AgDM newsletter article, February 1999

Tips for decreasing production costs

Mike DuffyBy Mike Duffy, Extension Economist, 515.294.6160, mduffy@iastate.edu

With low commodity prices this year, it is important to lower costs of production. Farmers can examine several items as they plan for 1999.

Trips across the field

For a variety of reasons we have seen a cutback in the use of conversation tillage. Not only will conservation tillage save soil, it also helps reduce cash costs for fuel and repairs.

Weed management

Farmers have been steering away from using row cultivation, especially with soybeans. At the same time, the cost of herbicide application has more than doubled since 1991. Farmers should look at their total weed management costs, including technology fees.

Herbicide application

Most people continue to use a broadcast method. Banding with cultivation can provide similar weed control but with lower out-of-pocket costs.

Farmers do less of their own spraying. In 1996, more than 40 percent of the corn and soybean farmers did not apply any herbicides themselves; they only used custom applications. While this may be the best approach for some people, it does represent an area where there might be room for savings.

Fertilizer

More than 80 percent of corn acres receive phosphorus and potassium. However, two-thirds of the soils tested in the Iowa State Soil Test Lab rated high to very high in both. Research has shown that there is no yield response to adding phosphorus and potassium on these soils. By soil testing, the farmer will be able to determine the level of nutrients available and whether or not phosphorus and potassium applications are necessary.

Planting rates

The recent trend, especially in soybeans, has been narrower rows and higher plant populations Again, research shows that after certain levels, depending on the row spacing, further increases in plant populations do not increase yields.

Risk management

There are also several risk management tools that farmers need to consider. Revenue insurance and marketing strategies are examples of tools that can be used to help farmers manage risk.

Economies of size

Farmers frequently have misconceptions about economies of size. Often it is assumed that increasing the size of an operation will correct problems. However, analyses of data from the Iowa Farm Business Association show that the low point in terms of cost of production per unit is achieved much sooner than most people realize. For row crop acres, the low point is achieved somewhere between 400 and 600 acres. In terms of pigs marketed, the low point is somewhere between 1,000 and 1,200 pigs marketed per year.

Therefore, if a farm has efficiency problems, expanding the operations may magnify the problems. Farms are getting bigger not to lower costs of production, cut to increase income. There are many ways to increase income. One way is to farm more acres with tight margins. Another is to find ways to widen the margin.

Value-added

Value-added agriculture is definitely a realistic approach to the problems of farm profitability and tight margins. By increasing the value of the product they are selling, farmers can increase their income without having to expand their operation. Value-added is not for everyone, but it does offer farmers some opportunities through networking or cooperatives to try and retain a greater share of the value of their production.

Conclusion

Cutting back on inputs is not always the best approach. Careful valuation of where money is being spent can point to areas where costs can be cut without reducing yields or increasing risks.

This year appears to be a time when cash will be tight. In such situations, farmers must do what they can to minimize cash outflows. Practices that were acceptable when prices were high may not be a good idea when prices are low.

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