What’s the fastest way to lower your cost of production? Chris Barron of Ag View Solutions says it’s to increase yield.
“Stop trying to save money on the things that enhance or protect yield,” Barron says. “What you really have to do is get more bushels.”
During an episode of the Top Producer podcast, Barron and host Paul Neiffer discussed how yield can have a much larger effect on your cost of production than decreasing your inputs. His message: you can’t save your way to prosperity.
“When times are tight, some farmers want to skimp on inputs. The reality is, it isn’t your cost per bushel or your cost per acre. It’s how much revenue you can generate off of that operation,” Neiffer says.
Barron gives the example that increasing your yield by 10 bu. has the potential to decrease your cost of production by 20 cents and doesn’t introduce the risk that cutting on herbicides and pesticides does.
“We spend a lot of time beating up the crop protection person when the range we see for that in terms of cost per bushel on corn is about 6 cents per bushel. It’s not very much. And then you end up with more weeds, and then more the next year,” he says.
He adds those expenses have actually increased proportionally to yields.
“Costs of crop protection and seed, believe it or not, have not gone up in all the years I’ve done this. Why? Because yields have gone up,” Barron explains. “The cost of seed is about the exact same as it was in the ‘70s on a cost per bushel basis.”
Barron also cautions away from making cuts in crop insurance, saying the savings isn’t worth the risk.
“We’re looking at the wrong metrics a lot of times. When you’re buying crop insurance, people tend to think of it in terms of cost per acre, which drives me nuts. You need to think of it in terms of cost per bushel,” he says. “Our average producer, just on crop insurance, is writing a check for $111,000. They’re going to look gonna look at it and say, ‘Well, that’s 85%. What if I bought 80%?’ If you drop down to from 85% to 80%, you lowered your cost production by maybe 2 cents.”
So where can you make room in the budget?
Barron says the two biggest line items tend to be–not surprisingly–land and equipment. But there’s a third category that can rack up a lot of expenses.
“The other big one tends to be that return to management category,” he says. “All those overhead expenses in that category are the family living costs, which is what the banks talk about. But then there’s also all those overhead costs, like machinery repairs, utilities, building repairs, office stuff, travel, education and things.”
He stresses the importance of factoring those expenses into your total cost of production so you have the most accurate picture.
“You can either be informed, or you can be happy. I think informed is a lot better,” Barron says.
