Confessions of a budget cutter

How one farmer cut nearly a half million in expenses – and he’s not done yet

Farmers have a lot of pride, and sometimes, a bit of ego to go with that pride. But these are difficult times on grain farms, and a lot of folks must now swallow pride to ensure profit.

Not a bad business decision, really. This is the natural order of business when corn prices fall by half and stay that way awhile.

At a farm meeting last month I sat down with a grain farmer I’ve known many years. When I mentioned all the stories we’d been running on cost cutting, he casually began outlining how he was cutting nearly a half million dollars out of his family operation’s cost structure. He seemed almost pleased to talk about it – maybe because the process itself was so eye-opening.

“I’ve been whacking out costs all over the place,” he told me. “When you have plenty of money you spend it on things that aren’t sometimes necessary. People adjust their standard of living to their income, and it’s no different in farming.”

Getting the axe

So just how do you axe that much from your budget, I wondered?

He started by compiling a report of all expenses and in the next column, how much each of those cost items were as a percent of total expenses. Breaking down combined items such as P & K to amounts used on corn, beans, or wheat gave him a better idea what may not be needed. In his case, fertilizer was 19% and seed 11%.

Any recommendations from a supplier should raise a red flag, he continued. Now, to be fair, I asked Daren Copock, executive director of the Ag Retailers Association, to chime in on behalf of suppliers.

“Lower commodity prices lead directly to pressure on the ag inputs business, and people expect growers to make some tough choices,” he told me. “But it also presents an opportunity, in that retailers can help growers focus on efficient production to maximize the performance of the inputs they do purchase.”

I guess it depends on your relationship with your suppliers. And many suppliers are extremely helpful to farmer customers. But don't let a great relationship cloud your financial judgment. You've got a business to run, just like they do.

The farmer who shared his story with me has added variable rate applications on P & K and lime, following University guidelines. He’s taking a closer look at how and when the farm applies Nitrogen. “Compared to preplant anhydrous, side dressing N can reduce the amount needed 10% to 20%, depending on timing,” he says.

Actual savings depend, in part, on where your fertility levels are to begin with. Application cost for variable rate is higher because of the tech in the machine, “but we’ve seen the amount of fertilizer reduced by at least a third,” he says. “What you’re trying to do is allocate your dollars to where they’re most needed.”

To be sure, technology is part of this cost-cutting narrative. “We probably save a bag of corn every 80 acres with auto swath row shutoffs,” he says. “Auto steer, cruise control and power management on the tractor optimizes machine and fuel efficiency. These are things nearly everyone is doing, but they are cost cutting actions compared to an earlier day.”

The single biggest savings for 2015 – over $50,000 - came from seed corn for the farm’s 3,200 corn acres. “It appears that seed corn is priced as to what salesmen think the customer will pay,” he says. His advice? Pick out supplies from at least two companies and ask for bids from district managers or a higher authority; you’ll be surprised at how low they can go. “Size matters and money talks,” he says. The farm also needed soybean seed for 2,500 acres, so they asked for a bean seed discount if bundled with seed corn.

Seed corn discounts are stacked. First is volume, then early order, then bundling, and early cash last. The total discount was much more than 12%, which is just for early cash payment, but you need good working capital to make that work. Sometimes taking early delivery nets another discount.

So far this cutting process hasn’t even included those services that don’t directly impact production. We’re talking about marketing consultants, financial advisors, and financial planners – they’re all on the chopping block, at least for this year.

“Continue examining your expense list, looking for things that can be bought for less, such as a tax accountant,” he says. “Big firms have big egos, so it’s easy to slice $15,000 off by hiring someone else.

“If this isn't enough to get you thinking, figure breakeven per crop and say to yourself, experience is the best teacher, and I have bought enough experience that I am going to make a profit this year in spite of these prices,” he concludes. “There are no alternatives.”

@mwilson1977

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