ReachOut: Cutting Costs

ReachOut: Cutting Costs from United Farmers Cooperative on Vimeo.

Mike Zwingman

Mike Zwingman

In Jenga, players take turns degrading the integrity of a wooden tower by removing blocks from it until it falls into some poor sap’s lap and everyone laughs at him.  (Holiday family fun, right?)  Now, usually, the tower doesn’t fall until the third or fourth round, but every now and then, you see someone unlucky or unskilled enough to cause a topple in an early round.  It’s ever possible that even the very first block removed could cause it to fall because in Jenga, the blocks work synergistically to create the integrity and strength of the tower.  The removal of even one degrades the structure.  So even if the tower doesn’t outright fall, the removal of each block yet makes it just that much weaker.

This is, of course, a metaphor for farming.

With corn prices where they are, we want to cut costs, right?  We want to take our operations back to the basics: plant, water, apply nitrogen.  Watch the magic happen.  And while these are the cornerstones of our yields, they certainly aren’t the whole shebang.  A tower built with just those basics might very well stand, but it will also be significantly weaker missing all the other blocks that you’ve removed.

Many of you might be thinking a little less radically.  You won’t just take it down to seed, water, and N, but you’re looking at what one or two blocks you might remove to cut costs here or there.  You’re thinking that if you just cut out that plant growth regulator, you’d save a tasty $9 per acre.  Even if you’re buying my argument that your tower would be weaker without that block, you’re also thinking that it will be cheaper.

But.  (Of course there’s a but…)

While you save yourself that variable cost, you cause yourself an even greater opportunity cost.  Because PGRs typically raise yield by 5 bushels per acre, they increase the value of each acre by $20.  So not applying a PGR saves you $9 in the short term, but costs you $20 in unrealized yield come harvest.  The decision not to apply a PGR then ultimately costs you $11.

In an ideal world, we could all just look at those numbers and think case closed and continue to spend as we did at $7 corn.  But the real world complicates matters.  We get worried, maybe even scared, and we get frustrated.  We look at the economics and think well that’s all good and fine but I don’t have $9 right now or I have $9 right now, but yikes.

And I hear you, friends.  You want to save $9 acre.  Got it.  Creating this savings through cost cutting isn’t the answer though because of the opportunity costs that you will suffer down the road.  Instead, you can create this saving through creating efficiencies, which come with no opportunity costs and which when done properly will also save you yield penalties.

As in, you can save yourself $9 per acre by not disking a third time.

What follows might very well sound like a mixed tape of my previous articles, because it kind of is.  But it bears repeating because the fact of the matter is that solid farming practices maximize the effects of your inputs which saves you money and minimizes yield penalties that cost you money.

So.  You want to save $9 per acre.  Great.  Start by looking at your tillage system.  Is every pass you make actually necessary?   Does any pass actually cause yield penalties?  (Hint: If you’re disking, this answer is yes.  Each pass costs your soil some ability to take in water.)

Evaluate the timing of your operations.  Are you spreading your planting dates throughout the ideal planting window to minimize your risk and possible loss?  Do you ever plant, disk, or spray on wet fields?  These cost you yield due to the compaction issues they create.  Was the timing of your harvest ideal, or did you incur drying costs from harvesting early or yield losses from harvesting late?

Look at your stand establishment and analyze planting depth and plant spacing.  Were these done optimally?

Consider your irrigation and any waste or inefficiencies.  Each inch of water costs you $12.50 per acre and must be used as effectively as possible.

From here on out, we’re likely to be talking about our margins in terms of quarters rather than dollars and the difference between profit and loss may very well be those 5 bushels per acre.  I don’t say this to be grinchy, but rather to give you the lay of the land and offer courage that even in less-than-ideal economic times we still maintain control of our fields, fortunes, and futures.

Header1The answers though don’t lie in cost cutting, which robs our crops of beneficial treatments and negatively impacts our yield, much like the missing blocks in a Jenga tower reduce its integrity and strength.  The answers are in effective practices, my friends, which save money through efficiencies and optimization.

If you have questions about this or are feeling uncertain about your decisions as we wade into the waters of $4 corn, please remember that UFC has always strived to be your trusted advisor and we aim to fulfill this role especially in times like these.  We welcome your questions.  Let us help you create the efficiencies that will save you money and cut the cost of opportunities lost.