Do Misers Make the Best Managers?

Better yields are more important to profits than marketing or input cost control, a study of Kansas Farm Management Association records from 2011-2013 found. The top third of irrigated corn producers earned a profit worth $335 per acre more than the bottom third and $192 per acre more than the mid-third during this three-year period, largely based on yield advantage. (Chart courtesy of Kansas State University)

HADDONFIELD, N.J. (DTN) -- You can't nickel and dime yourself to the top. At least that's Jeremy Jack's philosophy. The Belzoni, Miss., grower is a state corn yield champion who believes agronomic management is key to success in farming the Delta. Two new economic studies seem to confirm that premise.

Weather doesn't necessarily take yields out of a farmer's control, especially in challenging areas like the Midsouth. "Yield is a direct result of management here, because we can control so much through irrigation, soil type, drainage and crop rotations," Jack said. "You have to stay on top of weed and disease. Management doesn't promise you a good yield, but without it, you don't have a chance."

Rather than auctioning crop inputs and services out to the absolute lowest bidders each year, the irrigated Belzoni, Miss., grain, soybean and cotton producer prefers to build alliances with his suppliers.

He rewards most of the agronomic business on the family's 8,000-acre Silent Shade Planting Co. to his local Sanders dealership, across the street from the farm office. Not only do their agronomists provide on-farm advice on everything from hybrids to land leveling for irrigation, but Jack gains free access to benchmark his practices and yields against millions of acres. In the Delta alone, he can compare his farms down to crop reporting districts, amounting to several hundred thousand acres each of corn, soybeans and cotton, said Chism Craig of CrescoAg, a precision farming service that is outsourced by Sanders and other retailers from Texas to the Corn Belt.

BIG RANGE IN PERFORMANCE

"In Jeremy's eight- to 10-county area, irrigated corn yields average about 180 to 185 bushels, but the top 10% are hitting 225 to 230 bushels," Craig said. "It could be hybrids, fertilizer blends, more seed per acre, planting dates or adequate water. Some of these older irrigation systems in the Delta just don't have the capacity they need. We try to walk them through the issues."

On farms they monitor in the prime Corn Belt, timeliness of planting, fertilization, weed and insect control seems to be the factor limiting yields, Craig added.

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It wasn't uncommon for Delta farms to struggle thanks to extreme weather and challenging commodity prices between 2007 and 2009, Craig added. So some hard-pressed growers mined fertilizer from fields and failed to replace adequate levels of phosphates and potash. That meant they could not hit yield potentials when prices rebounded in 2010 to 2012.

Jack goes to the expense of restoring fertility whenever he rents a farm, but he's open to other suggestions to boost performance. "I don't know how good my neighbor is, but I know where I stand against the yields, varieties and practices of everyone in their database. Seeing how somebody beat me on 5,000 acres shows us where we need to spend more time and whether our hybrid selection is holding up," he said. "If I'm better at cotton than raising corn -- or vice versa -- maybe I need to change my planting mix."

SECRET TO SUCCESS

It turns out that Jack's instincts are correct, even for regions outside the South. High yields -- rather than low-ball expenses or selling the crop at peak market prices -- has been the secret to success on the highest-profit farms in recent years, two new land-grant university studies have found.

A Kansas State University economic analysis compared high-profit, mid-profit and low-profit operations using Kansas Farm Management Association crop enterprise data from 2011 through 2013. Averaging three years of data lessened the impact that flukes of weather or lucky marketing would influence overall profit rankings, researchers said. What they found was top operators earned $116 to $160 more per acre on non-irrigated crops like wheat, corn, milo and soybeans than the bottom third. On irrigated corn, top operators had a $335-per-acre advantage each year over the bottom third.

"This analysis has been conducted a number of times over the years, and in past studies, cost was always the biggest factor," said Lacey Ward, who analyzed the data with economist Kevin Dhuyvetter. "Costs are still important, but yields were the big driver."

For example, on Kansas irrigated corn, the high-third performers averaged 826 acres in the enterprise, 118% more acres than the low-third operators. That scale gave them a chance to spread overhead costs over more acres. On a price-per-bushel basis, top operators averaged $6.04 per bushel, about a 7% advantage over the low third that averaged only $5.66. More significantly, the top harvested 67 more bushels per acre on average, a 59% advantage over their least-competitive peers and worth more than better marketing.

One cost still critical to high profits is machinery expense. Non-irrigated Kansas wheat growers in the top third kept their total machinery expenses about 23% lower than their peers in the bottom third, while also showing a 32% higher yield. They made an average of $81.85 profit on their 2011-2013 wheat crops, while the bottom third lost an average of $34.39 per acre over the three crop years.

Interestingly, actual farm records from the Illinois Farm Business Farm Management Association also confirm yields can lead to championship results. University of Illinois economists Brandy Krapf, Dwight Raab and Bradley Zwilling analyzed farm records from central Illinois grain farms on high-productivity soils for the 2009-2013 crops. Farms scoring in the high one-third for profitability averaged higher yields than their peers, ranging from a 7-bushel corn advantage in 2013 to a 21-bushel advantage in drought years like 2012. However, they also ran leaner operations in crop costs, machinery depreciation and cash rent. Overall, these top farms showed management returns $214 to $304 per acre better than their peers during this five-year period.

While controlling costs is always a prime concern, a large part of the profit advantage of the top-third group is due to consistently better yields, the University of Illinois study concluded. Overall, that single achievement was responsible for 50% or more of the difference in management returns over the five-year study.

That's no surprise to Jack. "In the Delta, yields are all over the map."

To read the University of Illinois study go to http://farmdocdaily.illinois.edu/…

To read the Kansas State University study go to http://www.agmanager.info/…

Marcia Taylor can be reached at Marcia.taylor@dtn.com

Follow Marcia Taylor on Twitter @MarciaZTaylor

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