming like a train and we’re gonna have to get on it.”
Manternach recommends a SWOT analysis for your operation so you can clearly understand your strengths, weaknesses, opportunities and threats. “Taking the ‘jack of all trades’ approach might seem the most economical, but you don’t appreciate the losses,” said
His parting advice: See yourself as CEO of your farming operation. It’s not a CEO’s job to be an expert at every element on the production line. It’s the CEO’s job to make sure he’s got the best talent deployed as possible.
Don’t miss additional highlights and the entire video roundtable here.
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