Efficiency Leads to Profitability and Sustainability

With crop prices that have been falling at or below the breakeven point, row crop farmers are focusing on ways to improve efficiency and understand the overall profitability of their operations. A recent report from Rabobank Research calls attention to this shift happening in the U.S. row crop sector and provides a list of efficiency-driven practices that farmers can adapt to maintain profitable and sustainable operations. Below are a few key takeaways:

Efficiency is crucial for profitability

In the past three years, America has seen an increase in the number of acres being farmed along with better, higher yields. In addition to this, a strong U.S. dollar has increased competition for U.S. grain exports, making them a less appealing choice than those from countries with lower exchange rates like Brazil or Argentina. The increase in acres farmed combined with higher yields and lower demands have resulted in low crop prices and have left growers with little room to profit.

So what can U.S. farmers do to combat this? Rabobank identifies increasing efficiency as a key way in which farmers can lower the cost of their operations and ultimately increase their overall profitability.

“This can be accomplished by either controlling costs, increasing output efficiency, or by a combination of the two. Row Crop farming can be thought of as a contract management business that utilizes inputs (seed, fertilizer, chemicals, water, and land) to produce a specific output: in this case, the crop. In any commoditized business in which a large number of companies with insignificant market shares compete largely on price, a business must become low-cost operators in order to survive and thrive.”

Manage for profitability, not yield

“Farmers often focus on optimizing the agronomic aspect of their business. While this is indeed a key to success, other parts of the business—such as financial management and marketing—require a similar amount of attention.”

According to the Rabobank report, land will be one of the highest input costs for farmers over the coming years and that during this time, many farms will not be sustainable. One way to combat this cost is negotiating for lower rent rates. Understanding the profitability of each field and being able to provide that data to your landlord is a helpful first step in negotiating lower rates.

In addition to high land costs, the report also predicts that as lenders become more sensitive to this challenging environment, the standards for credit will tighten and leave growers with limited access to credit. Being able to provide lenders with data-driven insights about your farming operation, such as the profitability of each acre, is an effective way to establish more credibility in an increasingly competitive environment.

“We generally expect to see a drive to optimize inputs such as fertilizer, equipment, and seed. Input suppliers will benefit from showing strong returns in relation to the cost. When the input is a commodity (like fertilizer), the likely outcomes are more efficient application and acreage contraction”

Ultimately, understanding your farm’s financial position and developing a comprehensive plan for profitability is one of the best ways growers can prepare for future challenges.

Utilizing new technology is a must

“Adopting new procedures and processes—especially those involving technology—can be difficult … the harsh reality is that maintaining the status quo is, ultimately, a much more expensive proposition.”

Relying on new technology as a way to improve efficiency can often feel like a risk, especially during times when crop prices are low. But, technology can often be one of the best tools to use when it comes to making important management decisions. With the data-driven, field-level insights provided by modern technology coupled with the addition of smart technologies to maximize the potential health of the crop and yield output, each decision you make is a conscious choice that contributes to your bottom line and helps to build a sustainable future for your farm.

To learn more, you can read Rabobank’s full report, Farming the Efficient Frontier, here.