Benchmarking is a great tool for determining where you can improve your business. But when the numbers you benchmark against are in the red, profit becomes a challenge.
John McNutt, LattaHarris LLP, shared aggregated 2016 farm data from the firm’s farmer-customer base, along with averages from other sources. The results show “a lot of red,” McNutt notes. “But the data we looked at is in line with University of Illinois and Iowa State data.”
LattaHarris found that average total input cost was $297 per acre on corn, lower than both the Illinois and Iowa averages, based mainly on seed cost differences. Illinois farmers averaged $118 per acre on seed compared to $130 in Iowa and $106 among LattaHarris farmers. For his analysis, McNutt took online numbers from those universities, which required some modifications.
A further look at the input side shows what LH customers spend on fertilizer was higher than Iowa and lower than Illinois. Land cost was lower as well, at $211 per acre. This is a net land cost that includes rent, interest payments for land, landlord crop share operation cost, conservation costs and credits for government program payments.
The aggregated data does show a higher cost for operation — including labor, fuel and machine costs compared to university averages. Total cost of production was $714 per acre, before drying costs, general and administration costs, and crop insurance, which added another $81 per acre to the LH data.
The net result, however, is that at $3.50 corn, few farmers are making money. However, there were some exceptions. Producers who had higher yields — above 200 bushels per acre — tended to have positive returns. If a producer had profitable returns with below-average yields, it was due to lower average machinery or net land costs.
Second, net land costs tended to be lower for profitable farms, which may reflect more owned vs. rented land on the balance sheet.
Soybeans fare better
McNutt found a little more optimism when he reviewed 2016 soybean numbers. For LH customers, average returns showed a profit from soybeans at $35 per acre, just under the $40-per-acre average noted by U of I.
Iowa State’s average showed a $55 loss per acre for 2016. But in that scenario, input costs were at $163 versus just $135 for LH. Iowa net land cost was much higher at $266 per acre versus $210 for LH and $253 in Illinois.
Like corn, soybean yield makes a difference. The LH average yield was 65 bpa, while the Iowa average was just 50 bpa. The price for soybeans in the benchmark analysis was set at $9.57 per bushel, and higher yields did well to overcome costs even with lower prices.
The takeaway? Attention to production can pay off even if cost of production runs a little higher. It’s a balancing act, but the LH figures had higher operational average costs than either university and still showed positive returns. Cost cutting can help, but so can an investment in productivity.