I was attending a live simulcast of an event from 360 Yield Center the other evening, in which Gregg Sauder was talking with growers about 2018. Gregg gave a lot of historical context to the current farm economic conditions, and what he has experienced in his lifetime of running a farm. He made a great point that I am probably not going to be overly popular for repeating. In short, he finds it troublesome that many growers identify their biggest problem going into this next growing season being commodity prices. While that is definitely a big challenge, it is entirely out of our control. Yes, we can certainly employ every tactic that makes sense to capitalize on market opportunities, but by and large, the ebb and flow of the market is out of our control.
So then what can we do about it? If we can’t sell for more, we have to lower our cost of production. There are a number of ways that we can lower our cost of production. Lower input costs, lower fixed costs, increased yields, and so on. Probably the one that most growers focus on is input costs. While that is certainly impactful, I believe that it is often overvalued part of the equation. Let’s say I did a bunch of price shopping this winter. I saved a total of $60 a ton this year on fertilizer by shopping around for N and P. If I have an even split, and that is $30 a ton on 32%, for 200 pounds I am going to save $9.37 per acre. On 11-52-0, that $30 savings is $4.33. So that $60 savings has come together to save us $13.70, or less than 4 bushels of corn. While that can certainly be impactful, it is not the huge impact that we are looking for.
Switching to fixed costs; it’s easy to see that little things can have a bigger impact. Small changes to insurance, cash rent, and so on can quickly have a bigger impact on the bottom line than savings on our variable costs. But, I want to make sure that everybody understands that this is about more than cutting. Smarter investments can lower cost of production as well. This is a place where technology can help. More acres on less fuel, less overlap, fewer hours per year on our tractors, combines, and irrigation systems all add up. This is why the ACS team is always talking about ROI. The old saying is sometimes you have to spend money to make money. If an investment on Downforce on your planter can increase yields by 8+ bushel per acre, and the ROI is less than one year, then that is net savings. If VR seeding or Multi-Hybrid Planter has similar ROI, then we need to consider it.
In the 80’s, growers got through the tough times using diversification. Livestock was the saving grace of many growers then, but probably not as many now. So today diversification means looking at different crops. Non-GMO, Seed, Specialty Crops, etc. are a great option if they are a realistic choice. But unfortunately, they aren’t practical for everybody. So my take home for today is that understanding every cost on your operation is prudent. By every cost, I don’t just mean input costs. When somebody says understanding every cost, that means inputs as well as capital investments. We can’t be afraid to make cuts or invest if the financials of the situation support the decision. I will end by making one more comment that might be less than popular with some. To me being efficient means I am growing the most bushels with the best ROI on my production costs. I always want to have maximum bushels because it gives me the best chance to capitalize on a market run. I know I can cut X dollars out if I don’t put on P or K this year, but if the yield goes down equal or more than what I saved, it isn’t worth it. This is why you need to work with a team you trust that will make sure you see both sides of the coin. Remember, we still have time to make critical decisions for next year, but spring will be here sooner than any of us want to believe.