10 ways to cut costs and preserve margins this year

It’s not easy to avoid the backwash in this low-price environment. These moves can keep you afloat.

While other growers tightened their belts for another year of low income, Nebraska farmer Scott Spohn doubled down and opened his wallet.

Sure, it meant paying the entire tab to fertilize his 6,500 acres in southeastern Nebraska nearly a year before planting. But sometimes, it takes money to make money. By following prices closely, Spohn knew nitrogen costs were near the lowest level in years.

“I don’t have an exact fertilizer plan, but it seems like a pretty good idea to buy it when it’s about the cheapest it’s been in a decade,” he says.

Decisive action is nothing new for farmers trying to surf a wave of five big crop yields in a row. From cutting costs to selling fleeting rallies, not wiping out in 2018 means mastering both sides of the income statement. Consider these moves:

  1. Do it yourself. “We have tried to do more things ourselves and not use custom applicators as much,” says Kansas farmer Jon Berning. He plans to use his farm’s fertilizer tanker to deliver his own 32% liquid N, saving upward of $20 a ton.
  2. Substitute cheaper nutrient sources. “We’re using manure for fertilizer and not buying commercial,” says Jeff Schaap, Woodstock, Minn. “And I’m hauling my own so I don’t have to pay a custom hauler.” Berning is fortunate to farm near feedlots, which supply nutrient options and are potential markets for grain.
  3. Take back custom acres. Berning, who farms several thousand acres of dryland wheat, corn and sorghum, reduced custom-harvest acres by 50%. We needed to “cut out some fat, but we had some custom harvesters doing work for us because we didn’t have the combines,” he says. He took advantage of a John Deere program to lease two more machines.
  4. Keep negotiating rents. “We have a really good relationship with our landlords, so we’re still working to get our rents down a little bit because they want to work with us,” says Kirk Berry, who farms with his father near Brooklyn, Iowa. “They know that prices are bad, and if we continue like this, we might not be farming in the next few years.”
  5. Shop for deals. The Berry family compares offers from two seed dealers. “One dealer will give us a price, and we ask the other if they can match it,” Berry says. “You just about have to have them compete against each other now to get our cost structure in line.” Adds Ohio farmer Mark Wachtman: “We use bid or RFPs for all inputs now. We’re sending them out to five suppliers detailing what we are doing, so as there are no surprises to them.”
  6. Market better. Berry has been hedging the farm’s grain since last summer when he got his broker’s license. “We’ll sell our excess bushels that haven’t been priced yet in the fall right out of the field, and put calls, or call spreads, on to capture 20 or 30 cents per bushel upside, which we’re happy with.”
  7. Plant cover crops. The Berry family also started using cover crops to help free up nutrients. “We’ve been getting 5% to 10% better corn and soybean yields on cover crop ground, although it’s hard to quantify,” Berry says.
  8. Focus on timely nitrogen apps. “This year we’re going to top-dress some nitrogen,” says Kevin Wyffels, Duluth, Minn. “We will only save about $6 total cost per acre, but we’re hoping it will make nitrogen more available to the plants.”
  9. Vertically integrate. “We’ve just vertically integrated, so we became our own seed dealer,” says Ryan Wanzek, who farms with his dad, Terry, in Jamestown, N.D. “Companies are looking for farms of our size to become a seed dealer. It’s a way for us to get seed at wholesale costs.”
  10. Analyze your options. Before Spohn makes a major purchase, he weighs his choices. “We like to look at the full range of possibilities,” he says. Knowing when to get the best possible price is always somewhat of a gamble, he says.

Bonus tip: Re-examine family living expenses Non-capital living expenses for the 1,333 farms enrolled in Illinois’ Farm Business Farm Management program in 2016 averaged nearly $76,916. Another $5,344 was used to buy capital items such as the personal share of the family automobile, furniture, and household equipment. LaVell Winsor, a Kansas farm wife and farm financial consultant, suggests breaking out family living costs in categories, setting up a budget, and examining line-by-line items monthly.

TAGS: Fertilizer
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