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With farmers facing some of the most drastic swings in profitability in recent history and no changes to crop prices in sight, one of the key questions of 2016 is: how long will it take for production costs to correct? Historically, it takes about 5 years for input prices to adjust to changes in crop prices, with seed and fertilizer prices typically moving sooner than other expenses. Recent data indicates that 2015 experienced the second largest decline in farm input prices on record (including seed, chemical, fertilizer, fuel, machinery, labor and rent). Most signs this year continue to suggest that 2016 will be unprofitable for many farmers, barring any huge, unexpected decreases in input prices. Still, not all is lost.

To estimate input costs changes for 2016, the FarmDoc Daily team analyzed recent fertilizer prices using the “Illinois Production Costs Report” and concluded that total fertilizer costs for corn would likely drop in 2016 by about 8.3 percent compared to 2015, using December prices. Granular decided to run its own trend analysis using data from current customers from across more than 35 states, and compared individual product prices paid for seed, chemical and fertilizer in 2015 to prices paid in 2016. For example, Granular found the price of Roundup PowerMAX dropped by 12 percent on average over this time period.
Across all farm inputs, chemical and fertilizer costs decreased the most from 2015. The average chemical price saw a decrease of 9 percent, and the average fertilizer price has dropped by 8 percent – in line with the FarmDoc data. Seed costs on individual varieties have not changed significantly. Granular compared the same products from year to year, so this analysis would not account for the effects of growers switching to more economical seed varieties.
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What does this data mean to the farmer? Given current University of Illinois crop budgets for seed, chemical and fertilizer costs, the net effect of the price changes we see for the average Granular customer is more than $17 per acre. With crop budgets anticipated to be largely negative for the year, $17 per acre can make a significant difference on a farm’s profitability. The farmers that can effectively negotiate with their suppliers will clearly have a valuable advantage in 2016.

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In most industries, businesses compare themselves to their competitors every day. It happens as they compete for business (“Why did my competitor win that customer?”). It happens when employees move around the industry (“We did it this way at my last company”). It happens when competitors release information to the press or online. For companies of all sizes, comparison to their peers drives innovation and progress.

Farm businesses have a much more limited understanding of how they compare to their peers. In commodity crops, customers provide no feedback on each farm’s product. Farm managers seldom switch jobs to other farms. Extension universities and the USDA provide some useful industry data, but it may not be necessarily relevant to individual farms. Mainly, farmers rely on informal conversations with other farmers and bankers, retailers, advisors etc. to understand how they are performing relative to their true peers. These informal feedback channels are helpful, but not always timely or detailed or easy to arrange.
Granular farms are different in a lot of ways – they farm different crops, they’re of different sizes, located in different geographies and are organized in different structures. However, they all share a high level of professionalism and commitment to improving their management every day and every season.  Granular is linking these farms together in a software-enabled peer group, to enable them to benchmark themselves in ways that are valuable, timely, accurate and fully anonymous.
Benchmarking Example: Input Prices
Granular customers use our software to build field-level budgets and manage their input inventories, from the moment they order them until they apply them.  This means they select individual products from our database (e.g. Asgrow soybean variety “AG4632”) and specify packaging units, quantities ordered and price paid. For any individual customer, this information on negotiated prices is highly confidential. But, when it is properly aggregated and analyzed, this pricing information can be valuable and actionable for all the farms in the Granular network.
We recently released an input price benchmarking report that shows the median price paid and variance around that median for all inputs with sufficient sample size. This data is only available to Granular customers, but to share a couple example data points:

  • The median price Granular customers paid for AG4632 is $58.28 per bag, and the variance is 21%
  • The median price Granular customers paid for DKC60-67RIB is $289.88 per bag and the variance is 9%

This information is available to our customers in real-time and will get more and more detailed as Granular quickly expands its customer base. For many products, we already have a large enough sample size to show pricing trends at the regional level. Of course, there are all kinds of valid reasons why an individual customer might have paid a higher or lower price than others in the network (e.g. early order or volume discounts). However, customers who consistently see their prices coming in above median across multiple product types will probably want to have a tougher conversation with their suppliers and retail partners – and having this report in hand may be a valuable tool.
What’s Coming Next?
We are developing a broad range of financial, operational and agronomic benchmarks to help customers identify where their business is performing well and where there are opportunities to improve.  In addition to input costs we are working on benchmarking across other areas of the farm business: operational benchmarks, grain marketing benchmarks, etc. Our vision for benchmarking is not only for you to be able to compare your to peers, but compare yourself to relevant peers and do so when it matters the most. And with no travel.

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