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Pinching pennies equals profit

Mike Wilson Central Illinois farmer Steve Hettinger is controlling costs by spoon-feeding nitrogen at planting and later during sidedressing.
Central Illinois farmer Steve Hettinger is controlling costs by spoon-feeding nitrogen at planting and later during sidedressing.
Pennies saved on input and operational costs can be the difference between profit and loss.

Successful farms employ strict cost management practices that record expenses down to the penny. Steve Hettinger, a corn and soybean farmer in central Illinois, is one of those farmers.

He uses spreadsheets and measurement tools to record, either in cents per bushel or per acre, such things as the cost of each tractor pass through a field, each gallon of chemical applied and hours of labor needed per task.

His operational decisions are based on those numbers. For Hettinger and other farmers, such attention to costs will be important as they head into 2019, as government and academic groups forecast another tough year financially, with crop prices expected to stay low and operational costs inching higher.

Hettinger’s measuring has largely been self-taught, as he has had a desire to keep track of things since he was a young boy. Currently, his cost management has become so time-consuming that he may convert to a cloud-based software system that will do much of the computing automatically and be accessible by smartphone. “You can’t manage your business if you can’t measure it,” he says.

Small changes add up

Success comes from making many small changes — changes like reducing fuel use, which Hettinger has whittled away at in recent years. It’s dropped to slightly less than a gallon per acre for seedbed preparation, 0.25 gpa for planting, 0.75 for post-planting applications and 3 for harvest. He then spent 7 cents a bushel to haul corn to the elevator.

“We have our guys recording fuel usage per [tillage] pass,” he says. “We have eliminated one spring pass due to increased leveling performance of our primary tillage in the fall.”

Hettinger installed row cleaners on the planters, adopted variable-rate fertilizer applications based on soil tests and applied nitrogen to corn in the spring rather than the fall. The row cleaners improve seed germination and emergence rates.

“That is probably some of the best spent money,” he says of the row cleaners. “It has allowed us to work the field about one time instead of two and still keep residue out of the furrows.”

Forgoing a fall application of nitrogen to intended cornfields saved on those costs.

“We are trying to spoon-feed nitrogen at planting and later during early-growth sidedressing. You have a bit more control on your cost by not applying it all at once,” he says. “It does take more time as you are adding more trips.”

Hettinger’s cost measuring and cost saving functions have been applied to other areas of the farm operation, even the non-crop tasks that contribute income. For bookkeeping, he keeps non-crop costs separate.

When they are not doing fieldwork, the four full-time employees work in Hettinger’s Precision Planting Dealership, installing simple technology upgrades to customers’ planters that aid performance. Hettinger also operates a Dekalb Asgrow seed dealership.

Man working at desk with computerSteve Hettinger has a separate balance sheet for each farm business to enable more accurate tracking of financial performance. 

“I do not want to subsidize my seed business with my farm labor,” he explains. Each business unit has a separate balance sheet that accurately assesses how it is doing financially.

“Instead of them [employees] punching a time clock, they send me their hours via a smartphone app that I receive by email,” he says. “That app allows the man hours to easily be allocated and recorded to each farm enterprise.”

Habits of successful farms

Why do higher-profit farms consistently do better than average, even when the farm economy is in a downturn?

“When prices are high, higher-profit farms manage to make higher revenues. When prices are low, those same farms manage to control costs better than other farms,” says Dale Lattz, a research associate at the University of Illinois’ Farmdoc program.

Digging deeper, the more profitable farms seem to have lower costs in a lot of different areas. In a three-year study of highly resilient Illinois grain farms, growers were surveyed on seeding rates, tillage methods and nitrogen use, among other practices, to determine highest returns to operator and land. Some key takeaways:

  • In fields with comparable soil productivity ratings, the highest returns to operator and land in corn came from strip-till and one-pass seedbed prep, compared to no-till or two passes before planting.
  • In soybeans, studies show farmers may reduce seed population per acre without hurting yield. “The general reasons are improved seed technology, using seed treatments that help the plant get off to a faster start, and more precision-type planters out there that do a better job,” he says. In addition, greater use of fungicides on soybean plants and new conveyor belt systems on combines have improved yields and reduced loss.
  • In soybeans, one-pass systems had the highest yields and returns. Lattz’s advice? “Cut a tillage pass on some fields and evaluate. Is extra tillage yielding any extra profit?”
  • Re-evaluate the amount of nitrogen you apply for expected yield. Focus on maximum returns to nitrogen, not just highest yield. Recommended rates for MRTN based on $4 corn, $525 per ton of ammonia in corn following soybean, is 166 pounds of nitrogen per acre for northern Illinois, 183 pounds for central Illinois and 193 for southern Illinois. That’s lower than the old recommendation of 1.2 pounds of N per expected bushel yield. “Many farms put on higher rates that don’t result in higher incomes,” Lattz says. “Unfortunately, many producers are still using the 1.2-pound-per-N-per-expected-bushel yield recommendation.”
  • For the most economical N application, the study found fall application had the lowest returns — farmers were applying the most N but getting the lowest yield. “Just because you’re applying more nitrogen doesn’t mean you’re getting a higher yield,” Lattz says. Those who primarily applied N in fall had $225-per-acre operator and land returns compared to $271 per acre in a 50-50 preplant and post application setup.

Machinery Use

Having the right equipment for the demands of the farm remains an important cost aspect.

“For most producers, this is a good cost-to-use comparison and to identify where they may be able to lower costs,” says researcher Robert Klein in a Nebraska study. “For example, if your machinery costs are a lot higher than we have in the budgets, you may want to examine ways to reduce the expense by doing custom work, or selling some machinery and hiring custom work for that operation.”

That study, found here, includes 2019 production cost estimates for a variety of crops and growing methods.

Illinois farmer Hettinger used two combines for his 2018 harvest, but he’s considering buying a third used one. A third unit would speed up harvest and reduce wear and tear on the other two. But he is balancing those advantages with the cost of owning a third combine, particularly a used one that would likely require some repairs.

Burgdorfer writes from Lenexa, Kansas.

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