Farmers can make more money from their cash crops if they’re more selective about the land that they farm. This means focusing inputs and capital only on the most profitable areas of a field, limiting expenditures on under-performing areas — and perhaps taking some land out of agricultural production entirely.
That was advice for growers attending the Southwest Agricultural Conference in Ridgetown, Ontario, earlier this winter from Dr. David Muth Jr. with AgSolver Inc out of Ames, Iowa, a farmer and expert in sustainable land management through precision business planning.
“The reality is that we understand there is variability in our fields, but we do not currently manage our fields like a business,” he stated. “We try to maximize revenue on every acre of every field when not every acre can actually perform to that level.”
According to Muth, three to 15 per cent of acres are consistently not profitable, and a number of acres will switch back and forth been profitability and loss depending on the growing season. Given the vast amount of information modern equipment is capable of collecting, AgSolver’s zone management system looks at possibilities beyond just agronomics to make growers more money and ensure limited farm capital is used most effectively.
“The places on our fields where our inputs don’t get into commodities we can sell is where our business performance is poor,” he stated, citing an example from his own farming business where a field was split into 10 metre grid cells based on years of precision data, and each cell was evaluated for profitability.
Examining your fields
Muth stopped working every grid cell, for example, that lost an average of $250 an acre or more annually, and converted grid cells that lost between $200 and $250 an acre annually into alternative management, such as forage or conservation. This approach created three types of land zones on his farm:
- Revenue zones: These zones represent the 75 to 95 per cent of almost every field. In these areas, it makes sense to focus working capital towards maximizing revenue.
- No-cost zones: No-cost zones are the areas where return potential is limited due to geography or topography.
- Expense-limited zones: In these areas, something other than agronomy might provide a better return.
AgSolver’s trademarked system lets growers create a precision business plan for each field that concentrates on maximizing revenue over expenditure, instead of focusing on the farm’s overall yield.
The process starts with gathering intelligence for each field, including defining boundaries, uploading machine data and setting a crop budget. This is followed by looking at the business performance of each of those fields. AgSolver provides a profit map that lists all fields ranked by return.
A return ratio analysis takes the profit map and identifies two things either on a whole enterprise level or a field scale: the percentage of land where a negative return is expected and the amount of working capital committed to that negative return.
Some of the issues causing that negative return can be fixed with crop protection, tile drainage or better soil fertility, but others can’t, which means an alternative use like land conservation, growing forage or potential energy markets might be a more profitable solution than growing cash crops, Muth suggested.
Those kinds of decisions can also have beneficial environmental impacts, he added, as it is often the most unprofitable areas that see high nitrate losses, and reducing the environmental footprint can potentially help avoid increased legislation in the future.
“We look at this as a license to operate,” he stated.
Lilian Schaer is a professional farm and food writers based in Guelph, Ontario. Follow her blog at foodandfarmingcanada.com.