Managing for Profit

Comparing costs between higher-profit and lower-profit operations

Nebraska Farm Business Inc. recently published its final farm financial averages report for 2016. Executive director Tina Barrett says one that area that she found especially interesting was the split between operations.

“When we look at the average income split by the high-profit one-third and the low-profit one-third, we see a spread of $416,344. Some of that is certainly due to the struggles in the livestock industry, especially the cattle feeding sector that experienced significant losses for a second year in 2016, but we are seeing that divide within the crop industry as well.”

Barrett says the average net return per acre for irrigated corn in 2016 was a plus $95.49 per acre for the high one-third and a minus $77.72 for the low one-third.

“While some of this difference was definitely due to slightly higher yields (210 vs 200 bu/ac) and slightly better marketing ($3.32 vs $3.25), there was also a $90 per acre difference in costs. That’s significant on the whole farm level.”

She says the biggest differences per acre are fertilizer, machinery cost and land cost.

“It shouldn’t be much of a surprise that the large increases in both machinery and land costs during the past 10 years are now significantly impacting operations. For those producers who have not made adjustments to their operations (re-evaluating cash rents, selling equipment that is not returning to its investment, holding off on trades, etc.), the impact of higher costs is translating into lower profits, tighter working capital, and higher debt loads.

Here are more comments from Barrett on today’s Managing for Profit.

AUDIO: Tina Barrett