If reading farm magazines or attending agricultural seminars, you have probably seen several financial benchmarks for cuts in per acre cost. Yes, along with other academics and consultants, I suggest significantly decreasing your per acre cost is a good measure with which to face the economic downturn. While amounts up to $100 and beyond have been suggested, there is no universal fit in agriculture and each operation should determine the cuts required for sustainability. While goals and benchmarks are good tools, how does one create significant cost per acre savings in a highly competitive economic environment?
One of the largest expenses for grain producers are crop costs; specifically, fertilizer. In Wisconsin, one young grain producer is collaborating with hog, beef and dairy producers in the area in an effort to reduce cost. Many livestock producers are finding that in a suppressed commodity market, their animal manure is the new MVP, or most valuable product, of the operation. This Wisconsin producer used soil sampling to determine the manure amount required according to his nutrient management standards. Consequently, he was able to decrease his fertilizer costs by $30-40 per acre. On the other side of the equation, the livestock producers with which he worked were able to add 3-5% percent to their revenue. These producers also share equipment to handle the manure, which better utilizes their fixed costs per acre.
Right now, an educational class on win-win negotiation is one of the best choices a producer can make. The art of negotiation will be critical for economic survival in 2016 and beyond, especially for producers with large amounts of rented ground. Land owners may also be financially pinched, which makes finding a solution in which everyone wins, critical. Producers who positioned well during record profits may be able to negotiate rates on other input costs such as equipment. Now is the time to highlight your trends of valuable, long-term land management practices and integrate them into land negotiations.
Although often difficult, carefully examine all human resources and determine whether they are productive and efficient. Recently, one producer asked his uncle to consider retirement. When corn prices were $8 per bushel and soybean prices were in the mid-teens, his salary, benefits and other perks ranged from $150,000 to $175,000 annually. Given commodity prices, this was acceptable. Now, the uncle is a financial burden weakening the operation’s sustainability. This one change saved between $10 and $15 an acre, net the new replacement. While a significant change, remember that it will take several large and small cuts to total significant savings.
While maximum efficiency is vital in today’s economic environment, generating more income is another solution to add to the mix. First, modify your marketing and risk management plan to include additional sources of income. Diversification is one tool you can use as part of a modified plan. Examine different diversification options and factors to determine the optimal combination for your operation. Remember that any additions must be complimentary to your existing operation and business goals. Suppressed commodity prices dictate decreased expenses. However, the combination of decreased expenses and increased income will most likely be more powerful than either alone.
Tough times require tough decisions, negotiations and collaboration. Success is not achieved by a magical silver bullet but through a combination of improved practices. Agronomically, progressive producers know how to “grow more with less.” Today, one needs to create ways to do it economically, as well. Regardless of the target number for cuts or income, innovation and creativity will be required to maintain success. Luckily, innovation, creativity and ingenuity are all well-established attributes of any good farmer.
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