Dakota Farmer

Keep in mind the 20-80 rule when managing farm expenses.

Kevin Schulz, Editor

January 27, 2021

2 Min Read
Mature ears of corn
WHAT’S THE COST? Farmers need to know their productions costs, and not only for their entire farm, but also for each parcel of land, to get a good picture of the true value in their operation. Kevin Schulz

Every growing season presents its own set of unknowns, such as weather and markets, and then sprinkle in the unexpected influences, like COVID-19, and it adds up to turmoil for farmers. Still, Jack Davis, South Dakota State University Extension crops business management field specialist, says farmers can prepare themselves for what lies ahead by taking control of their management situation.

Davis says the first step is to know your numbers.

“Not only financially but also production-wise, and what works and doesn’t work on your farm,” he says during an SDSU Extension Crop Hour webinar. Going along with knowing your production numbers, Davis stresses the importance of understanding what part of your operation is making you money, and maybe more important, knowing what is not making you money.

Focus on costs

In addition to knowing your numbers, Davis stresses the importance of knowing your strengths, and not being afraid to ask for help where it’s necessary.

“If you’re not comfortable doing price risk protection, and if you’re of a decent size, I think it pays to hire it out,” he says. “It sure helps, especially if it’s not something you want to do, and you’ve ended in the lower side of the markets over the years.”

If you aren’t comfortable on the marketing end, Davis advises crop farmers to take a long, hard look at costs. He recommends implementing the 20-80 rule, where farmers control 20% of the items that give them 80% of the results. Two top areas to monitor are fertilizer and seed.

Davis believes spending time managing those top direct costs can see farmers lowering input costs without sacrificing yields. “Yes, marketing is important,” he says, “but production at less cost is where most producers will make it up.”

Cash rents are another area where Davis suggests farmers really put pencil to paper. “You just have to know what each farm is doing for you,” he says. “That really becomes a personal choice, and it is a tough one. Because if you give up acreage that you feel isn't being productive, then your other acres have to pick up those fixed costs.”

Stave off impulse to buy

Farmers have been good at controlling capital purchases, Davis says, during the recent downturn of the past four or five years.

“Some may need to still hold off on that,” he says. “So be careful as profitability returns.”

He says the first thing is to rebuild liquidity and then invest for efficiency and operations. “Sometimes farms are asked too much of the business,” Davis says, “so be careful in managing your time and make sure it’s fully employed, and you’re only asking what the farm can provide to you.”

Admitting prejudice from growing up on the sandy soils of central South Dakota, Davis says implementing conservation practices will pay dividends for farmers.

All Crop Hour webinars are available on SDSU Extension’s Crop Hour 2021 YouTube channel.



About the Author(s)

Kevin Schulz

Editor, The Farmer

Kevin Schulz joined The Farmer as editor in January of 2023, after spending two years as senior staff writer for Dakota Farmer and Nebraska Farmer magazines. Prior to joining these two magazines, he spent six years in a similar capacity with National Hog Farmer. Prior to joining National Hog Farmer, Schulz spent a long career as the editor of The Land magazine, an agricultural-rural life publication based in Mankato, Minn.

During his tenure at The Land, the publication grew from covering 55 Minnesota counties to encompassing the entire state, as well as 30 counties in northern Iowa. Covering all facets of Minnesota and Iowa agriculture, Schulz was able to stay close to his roots as a southern Minnesota farm boy raised on a corn, soybean and hog finishing farm.

One particular area where he stayed close to his roots is working with the FFA organization.

Covering the FFA programs stayed near and dear to his heart, and he has been recognized for such coverage over the years. He has received the Minnesota FFA Communicator of the Year award, was honored with the Minnesota Honorary FFA Degree in 2014 and inducted into the Minnesota FFA Hall of Fame in 2018.

Schulz attended South Dakota State University, majoring in agricultural journalism. He was also a member of Alpha Gamma Rho fraternity and now belongs to its alumni organization.

His family continues to live on a southern Minnesota farm near where he grew up. He and his wife, Carol, have raised two daughters: Kristi, a 2014 University of Minnesota graduate who is married to Eric Van Otterloo and teaches at Mankato (Minn.) East High School, and Haley, a 2018 graduate of University of Wisconsin-River Falls. She is married to John Peake and teaches in Hayward, Wis. 

When not covering the agriculture industry on behalf of The Farmer's readers, Schulz enjoys spending time traveling with family, making it a quest to reach all 50 states — 47 so far — and three countries. He also enjoys reading, music, photography, playing basketball, and enjoying nature and campfires with friends and family.

[email protected]

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