How Quick Is The Payback For A $150,000 Planter Expense?
If I invested in everything that was going to add bushels to the bottom line of my crop, I’d be raising 1,000-bu.-per-acre corn.
It is easy to get caught up in the technology improvements, seed advances, herbicide developments and mechanical advantages in our industry. The key is deciphering what will truly make you more money or add value to your farm.
Numbers Versus Emotion
Some keys to high yields and farm success will never go away: good fertility management, quality planting conditions, appropriately adjusted equipment and good weather.
We can manage margins on a few of these areas by using simple spreadsheet tools and best-guess calculations. Many times when farmers talk about making a change, emotions tend to take over the discussion. There also tends to be a lot of “thinking” and “knowing.”
We say phrases such as, “I know this is going to add 5 bu. to our bottom line.” “I think this product is going to give us an agronomic advantage.”
Admittedly, contributing margin improvement to some management decisions is simply making your best estimate. However, there are ways you can put numbers to these decisions. Here are the primary factors to evaluate:
- Grain Price: Projected price for the commodity you will be using to evaluate your margin enhancement.
- Investment Cost Per Acre: How much will it cost to make this enhancement or upgrade?
- Yield Improvement Per Acre: This is your best educated guess for yield improvement.
- Acres: Across how many acres will you use this margin enhancement on?
- Years of Use: How many years do you plan to use this margin enhancement?
Combining these factors provides a tangible number for discussion with your team as you move forward. Maybe it makes sense or maybe it doesn’t? The important part is knowing the numbers and making an informed decision.
To be certain, upgrades provide intangibles or areas of improvement that are more difficult to measure. For example, how much easier does it make the job? Will you finish more quickly? Will it improve logistics?
These are more difficult to track in some cases, but I encourage you to attempt to put numbers to the question to make an informed decision. You will need to be honest with yourself if the numbers show you maybe cannot afford the enhancement or it isn’t necessary.
How Quick Is The Payback For A $150,000 Planter Expense?
Farm operation: 3,000 acres
Potential Investment: Planter upgrade that costs $150,000, which pencils out to $5 per acre per year for 10 years.
What yield improvement do you need to commit to the cost? If you’re evaluating this in terms of corn, with a December 2021 futures price of $4.42, this tool shows you need about 1.13 bu. of yield improvement to justify the expense. Think prices will change? The beauty of this tool, and spreadsheets in general, is you can run infinite scenarios, based on your best information.
To get a copy of this spreadsheet or to discuss this topic more, email Shay Foulk with Ag View Solutions at agronguy@gmail.com.
Shay Foulk is a farm business consultant with Ag View Solutions, providing profit management, transition planning and equipment analysis. He farms and runs a regional seed business with his wife and father-in-law in Illinois.
