This is a guest post by Brenda Tjaden Lepp, Chief Analyst at FarmLink Marketing Solutions. Follow her on Twitter @btjadenlepp!
The 2015 growing season is a wrap and the work of planning for 2016 has begun. Final decisions about planting and production may yet be months away, but seed purchases are happening. That means two things to the farm’s marketing plan: an expense has been incurred and a planting decision has been made.
There’s an old saying that half of good grain marketing is planting the right crop in the first place. In this 2-part series on rotation planning, I’m going to explain how to use the tools of market analysis to help guide planting decisions towards maximum profitability for individual farms. Profitability potential hinges as much on production costs as it does on yield and price, so let’s start by talking about benchmarking.
“…half of good grain marketing is planting the right crop in the first place.” | Click to tweet this.
A good seed salesperson will focus on attributes like yield and disease resistance to distinguish their product from the competition. And every good farmer wants to talk price. The starting point of good benchmarking is combining both types of information into a cost per acre and return estimate.
Farmers use different methods for tracking and projecting relative returns. Some do it themselves, some hire consultants or accountants, some use standardized templates, and some build their own spreadsheets. Sadly, some still don’t do it at all or assume they do it well enough, and end up leaving a lot of their farm’s profits in the hands of input suppliers and the markets.
“Profitability potential hinges as much on production costs as it does on yield and price.” | Click to tweet this.
Benchmarking costs from one farm to the next can illuminate a goldmine of opportunities for managing costs. If you see others farming a similar number of acres with similar equipment, spending much less on fertilizer, gas and utilities, you might look more closely at how you make those purchase decisions. But you have to compare apples to apples. Back to the seed example, one farmer looking at benchmarks would need to know if the others included seed treatment as a seed or a pesticide cost, before determining if their expenses are above or below the norm. Without a standard definition, and consistent expense calculations, benchmark data can be misleading.
All the different methods, templates and people involved in the work of estimating crop production costs need to be on the same page. Only then can those powerful insights to be safely factored into the farm’s plan.
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