Dwight Aarke, North Dakota State University Extension ag economist, is warning against cutting inputs that could reduce crop yields this year.

“Yield will always be the primary determinant of profitability,” he says.

NDSU ag economists recently drilled down into farm business management program data to identify key components of profitability.

“Certainly direct costs, market price and land rent impact profitability as well, but this analysis suggests that all of these factors together do not equal the impact that yield has on the bottom line,’ he says.

Barley ripens against a setting sun.

“The economic environment faced by farmers in 2016 makes it imperative that any plans to reduce costs must first be evaluated on whether or not they will impact yield,” Aakre says. “You cannot afford to lose yield in 2016. This year will be a cash flow challenge for many producers, but don’t make it worse by making short-sighted decisions on yield-enhancing inputs.”

Most difficult financial situations arise from taking on too much term debt on land and machinery. These obligations are incurred during good times and are feasible as long as those conditions last. But when markets turn down, there is considerably less cash flow to service this debt load.

“The typical first response is to cut costs,” Aakre says. “Cutting costs will be a necessary part of the strategy to survive this financial squeeze, yet producers need to be careful where they cut lest they make the cash flow situation worse.”

Check out their analysis of the farm management data that confirms yield drives profit.

Source: NDSU Extension Communications