ReachOut: Think PROFIT – Not Prices

Warren Buffet has two rules for business success.  Rule #1:  Never lose money, and Rule #2:  Never forget Rule #1.  Of course none of you want to lose money, but are you looking at your business in a fashion that allows you to monitor your current or future profit or loss?[/caption]

Having grown up on a cattle operation in northeast Nebraska, I have to battle my dad with this same concept.  We have feeder calves to sell this fall that we can currently contract for $900 per head.  My dad has refused to let me contract the feeders because he feels the market will get stronger and last year we sold them for $1000 per head.  So I decided to take a different approach with him.  I asked him if we could make a $250 per head profit in the calves if he’d sell them.  He replied “I can remember years being overjoyed to make $25 per head.  Heck, yes I would take a $250 per head profit!” After locking in the feeders and providing him with the balance sheet, he was astounded to see we had a $293.41 per head profit.

The struggles I have with my dad are the same struggles I believe many farmers fight with themselves.  Trying to outguess or anticipate the grain markets or fertilizer prices will drive a sane man crazy, yet understanding exactly how the prices work within your operation to generate profits may ease your frustrations.  Many times a day I get asked by producers, “What are these grain markets going to do?” or “How much lower can they go?” and “What are the analysts saying?” or “What are your predictions?” They are all good questions.  Yet, in my opinion, the better questions to ask would be “How much money can I make per acre on this year’s crop assuming 75% crop insurance and 200 bpa yields?” or “How much money can I make per acre on my 2014 crop assuming 200 bpa yields?” or “What can I do to lock in my current profits while still obtaining the ability to capture the profits if grain prices move higher?”  We have many resources and information at UFC to answer these questions while making the profitability of your operation much more transparent and manageable.

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The next step is to illuminate what makes up your profitability.  We can assist you in making precise decisions while providing you with the exact effect or risk with your decisions.  Maybe you want to sell some grain, buy your chemical, lock in land rent, and yet speculate on nitrogen prices. What happens if nitrogen prices increase or decrease 30%?  We can work with you to determine exactly how much profit or loss per acre you have.  What would be the result if corn prices decreased 40 cents per bushel and you spent another $25 per acre to increase yield by 7-10 bushels per acre?  All these scenarios can help you boost profitability while helping you manage your marketing decisions.

Ultimately, no one knows what agronomy prices or grain prices are going to do.  As the price volatility in agronomy inputs and grains increase, our team at UFC can keep our arms around all these numbers and prices to allow you to monitor and choose to right time to lock in not only prices – but PROFITS – for your operation.  Our main objective is to show you exactly how a specific price or variable in your operation affects your underlying profitability.  We look forward to hearing from you with your questions.

Please feel free to contact anyone in the UFC agronomy or grain departments to talk about your current or future profits in your operation. We have many resources and information that can help make your marketing decisions much easier.