Q: What are your top three tips for creating a budget?
Dale Nicol, AgriEdge manager for the Western Commercial Unit, Syngenta:
- A grower needs to know his or her numbers. That means different things to different people, but it boils down to a summary of fixed and variable costs in relation to anticipated revenue. Tools offered through the AgriEdge® whole-farm management program are available to help analyze potential profitability.
- Determine the level of granularity that is right for the operation. Some farms can operate at a very high level on fixed rotations and constant acreage that allow the budget to be somewhat simple. Other farms are more intricate with numerous and varying crops, constantly changing field locations and acreage, and significant input cost fluctuations. These require a finer view of the numbers for good budgeting.
- Plan ahead, and then adjust from there. Without a plan, how can a farm measure its success? Years ago, growers would simply report it was a good or bad year. Those times are past; and while the forensic message might be similar, there should be details behind the statement. A solid plan with as much detail as possible will provide the measure by which growers can assess their results.
Shawn Hock, AgriEdge Manager for the West Heartland Commercial Unit, Syngenta: Creating a budget begins with knowing your current operation’s economics.
- Start by reviewing your latest year’s farm actuals.
- Know which costs you are going to focus on. Because variable costs are small relative to fixed costs, increases in productivity may result in impactful profit increases.
- Use your budget to project your financial position for year-end and update the projections throughout the year.
Q: How does field history, including yield, play into creating a budget?
Nicol: Field history, especially a multiyear history, helps set the baseline for expectations. Much of farming is outside the control of farmers, making the multiyear view critical. Trends, too, can be important on both the cost and yield analysis fronts. If variable costs trend up at a constant rate over time, growers can infer that trend may continue. Yield improvement trends also may fit into the budget process.
Hock: Field-level data is a must to improve a farm’s economic performance. Understanding field-level data helps you make better farm decisions and may result in improved farm profitability. This is because profitability can differ largely across fields. When you get down to the field-level, you can start discussing agronomic practices, farmland purchase or rental decisions, and even marketing strategies.
Q: When creating a budget based on acres, how can growers establish their cost per bushel or other unit of yield?
Nicol: True cost of production goes back to granularity. It’s a simple equation to determine cost per unit in comparison with price received: Fixed cost per acre plus variable cost per acre divided by the yield gives you the cost per unit. Assigning the cost, however, is not so simple. For example, do you consider land rent a fixed cost and spread it across the whole farm? Do you tally up all equipment costs into one bucket, then assign it across every acre? Ideally, fixed and variable costs are assigned to the individual field, recognizing that a fixed cost may go across every field or assigned by crop, or just the leased but not owned land. In the end, it becomes a balance between the perfect allocation and a realistic one. Therefore, budgeting itself has a cost-benefit equation.
Hock: Understanding your costs is important, regardless of whether it’s cost per bushel or cost per acre. Cost per bushel is simply determined by dividing your total cost per acre by your total yield per acre. Both should be used to discover actionable insights with your trusted advisers to improve your field-level profitability.
Q: How can farmers figure out whether a given product or treatment increases their earning potential, either through yield or quality?
Nicol: When it comes to knowing the benefit of a given input, it can be very complicated. Financially, the analysis is easily stated as return on investment (ROI). When I spend a dollar, do I get more than a dollar in return? ROI comes through increased yield or increased price due to quality. To truly know, however, a comparison with and without the single variable would have to be done, keeping all else constant. Splitting a field is one approach — keeping the whole field on a uniform program, with the new product on half and the previous or normal practice on the other half. Even this approach has its problems with variations within a field. Learning as much as possible about new products and their potential impacts on yield and profit through university trials and replicated demonstrations will help set expectations. Syngenta provides local Grow More Experience events and other field demonstrations that AgriEdge growers may access.
Hock: Farmers should start by knowing their operation’s cost of production and financial situation at the field level. From there, it’s easy for them to benchmark a product’s impact on yield compared with other products — always being careful to limit other variables’ impact on product performance in their evaluations. Replicating trials across fields, across farms and with other cooperators will help them gain more confidence in a product’s impact on earning potential.
Q: When looking at commodity prices and agronomic opportunity, what’s the simplest way for growers to figure out the crop acreage mix that offers the greatest opportunity for profit?
Nicol: One would think this would besimple. Evaluation of yield and price, less production cost of each option, results in a clear view of potential. However, it’s not that simple in most cases. Crop rotation, reliability of commodity price, weather unknowns and cost changes are a few of the variables that impact this otherwise simple evaluation.
Hock: The simplest way is to review your prior year’s cost of production, yield, and market price by field and crop, then adjust those to the current year’s reality. Once you know your current projections, you can weigh the pros and cons of making changes to improve productivity or decrease costs by crop at the field level. Typically, there are significant agronomic, marketing and other operational considerations in making changes to the crop acreage mix; and these shouldn’t be understated. AgriEdge offers an efficient way to convert a prior year’s field-level profit into a current year’s crop plan for this type of strategy development.