Cost Per Acre Vs. Size of Farm

January 25, 2016 09:42 AM
 
Cost Per Acre Vs. Size of Farm

Conventional wisdom says as a farm operation increases in size, it also increases in efficiency, thereby lowering cost per acre. But is that actually true?

University of Illinois ag economists Bradley Zwilling, Brandy Krapf and Dwight Raab punched the numbers and found conventional wisdom wasn’t necessarily a lock in this instance.

“The data at hand indicates that per-acre costs does vary with farm size, but larger farms do not always lead the way in terms of lower cost per acre,” they write in a recent farmdoc daily document.

The researchers looked at various input costs of farmers in northern, central and southern Illinois. They split farmers into three groups – 1,200 to 1,999 acres; 2,000 to 2,900 acres; and more than 3,000 acres. Here are some highlights of what the researchers found.

  • In northern Illinois, larger farms paid more for fertilizer and cash rent but less for pesticides, seed and machine depreciation.
  • In central Illinois, large farms paid less for  fertilizer, pesticides, machine depreciation and cash rent, and about the same for seed.
  • In southern Illinois, large farms paid more for fertilizer and cash rent, about the same for seed and less for pesticides and machine depreciation.

“There are many different management styles,” the economists note. “The least-cost producer strives for the lowest per acre cost, while the producer seeking the greatest return on their input investment will spend input dollar to reap the greatest revenue return for those dollars. Review your input costs to see if you might be 'spending a dollar to make a dime' and evaluate where you have the opportunity to pare costs without affecting your bottom line.”

For more information about this study, visit http://farmdocdaily.illinois.edu/2016/01/managing-on-thinner-margins.html

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Comments

 
Spell Check

Tony
Modale, IA
1/29/2016 10:06 PM
 

  Can't be scared.

 
 
Mark
Harrisburg, IL
6/21/2016 03:45 PM
 

  I agree with Doug. It's a matter of ROI. Gearing an operation to generic production- even with land and equipment paid for- would be a challenge (depending on the lifestyle one is used to). Moving further into the value chain (with premium production, vegetables, etc), 300 could provide a nice revenue stream and returns high enough to viably provide for 2 families.

 
 
Cactus
Chandler, AZ
1/25/2016 08:59 PM
 

  Doug's comment below is superb! Great to read a response from a skilled ag professional that truly gets it.

 
 

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