Economics: April 2004

A recurring question among agricultural producers is, "How can I cut or reduce costs?" This is a good question, because many studies of the differences in profitability between producers come to the conclusion that the most profitable farms and ranches typically have the lowest or lower costs per unit of production. The take-home message becomes "producers must become low-cost producers to be profitable and survive."

What often gets overlooked, however, is that these same studies also show that the most profitable producers with lower costs also have the highest yields! And they tend to have the highest yields over periods of years, which points to something other than weather as the source of the higher yields. In fact, I believe management factors have a more significant impact on yields and beef production today than does the weather. The yields and gains many have achieved during the dry period of years since 1996 attest to this. Timely field operations (e.g., fertilizing, planting, spraying, harvesting and rotating) can impact final yields and gains in addition to proper variety selection and technology adoption. Producers should never assume that only weather will dictate what their yields will be.

Interestingly, most studies of relative profitability between farms conclude that prices received are fairly consistent across different profit categories. This suggests prices received have less impact on net returns than size of operation, yields or gains and costs. In other words, farmers and stockmen should focus more on maximizing production and controlling cost relative to trying to achieve the highest price. Naturally, given the uncertain times we live in, some form of price protection or insurance against the unforeseen is sound management. But time spent attempting to attain the top of the market is probably better utilized elsewhere.

One of the easiest areas where we at the Noble Foundation can help you achieve higher production with efficient cost is with soil and forage testing. If your soil pH is "wrong" for the crops and forages you want to grow, you can easily be sacrificing 30 percent of your production potential. In addition, the nitrogen, phosphorous, and potassium you apply in a "wrong" pH scenario may not be totally available to your crops and thus is a wasted expense. A recent producer study in Arkansas concluded that testing hay, on average, led to a $16-per-cow reduction in annual costs. In a program attempting to grow cattle for profitable gain, a hay test is likely worth even more in cost savings, improved production or both. If you are not on a planned program of soil and forage testing, contact one of the specialists at the Noble Foundation for information on getting started!

Thought for the month: In times of change, learners inherit the Earth, while the learned find themselves beautifully equipped to deal with a world that no longer exists. — Eric Hoffer