It’s not huge costs that make the difference, but small changes throughout the operation, Danny Klinefelter, ag economist at Texas A&M University, says. "A 5% cost reduction over many inputs can be huge."
While the cost structure in some industries varies little from firm to firm, in agriculture, the spread is wide.
"In 2012, University of Minnesota farm record data showed that the top 20% earned $844,000, while the bottom 20% earned just $14,000," Klinefelter says. "Farmers are not a homogenous group. You can make yourself 5% better and it’s more than 5% because that level of improvement over time has a compounding effect."
For example, with variable-rate systems, "you can get real cost changes," he adds. In fact, the momentum behind variable-rate populations has never been greater.
"By using what we know about our management zones, farmers can prescribe planter populations for maximum yields with more confidence," says Missy Bauer, Farm Journal Associate Field Agronomist. "This is no different than manually lowering populations on the sand hills, for example. When we use prescriptions overlaid with management zones, it’s much more precise."
The seed industry is also delivering value through additional services, such as agronomic assistance, crop scouting, seed treatments, informational meetings and seed delivery. These services can quickly increase returns back to the farm.
It isn’t just seeds that farmers can look to for small changes that equal big savings over time. Fertilizer can constitute as much as 20% of a producer’s annual cost of production. Nitrogen, phosphorus and potassium are the primary components, and like commodity prices, can have a lot of price volatility from year to year. By keeping fertility levels balanced during the "good years," it might allow you to cut back some, especially during years when prices are high.
The other fertilizer factor to remember is our ability to manage zones. Investing appropriately within your fields, using zone management data and production potential, is the only way to measure an absolute ROI.
While it’s important to pay attention to cost increases, it’s even more important to pay attention to value. Knowing your expenses will paint a clear picture, helping you to maximize profitability.
Keep Your Production Costs in Check for 2014
With grain prices dropping, it’s time to get creative. There is no one-size-fits-all-farmers answer, but there are numerous ways to more closely align costs with returns. Here are the money-saving tips we've gathered.