ReachOut: Algebra

ReachOut: Algebra from United Farmers Cooperative on Vimeo.

Mike Zwingman

Mike Zwingman

Your profit for the year is determinable via an algebra equation, and a quite simple one at that:

Yield   x   $$$   –   Cost   =   Profit

(Remember your order of operations: multiply first, then subtract.  I don’t want you to mix that up and freak yourself out.)

As you see, there are three variables that impact your profit: yield, price, and costs.  Maxing out yield and price while minimizing costs will consequently lead you into the blackest black possible for your situation.  Bonking on yield or price and/or spending frivolously will, of course, negatively impact your bottom line.

So far, I probably haven’t told you anything that you don’t know.  You do algebra equations much more complex than this everyday as you count and calculate and calibrate plants, machinery, household expenses, etc.  And as owner/operator of your personal business, profit is ever in your purview.

But it is an unfortunate fact that today, corn is a full $1.50 lower than it was at this time last year.  Which makes our algebra equation a bit more frightening.

Friends, I don’t want you to be frightened.  Whether corn is selling at $7 or $4 or $3, I want you to realize the ultimate control that you have over your situation and outcomes.  Smart management of the three variables impacting your profit—yield, price, and cost—will leave you flush, and a happy and eager grower post-harvest.

Hey though, I hear you saying, what control do I have over price?

Which is exactly right, and also, exactly the wrong question.

You do have some control over price and your attention to the market is vital.  Tune in next week as I turn this little blog over to the brains in our Grain Department for a lesson on playing even a mean market in your favor.   Header12

But realize that though price is important, it is also a distraction.  Harvestable yield is the dominant factor in this equation. I repeat: Harvestable yield is the dominant factor.  It is the difference between profit and loss.  Price is important, as is cost management, but neither plays as significant a role in your bottom line as does yield.

I realize that given our current financial climate, the recommendations I’ve made here over the past three months could sound crazy.  Plant health treatments, additional nitrogen applications, early irrigation—perhaps these have sounded like costly luxuries, negatively impacting your ultimate profit.  But of the three variables in our equation, cost exerts the least consequence on your final outcome.  That doesn’t mean that you should spend willy-nilly on whatever, but it does mean that spending on products and practices (such as the ones I’ve promoted here) that will increase your yield is very much worth your money, since yield is so significant a factor in profit.  Investing in products with a high return on investment is a sound and smart practice for your operation and your finances.

Header1Yield and cost management are intricately related and require a balanced approach, but as yield is such a consequential factor, it deserves your favor and extra attention as you make decisions for the rest of this season and prepare for next.  As we talk about 2014, I won’t talk about cutting costs then, but rather about spending strategically and managing your fields with precision.  Even if you are unable to increase your financial input next season, you can still increase your chances for success (read: increase your yield) by making calculated spending decisions and by using the products that you buy carefully and purposefully.

What does this mean?  This means treating your acres as individual units instead of a whole.  That tough acre that doesn’t produce for love nor money is very different from that acre that sprouts forth bushel after bushel.  Though perhaps they are located right next to each other, treating them separately according to their attributes and characteristics will increase your chances for success on both of them.

Sound like a lot of work?  I might offer the word discipline instead.  Such precision takes a lot of discipline.  Consider the boxer who lands fewer, but surgically precise, blows.  He’s working no harder than the boxer raining gloves on his opponent, but he is exerting much more discipline.  He may even exit the match less fatigued than his prolific counterpart because his situational awareness allowed him to make the best, most necessary moves in the match, wasting not one ounce of energy.

As you begin to close out this season, I encourage you to do so with yield in mind.  Any concerns that you have about the market are valid and valuable, but tame your anxiety by concentrating on what you can control, which may be more than you imagine, and by committing to follow strategies that will maximize your yield.  The more deliberate you are in making choices that will increase your yield, the higher you should see your profit rise, regardless of the market.