Check out these easy-to-implement tips for reducing the cost of farm production and improving profit margins.
Running a farm can be a costly endeavor, especially when there are uncontrollable factors that affect the profitability of a farm—weather disturbances and commodity prices, for example. However, there are plenty of elements within a farmer’s control that can decrease farm production costs. Many farmers are unaware of the opportunities they’re missing, not knowing that some minor adjustments could have a huge impact in reducing farming costs. Here are some of the most common (and costly) mistakes that farmers make and the small fixes that can lead to big cost-savings when it comes to farm expenses.
These changes, thanks in large part to the effects of climate change and recent developments in agricultural technology, and genetic modifications, are prevalent in crops like corn and wheat. In many cases, these crops are also yielding a more bountiful harvest than ever before.
Mistake #1: Too Much Diversification of Seed Purchases
Many farmers buy relatively small quantities of seeds from several different suppliers.
Fix: Consolidate Your Seed Purchases
Purchase seed from the two or three highest performing brands or companies that produce what you’re in the market for, then make your final purchases based on who gives your operation the highest return on investment. When that time comes, don’t be afraid to negotiate. You never know who might be willing to give you a discount, especially considering seed suppliers often have to aggressively seek out clients to secure orders. To further reduce the cost of farm production, consider bundling your seed and herbicide purchase, as suppliers often offer discounts for purchasing both.
Mistake #2: Spending Too Much on Chemicals Such as Pesticides and Herbicides
As crops continue to need protection against pests and weeds, some farmers over-spend on chemical solutions.
Fix: Evaluate Your Farm Chemical Program
Analyze and research generic chemical alternatives, evaluate guarantees or warranties when purchasing chemicals, be wary of promotions (in other words, ensure you’re actually getting a good deal), and keep in mind that the more expensive modes of action for combatting resistant weeds aren’t always the best. This is particularly important if you’re running a no-till operation because while farms can see a significant drop in labor costs with no-till farming, tillage is a form of weed control – and no-till farming may require farmers to rely more heavily on chemical solutions.
Mistake #3: Buying Unnecessary Machinery and Equipment
According to Farm Progress, mistakes when making machinery and equipment purchases could cost farmers thousands of dollars annually.
Fix: Evaluate Your Machinery and Equipment Needs
To make informed decisions, start by identifying reasons for replacing equipment, considering factors such as reliability, capacity, long-run costs, obsolescence, and tax consequences. Farm Journal Field Agronomist Ken Ferrie actually recommends postponing machinery upgrades and instead tackling maintenance issues on existing equipment (if possible), as the new machine in question will likely be cheaper in the future. It’s a good idea to match equipment size to acreage as well. A 2006 University of Illinois report shows a 20 percent drop in the cost of owning and operating a 340-horsepower combine when you farm 3,000 acres versus 2,000 acres (from $28.70/corn acre for 2,000 acres to $22.60/corn acre for 3,000 acres).
Mistake #4: Spending Too Much on Rented Farmland
Those who do not own the land on which they farm can end up spending too much cash on their rent.
Fix: Work with Your Landlord to Incorporate a Flexible Rent Structure
Cash rents may be the norm, but flexible farm leases—as long as they’re straightforward and provide a fair sharing of risk and reward to all parties—can be mutually beneficial for renting farmers and their landlords. You could consider a fixed bushel lease, in which the tenant gives the landlord a certain number of bushels of crops as part of their rent payment.
Mistake #5: Failing to Maximize Cash Flow by Inefficiently Paying Off Debt
Some farmers wait until they’re in financial distress to consider how to most effectively reduce debts.
Fix: Optimize Your Farm’s Balance Sheet and Restructure Your Farm’s Debt
Ensure that you have access to all of your debt payment information, use a maintain a solid relationship with your banker. Once you know where you stand in a financial sense, you may be able to refinance your ag operation, which could enable you to consolidate your debt into one lower interest payment, reduce your monthly payments, and/or alter the maturity of your farm loan and receive longer amortization periods. In fact, a swine and row crop farmer took a similar approach, refinancing several existing mortgages into a longer-term, lower-interest rate loan with greater flexibility, and the borrower was able to save 44 percent annually, or $357,000 per year.
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