As Mike Boehlje and Brent Gloy say on p. 18 of the September issue of Farm Futures: you need to understand efficiencies if you want to grow your business.
One way to do that is to download the Focused Growth Scorecard. This self-assessment can help you evaluate everything from low cost metrics to employing best management practices. Part of this evaluation requires finding data, such as average production costs, from university crop budgets, for example.
"The scorecard can help determine if you are in position to make any kind of growth," says Boehlje, an Ag economist at Purdue University. "Just remember: Get better before you get bigger. It's how successful businesses operate.
"You really, really need to get good at what you're doing before you start thinking about expansion or growth," says Boehlje.
Growth requires a strong financial base. Profits from your current operation are often needed to 'subsidize' expansion. You'll also need access to working capital. "Expanding to cover up a financial weakness is a recipe for disaster," says Gloy, who is also a Purdue economist. "It's easy to underestimate working capital requirements for a new or expanded business."
Growing efficiencies mean striving to be a low-cost producer – as long as it does not harm the long-term capability of your business. Not putting on inputs may reduce cost per acre, and we're seeing that happen now –mining of soil as a result of high cash rents and drought-dinged yields. Not a good way to do business for the long-term.
In any case, even though drought impacts costs per bushel, you still need to know that number.
"I don't know a single business person who can't tell me what the cost is of unit sold, whether it's a car or computer or whatever," says Boehlje. "Drought may change that figure but you still have to know costs so you can know what to sell at. The key is, what is your cost per bushel relative to your competitor."