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Unlock 3 fundamental factors to profits in the fieldUnlock 3 fundamental factors to profits in the field

Tough Decisions: UNL agricultural economist looks at big impact on profit from management decisions in the field.

January 24, 2025

5 Min Read
Grain going into a grain truck
MORE THAN YIELD: Take some time to consider how management decisions, like which hybrid to plant this spring, will impact overall profitability, considering numerous factors. The University of Nebraska-Lincoln’s TAPS program results offer examples for the interactions between hybrid selection, for instance, and your bottom line. Farm Progress

By Matt Stockton

It isn’t all about yield. The way to profit on the farm, even in challenging times, is a lot more complex than that.

Farmers and ranchers benefit from understanding and using the profit relationships among cost, production and revenue in their farming operations. It all starts with understanding these relationships.

  • Profit (π) = Total revenue (TR) – total costs (TC)

Total revenue (TR) is the price received for each cwt., bushel, bale, etc., multiplied by the quantities sold. Total cost (TC) is the sum of all costs. For ease of discussion, all three are scaled to a per-acre basis. One of the farmer's major roles is to balance these three factors to maximize profits.

Balancing act

Unconstrained maximum yields never lead to maximum profits. This is due to diminishing returns on inputs such as fertilizer or water. The question to ask is: “Does the additional input increase production enough to make it worth adding?”

Repeatable success requires the right combination of inputs and actions, along with the expertise to navigate the complex relationship between productivity, revenue and costs.

There are three ways to increase profit: increase TR, decrease TC and some combination of both. Insights on these relationships can be found in reviewing the 2018 University of Nebraska Testing Ag Performance Solutions (TAPS) farm-management competition corn hybrid selection study.

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TAPS example

The TAPS competitions provide an environment where comparisons among competitors are possible. The 2018 UNL TAPS irrigated corn farm contest, held in North Platte, had 12 different corn hybrids in the competition, but only five will be discussed here. Hybrid choice affects both TR and TC. TC is altered by the population and hybrid differences due to seed costs. Changes in TR are driven by yield differences due to hybrid choice. Greater yields result in increased revenue and smaller ones in reduced revenue. The change in profit for each of the competing farms is measured by the difference between cost and revenue due to hybrid choice only.

The TC/acre between hybrids is equal to the difference in seed cost. The difference is on a per-acre basis listed in Table 1, column 3 for nine of the farms. The contestant’s farm number is recorded in column 1 with their planted hybrid identified by alpha-numeric code in column 2. The base A1 farm Nos. 1, 12, 13, 17 and 18 have a zero-cost difference. Farm Nos. 7 and 20 have a negative value indicating that switching hybrids from B7 and B12, respectively, to the A1 hybrid results in lower planting cost. The positive values for farm Nos. 8 and 14, hybrids B2 and B6, represent a $7/acre and $25.56/acre increase in costs.

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From the above information and without considering any yield/revenue difference between the hybrids, farm 14 would be better off not changing to the A1 hybrid. However, farm 14 would have an increase in yield of 19.8 bushels/acre, resulting in a $63.36/acre increase in revenue. This amount exceeds the added seed costs by $37.80/acre, increasing farm 14’s profit.

2018 TAPS irrigated corn contest hybrid seed study results table

Hybrid impact

Farm 20 has the greatest planting cost savings from changing hybrids, with a reduction of $32.28/acre. Hybrid B11 seed costs $129.24/acre, while A1 seed costs $96.96/acre. This switch in hybrid influences productivity, by increasing it by 16.3 bu/ac. All 15 farms that switched hybrids increased in yield, except farm 7, which had a decline of 6.1 bu/ac. Farm 8 had the largest gain, with 52.0 bu/ac. At the time of the study, corn was selling near $3.20/bushel. This value is used to estimate changes in revenue due to yield change. The revenues and yields are listed in Table 1, column 4 and 5, respectively.

Just as a reduction in cost by itself does not guarantee more profit, neither does an increase in revenue. Profit requires consideration of cost and revenue. Profit per acre equals TR/acre minus TC/acre. The resulting profit values are listed in Table 1, column 6. All farms that switched hybrids gained profit by doing so — even farm 7, which had a decline in revenue of $19.52. This decline is due to the fact that hybrid B7 has a higher yield per acre than the A1 seed by 6.1 bu/ac.

B7 is the only hybrid that outperformed A1 in yield. In this case, it is the $23.09/acre decline in the cost of the seed that outweighs the loss in revenue of $19.52, making profit a positive $3.57/acre. If the B7 seed cost were reduced by $3.57/acre to $116.48/acre, the profits of the two hybrids would be equal. This last scenario shows that the more expensive the seed, the more important its performance must be to maximize profit, and that the added cost of the seed must provide some kind of added value.

If the B7 seed had produced an additional 1.12 bu/acre, the added grain would eliminate the $3.57/acre difference, making both hybrids equal in profit. If the value of the crop were increased to $3.79/bu, the added 6.1 bu/acre of the B7 hybrid would make up for the $3.57/acre cost of the B7 seed, making the two hybrids equal in profit.

Farm 14 controlled costs by purchasing inexpensive seed, with an average savings of $22.57/acre compared with A1 seed. It gave up an average of 29 bu/acre and $92.80/acre in revenue. Farms 7 and 20 bought expensive seed, costing $27.69/acre more than A1. This almost paid off for farm 7. However, farm 20, with the B11 hybrid, produced 16.3 fewer bushels per acre, valued at $52.16/acre, resulting in paying more for less yield.

Understanding the effects that any change, inclusion or action will have on cost, productivity and revenue is critical since they are what govern profit. There are many more possibilities and opportunities for farm and ranch operators to wield these considerations for their good. The most critical resource and most powerful tool on the farm/ranch is the decision-maker and strategist themselves.

Stockton is a professor of agricultural economics at the University of Nebraska-Lincoln.

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