COB - Cost of Business

October 4, 2018

COB - Cost of Business from Central Valley Ag on Vimeo.

For the past two weeks, we have focused our time and energy talking about fertility decisions, and how to budget accordingly. I thought that this also provided us with a platform to look at other expenses and how they affect our bottom line as well. To me, this seems particularly important this time of year as we work through some of the big budget items for 2019, like machinery, inputs, and rent.

So as I said, our focus thus far has been on Fertility, and I hope that by now I have persuaded you that feeding your 2019 crops a minimum of crop removal is going to be an essential step in building a profitable plan. The response that I hear then was that if we can’t cut cost in rate, we have to cut cost in product. So let’s look at what saving $25 a ton looks like as different products.

Anhydrous Ammonia - $25/T = $0.015 per lb of N at 200 lbs/acre = $3.00 per acre

UAN (32%) - $25/T =  $0.039 per lb of N at 200 lbs/acre = $7.80 per acre

MAP (11-52-0) - $25/T = $0.024 per lb of P at 85 lbs/acre = $2.04 per acre

Potash (0-0-60) - $25/T = $0.021 per lb of K at 60 lbs/acre = $1.26 per acre

What about seed? If I save $25 per bag and I am planting my corn at an average of 32,000 across all my acres, I am saving $10.00 per acre on seed. That sounds good to me.

Now, I understand that all of those savings are real money and that they would add up, but we also need to make sure we account for other costs that go with those savings. If it is a different supplier, and the distance increases, we could easily spend more on freight getting the product there than we are saving. Availability, trusted advisor, and a host of other things also need to be factored in when considering where you buy and for how much.

So then what about bigger ticket items like machinery? The implement dealer might be willing to make a great deal on trading for a different planter this year. Let’s say that trading planters for a new 24-row unit with downforce and a high-speed option is going to cost $120,000. If I keep my accounting simple and pay for that in four years, my cost is $15.75 per acre for 2000 acres of corn for the next four years. Now let’s say instead you keep your planter and work with the ACS Equipment team and upgrade your planter with Precision Planting to do the same thing at 62% of the trade in price. That would equate to a $9.75 per acre cost per year over 2000 acres for four years. That $6.00 per acre savings is a lot more per acre than you save in fertilizer savings.

To me, the easiest place to go save money when it is time to tighten the belt is with your landlord. Like we have talked about, you can spend days or weeks shopping your fertilizer and seed business to save a total of $20 per acre. But with those savings come the questions about product quality, availability, distance, and time. With the landlord, a reasonable, civil discussion can go a long way. We all know that land values have declined over the past few years. For Nebraska, the statewide average is down 13% from 2016. So by my thinking, for every $100 you pay in cash rent, your rent should have gone down $13 in the last two years. Now I know that again, I am being a bit simple-minded or perhaps even idealistic. I mean, it seems as if there has always been somebody there to rent the ground if you didn’t want to pay. But, what would happen if you went to the landlord and said, “Ok, the cash value of the land is down, and we are all feeling the squeeze right now. What if we split the difference in rent for the next couple of years and went down $20 per acre?” That is a number that probably isn’t going to kill them and could make a big difference for you.

The point I want to make today is not to pressure you to pay more for the things you need. Instead, it is to focus your efforts in areas that give the biggest bang and work backward. Land, Equipment, Irrigation, Seed, Chemistry, Fertility and Services. That is the order that has the greatest impact on your bottom line. Working with a trusted advisor like our FSA’s and ACS team here at CVA provides you more resources for working through budgets. And remember, when it comes to your inputs, there is a lot more money to be saved in applying the right rate at the right time than there is cutting the purchasing price by a couple of bucks per acre here and there.

By Keith Byerly

Posted: 10/4/2018 5:13:27 PM by Kelli Emanuel | with 0 comments