For Release February 29, 2000

Cutting Costs or Cutting Profits?

AGRI-VIEWS
by Chuck Otte, Geary County Extension Agent

A few years ago, when wheat was around $5 a bushel, we didn’t seem to be paying nearly as much attention to just how much fertilizer we were putting on our wheat. Whether we planted 24,000 or 28,000 seeds per acre in our corn fields didn’t seem to matter as much. We tended to look at which milo or soybean herbicide would do the best job, not which one was cheapest. Prices for all crops were good enough, that you couldn’t help but turn a profit.

Those days seem like another life time ago now. Wheat prices are less than half that, and the other crop prices have followed the same path. Now we start critically questioning every single input that goes into growing that crop. What’s the minimum amount of fertilizer I can get away with? Can I skip that planting time insecticide treatment? Can I use the generic version of that herbicide and still get good weed control? Can I cut my seeding rate by a thousand or two seeds per acre and save a couple dollars?

It’s an easy thing to cut input costs in crop production. Less fertilizer, cheaper pesticides, less seed or a less costly variety/hybrid will all reduce your cost per planted acre. But while you are cutting costs, are you also cutting profit?

There were some classic studies done when commercial fertilizers started to become widely available after World War II. They showed that by adding X number of pounds of fertilizer to the various crops, yield would go up a certain amount and cost of production, on a per bushel basis, would go down. As more fertilizer was applied, production increased and per bushel cost continued to fall. As production, and fertilizer application, went higher and higher, a point was reached where the amount of the increased production was not worth enough to justify the extra fertilizer. There are various economic theories involved here using phrases like marginal cost of return, marginal input costs and law of diminishing return. The phrase that I like best is maximum economic yield.

When we are in agricultural economic times like we are now, producers need to be asking themselves, "How can I reach the minimum cost of production on a per unit basis?" This is substantially different than, "How can I minimize my per acre input cost?" I don’t care how few dollars per acre, or dollars per field it takes for you to produce a crop. I don’t care how many bushels per acre you can produce. What I want to know, and you should too, is how cheaply can I produce one bushel of grain, one feeder pig or one market steer.

The answers to these questions are as numerous as there are farmers and ranchers in the country. You also have to dig a little to get these answers. You have to examine every angle of your production and management plan. You soil test everything. You test all your feedstuffs. You spend time looking at varieties and hybrids, insecticide and herbicide results. Sometimes it means farming more acres instead of fewer so that you can spread your equipment costs over more acres. Sometimes it means you stop renting a piece of land because it simply isn’t economical for you to farm it. It means avoiding "miracle" products with claims to good to be true!

You have to dig to find those answers. It will require you to ask a lot of questions of a lot of people. And then be willing to accept some of those answers and make some changes. Where do you start? Write down you production plan, in detail, and go over it step by step. Then you can sit down with some one like myself, a certified crop advisor a livestock nutritionist or a range management specialist, and you start going through it line by line. It can be a tough process, but you can do it!

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