ReachOut: Managing Profitability in Tough Times

ReachOut: Managing Profitability in Tough Times from United Farmers Cooperative on Vimeo.

Mike Zwingman

Mike Zwingman

There is a lot of talk in the country today about input costs for next year and how are we going to manage our profitability in these new economic times.  Well friends, I know none of these conversations are going to be easy, but we need to make decisions based on the right information and agronomic reasons not emotions and fear.  If you look at the latest Farmer Economics sheet that gets put out to us(if you don’t get it you really should ask your FSA for it) the profit margin in corn looks negative, but it’s a number that if we properly manage we can turn from red to black.

The question is that how do we manage that profitability; how do we turn that color from red to black; where, if at all, do we cut costs?  Well hopefully in this article and at the upcoming RD events we will start to create a process of thinking that will help us answer all those questions above.  First thing first, I’ve said it before, and I will say it again.  The agronomic needs of your crop will not change regardless of commodity prices.  That being said, we are going to focus on how we can become more efficient in the inputs we use and more thoughtful about things like timing and placement to maximize your profitability.

The second thing we are going to focus on is where at in a given field are your inputs going and what is the corresponding returns for those individual areas or zones in a field.  Now by doing this we have taken your 1500 acre enterprise, through a 160 acre quarter to 70-80 profit management zones.  Now we are managing 20-25 acres at a time.  In looking through some of the yield maps that we have been working with this fact stands pretty true; 55-60% of our acres carry our field’s profitability, means 40-45% of our acres need a second look.  As a whole we have done a great job managing our Phosphorus, Lime and Zinc needs from a variable rate perspective.

However, we still have the second largest input investment you make which is Nitrogen, so let’s talk about this as our first stop on managing profitability.  In the field that I am going to use as an example here are the facts, using multiple year analysis of yield and applying all inputs at an average rate there 28 percent of the acres that are above the break even yield.  Another 30% is somewhere between breakeven and a $50 per acre loss, and then the last 40 percent is somewhere between a loss of 117 to 333 dollars an acre.  When we look at it that way we need have somewhere to start.  Now we are not going to be able to manage all those lost acres to zero, but we can do better than we are on the flip side friends.  We can make that upper range better than it is as well.

The first thing we have to do is be realistic about the yield potential of those zones.  If their history says a zone is 133-166 bushel per acre let’s not act like its 225 bushel per acre corn.  In that respect alone, if we just stick to a bushel of corn is worth a lb. of N that alone is a saving of $30-40 per acre and if we manage our population to match that nitrogen rate we will most likely realize another $9 per acre savings on seed cost.  Just in one adoption and full use of the technology that has been available to us for years we took that 30% of your acres that is a loss and made them at least break even.  This, in turn, makes the profitability for that farm from a red number to black.  That is before we start to talk about using split application or in season analysis or imagery to better dial in our actual nitrogen rate.  Header1

This topic really is too much to describe in an article, but it will be a big part of the presentation time at the RD summer series events this week.  My goal is to have a real discussion about how we here at your cooperative can best serve you and help you through these new economic times.  The good thing about the last few years is we have a good handle on the formula to help you raise high yielding corn which is going to be important for the season to come.  You have been doing a great job managing your operations in the past but these technologies can unlock new aspects of management that will help us keep your operation successful through not so great times.  Please attend one of the RD events in the future and have that discussion with me.