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Cost Control
Wednesday, February 25, 2015 12:55PM CST

By Barb Baylor Anderson
Progressive Farmer Contributor

It's no secret corn and soybean farmers face lower prices now than they did a year ago. Astute operators already have plans in place to cut costs while monitoring their margins. But it's still going to take a sharp pencil and perhaps some out-of-the-box management thinking to make ends meet in 2015.

"Corn returns in 2014 likely were negative on many farms. Losses were near $100 per acre on cash rent land in northern Illinois," says Gary Schnitkey, University of Illinois agricultural economist. "Government payments will occur in 2015 but will not totally offset revenue decreases. Given the outlook, average gross revenue is projected lower and will require cash-flow adjustments."

Here are steps four farmers plan to address this year regarding income and cost-cutting.

CREATE MORE VALUE

Diversification is the strategy Marc Arnusch, of Arnusch Farms, in Keenesburg, Colo., is relying on to enhance his revenue stream this growing season. The third-generation Colorado farmer irrigates 2,400 acres of sugar beets, wheat, sunflowers, alfalfa, corn and corn silage.

A double whammy struck Arnusch Farms in 2014. The family's corn crop was hit with hail and an early freeze. Consequently, corn yields were down 20 to 30%.

Arnusch plans to hold a tight line on all expenses in 2015 and try to create more value by growing corn silage and certified wheat seed.

"By planting lower-input, sensitive crops like wheat, we shift acres from corn at one-third the cost," he says. "We have off-farm resources in Pioneer seed sales and will drive that revenue back into the farm. We are also exploring other opportunities within the energy sector in Colorado. The No. 1 focus is finding ways to drive value in the marketplace and not do what we've done in the past."

On the expense side, Arnusch plans to harvest still-available phosphorus (P) and potassium (K) from the soil, and be more site-specific with nitrogen (N). "We will try and do a better job of timing nutrient applications to drive return on investment and put nutrients where they need to be," he says.

Arnusch explains his operation is moving away from minimum tillage to strip till to reduce tillage costs and spot-apply P and K in close proximity to the corn root zone. In addition, he plans to adjust his nitrogen program. Less N will be applied preplant with a higher amount applied pretassel and post brown silk. He estimates this approach will reduce overall N use while spreading applications out over a longer period during the growing season.

"Sales relationships are important, but I will look for bargains," he adds. "We won't back off seed traits but may find enough value in single or double stacks. I won't close the checkbook on yield."

RELY ON TECHNOLOGY AND EFFICIENCY

Precision-farming practices are key for Jeremy Jack and Stacie Jack-Koger, of Silent Shade Planting Co., in Belzoni, Miss. The brother/sister team farms 8,500 acres of corn, soybeans, rice, wheat and cotton in the Mississippi Delta.

"We take a full-systems approach. With everything we do, we ask whether it is necessary," Jeremy says. "That means we don't always cut costs. For example, if we can spend more on moisture meters to spend less on irrigation, we will do so and use the technology to our advantage," he adds.

The siblings take lessons from other industries, as well. Jack read a recent newspaper article about how United Parcel Service (UPS) learned if its drivers only take right turns, they get around town quicker. He decided to take the information he learned and apply it to the farm.

"Physical barriers in fields affect turnaround time with big equipment, and it can wear on your drivers. With variable-rate technology, our farm really is one big field. We map our routes to keep equipment moving. We have some fields now where we drive 30 to 45 minutes before we have to turn around," he says. "We also focus on just one or two crops per farm and spend all day [on them] instead of an hour or two [per field]. That lowers management cost per acre."

Seeding rates and fertilizer use also are under review. If yield and return don't improve with prescribed fertilizer applications, Jack makes adjustments, relying on his field prescription maps as guidance. For example, portions of fields may not respond positively (yield and/or net returns) to higher seeding and/or fertilizer rates. To make those areas more profitable, Jack may lower both inputs compared to higher-yielding portions of the field.

DON'T DRIVE THE CADILLAC

Bob Worth, who farms corn and soybeans near Lake Benton, Minn., is focused on inputs costs for 2015. But one input he won't cut back on is fertilizer. "You have to feed the crop," he says. "If you cut back on fertilizer, you cut back on yield."

Worth's plan is to rely more on soil testing to make sure he's not overapplying fertilizer. He also will eliminate fall fertilizer applications. Applying fertilizer at the time the crop needs it in the spring is critical since heavy rains and runoff could push nutrients too deep for the crop and/or dilute them.

Seed will also get close scrutiny. Worth doesn't plan to plant the newest and best hybrids seed companies offer. "Seed is higher priced than fertilizer by far. I may plant a good number that is a little cheaper, that's been around, that I know works," he says. "By not planting the top goal-getter from each company, maybe I can save a little money. I'll do my homework."

He also will comb through his chemical costs to look for savings. "We don't have to drive a Cadillac, but we do want products that perform. We have a crop consultant that will advise us," he says.

As for other cost savings, Worth will get a full-year fuel contract for considerably less than last year. "It is a small budget item, but we are dealing with slimmer margins," he says.

Cash rent bids are aggressive, so he doesn't anticipate savings there. He has already upgraded equipment and technology, and now will rebuild his 5-year-old corn head when needed.

"There are lots of little ways to cut corners. Now that we have a heated shop, it will be nice to work on equipment [during cold weather]. You have to look at the upside," he says.

THINK LONG-TERM

Darren Grogan, of Triple G Farms, in Arlington, Ky., says a long-range focus keeps his family from getting caught up in price drops in any given year. Their 14,000-acre operation consists of corn, wheat and soybeans. He admits they don't have much budget fat to trim.

"That's OK. We keep costs in check every year," he says. "Anything we do in 2015 is what we should be doing in any year. When you mind pennies and not dollars, it takes care of itself. Your No. 1 cost-cutting strategy should be to think long-term."

For example, Grogan says farmers have little control over seed and input costs. His strategy to address those costs is to run on-farm product trials every season to determine what varieties and traits are profitable.

Grogan adds that N adjustments may offer some savings. He expects to move to less pre-applied N and use irrigation or aerial applications to apply N throughout the season as growing conditions indicate to maximize yields.

For P and K, he estimates he might get by one year with enough of those nutrients in the soil bank. However, Grogan sees that as a short-term solution and a risk, since phosphorus and potassium prices could go higher.

"We are not renters and we no-till, so there's no savings there," he notes. "We won't downsize equipment, either, because we used accelerated depreciation with our purchases in recent years. It would cost more in taxes to dump machinery," he adds. "What we hope is that corn prices strengthen as potentially more farmers switch acres to soybeans to take advantage of that market."

CONSERVE CASH

Given the prospects for lower corn production returns in 2015, University of Illinois agricultural economists advise farmers to generally adopt practices that conserve cash. Here are some of their recommendations.

-- Lower or eliminate capital purchases. Only necessary machinery purchases should occur.

-- Lower fertilizer and seed costs. Together, these represent a large share of non-land costs. Evaluate whether fertilizer amounts can be reduced and whether lower-priced hybrids and varieties should be planted.

-- Lower cash rents. If cash rents are nonnegotiable, consider not farming the piece of land with higher rents. Significant losses in 2015 could cause financial positions to deteriorate.

-- Reduce other cash-flows. Determine whether other costs can be reduced, and evaluate the level of family living expenditures that can be maintained.

-- Keep in mind that agriculture runs in cycles. Economists remind farmers the long-run profitability of agriculture likely hasn't changed, even with lower commodity prices.

(CZ/AG)


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