Consider tools and experts to analyze data and margins
For Jim Aden, a fifth-generation producer near Gothenburg, Neb., the technology needed to collect and analyze data had become his operation’s biggest opportunity—and biggest headache.
“Technology is almost overwhelming now,” he says. “There are so many more buttons to push and data to manage. You can get more out of it, but it takes more, too. It’s easier to make mistakes, too. Sometimes, we felt like we were spending more time fixing the information we had.”
Aden channeled those frustrations into a business solution. In 2012, he and his partners created Crop Tech Solutions, a software service with dedicated field reps who help customers streamline their data, build agronomic plans and understand their cost of production.
“Without the ability to have accurate and clean information from previous years, it’s impossible to build a solid plan for the future,” Aden explains. Although a few producers know their exact cost of production, many still do not. “It’s kind of staggering,” he says.
Stumbling Blocks. The first challenge to understanding margins is the sheer time and effort needed, Aden says. Data entry and interpretation can be an almost full-time job.
Each trip through the field produces new costs, data and potential for return on investment, which is why Crop Tech reps meet with their customers at least once a week to keep records current and accessible. Real-time information can be sorted on a whole farm, field or management zone basis.
Whether you use spreadsheets, accounting software or a service such as Crop Tech, make time to keep records up-to-date, Aden says.
“Record keeping tends to get pushed off,” he says. “You have work to do. You have to get the seed in the ground and manage that crop and get it harvested.”
With the price of corn under $4, the importance of understanding margins and breakevens has sharpened into focus more than ever, says Chris Beavers, director of business development and sales for AgYield, an online platform for revenue management.
“I grew up on $2 corn,” he says. “If you were going to make money then, you had to focus on managing cost. Over the past 10 years, we’ve seen a lot more price volatility, and as prices have gone up, so have all of the inputs.”
Cause and Effect. AgYield calculates cost of production and includes an interactive profitability tool where producers punch in scenarios and view the results, whether positive or negative. “It’s a great educational tool because it’s easy to look at cause and effect with these what-if scenarios,” he says.
Knowing your exact costs and margins is critical, but it’s also just the first step, Beavers adds.
“So many people, consultants, bankers and tools emphasize costs of production and knowing all costs,” he says. “They may help a grower know what their breakeven price is for corn, for example, and they pat themselves on the back at this point. However, this stops short of what a grower really needs. If a grower’s breakeven price is $5.35 for corn, but the market is only at $4.95, what does he or she do?”
The profitability matrix identifies how crop insurance, hedges, cash sales, forward contracting and other strategies mitigate risk under various price and yield scenarios.