Focus on efficiency when commodity prices are low
GRAND FORKS, N.D. — If there's a silver bullet or magic pill to help farmers overcome poor crop prices, Andrew Swenson and Frayne Olson don't know what it is.
But the two North Dakota State University economists do advise agriculturalists to focus on efficiency.
"I want to challenge your thinking about how you're doing business, just to confirm that you're doing it right. Are there ways you can make some tweaks or adjustments or refinements to what you're doing to do it even better?" Olson said.
Farmers need to say, "Every input, every decision I make, has to be justified. At the end of the day, is my decision, what I'm going to do, going to increase the efficiency of my farm?" said Olson, crops marketing economist.
Olson and Swenson, farm management specialists, spoke Feb. 23 at the International Crop Expo in Grand Forks. Their joint presentation was on "Making Smart Financial Decisions in 2017 and Beyond."
Farmers, ranchers and others in ag are struggling to be profitable, given poor crop and livestock prices. That has agriculturalists looking closer at tools and approaches that can help them operate in the black.
Making efficiency-based decisions is crucial to doing so, Olson said.
The "bottom-line question is, will my next decision increase the efficiency of my farm. That's going to determine, in my view, whether you'll be successful for the next 10 years or now," Olson said.
"That doesn't mean cheaper is better" with inputs such as seed, fertilizer and pesticides, he said.
Don't cut inputs automatically; rather, "Be as efficient as possible. Each input has to have the ability to pay its own way," Olson said.
Not dwelling on past mistakes is vital, too, he said.
Ag producers must be careful "not to beat yourself up if you make a decision that turns out to be incorrect. You can't go back in time, you can't correct it," he said.
"We all take educated guesses. And sometimes we're going to guess wrong," he said. "When you guess wrong, admit it and move on."
Bigger, but not more profitable
Farms are getting bigger "and handling more money," Swenson said. "That doesn't mean we're making more money. Gross revenue soared, but expenses have, too. So while more money is coming, more money is going out, too," he said.
"Do we have a revenue problem. Or do we have a cost problem? One could easily make the argument that we have a cost problem," he said. "If we're going to stay at these revenue levels, we need costs to come down."
Land costs, which soared during the now-ended ag boom, are coming down.
"The trend is down. The question is, how far down are we going to go?" Swenson said.
Statistics show that yield and fixed costs are more important than variable costs and marketing prices in explaining varying profitability in low- and high-profit farms, he said.
"What's most important for farm managers to focus on? Yield is most important. Fixed costs, like machinery, are pretty important, too," he said. "Focus on keeping these fixed costs in line to the gross you're generating on the farm. Be careful of cutting costs on items that directly impact yield."
Other suggestions from Swenson on operating more efficiently:
• "Keep good records" Successful farmers "know where they're making, know where they're losing money."
• "Fully embrace your balance sheet. It tells you so much."
• "Engage professionals to gather advice and opinions."
• "Treat family expenses as farm overhead."
• Make sure that your farm equipment matches your land. If you have too much machinery, get rid of some or get more land.