When most farmers think about farm growth, they think about how they can add acres. But aren't you ultimately trying to add revenue? What's the best way to do that?
I talked in one of my recent blog posts about the current high land prices. With all of the competition for ground right now, it's a good time to think about other ways to increase your revenue.
The best farmers are doing many things a little bit better than their neighbors. I've found that there are four areas where you can make some of these changes. They can lead to higher profit on the land you're already farming.
The first is production. If one farmer spends $500/acre (without land costs) and gets 180 bushel corn and another spends $600/acre and gets 230 bushel corn, who is making more money? At $7.00/bushel, the one spending more and getting a better yield is making $250/acre more profit.
Let's be more conservative though. If you have a goal of making $150/acre and you can make $100/acre more, it's like farming 65% more acres. It's more efficient, because you're not spending the extra fuel and labor to cover more ground.
The second piece is insurance. That was a critical element last year because of the drought, but did you know that eight out of ten times that you get a crop insurance payout, it's going to come from price fluctuations – not crop conditions?
This year, we could have a relatively high spring price. Ag risk advisors at our company are recommending high levels of coverage again in 2013. They say it will be a good idea again this year to pay attention to unit structure – make sure it's right for your farm – and don't exclude the harvest price.
Two other pieces that you really need to pay attention to are marketing and financial analysis. These go hand in hand. To market well, you need to have a planned strategy and keep emotion out of it. And the best strategies are those that start with crop insurance and a financial analysis. This way you can market forward if you need to and have bushels guaranteed with insurance.
Good financial analysis will help you understand where you need to be in order to achieve your financial goals. Using an accrual method of accounting will allow you to plan forward.