Is it time to consider crop enterprising?

As farmers get ready to harvest this year’s corn and soybean crops, there has been an abundance of discussion about bumper yields and falling grain prices. Over the course of this summer, the markets transitioned from trading “tight” carryouts to surplus inventories. Not only have futures prices drastically dropped since early May but rail transportation problems have also contributed to local cash prices falling to levels not seen since 2010. Some analysts argue the markets have fallen too far, too fast but once the supply estimates firm up after harvest, the demand side of the equation will take on more importance in determining overall price direction.

In order to survive the cyclic nature of commodity markets, I think it’s important to look beyond flat prices and focus more attention on the gross revenue and total expenses for each crop at the field level. This type of analysis is known as enterprise cost management. All producers are keenly aware of the production on each parcel of land they are farming and are required to report those bushels to their crop insurance agent. Other sources of revenue might include hail/crop insurance proceeds, straw/corn stalk bales, and/or fall grazing. It is not difficult tracking gross revenue at the field level as it only requires a little more effort in jotting down some good notes.

There are a several more items to track on the expense side but a good recordkeeping system makes this exercise less burdensome as well. Once again, this process requires some discipline in gathering accurate data. Given the recent advances in planting monitors, the seed cost per acre can practically be calculated down to the cost of each kernel of corn or soybean. Other expenses such as fertilizer, chemical, and crop insurance are also relatively easy to allocate to each field. The remaining overhead costs are divided among all enterprises at a level which is specifically tailored to each farm operation. The end result of this number-crunching is a detailed analysis of each field. I think most producers would be surprised at the varying levels of profitability among all fields in any given year. This information will be especially important to scrutinize during times of tight or possibly negative profit margins.

The other benefit of utilizing crop enterprises is having a multi-year history on each particular piece of ground. This information can prove to be invaluable when faced with land purchases or rent negotiations.

If you are interested in learning how to incorporate crop enterprising or enrolling in our program, please contact me at either 1-605-299-6760 or Kathy.Meland@mitchelltech.edu.