A1 A1
Analysis identifies differences in profitability among farms

Dale Lattz

Farmers dealing with tighter margins, due in part to the coronavirus pandemic and ongoing trade issues, continue to look for ways to maximize efficiency.

USDA projects net cash farm income could decrease $10.9 billion (9%) this year to $109.6 billion relative to the 2019 forecast.

Meanwhile, total production expenses could climb $10.4 billion (3%) to $354.7 billion in 2020, according to the Ag Department.

So, what areas should farmers focus on to try to improve the economic outlook for their operations?

An analysis conducted by the University of Illinois farmdocDaily team recently identified differences between high- and low-profit farms using Illinois Farm Business Farm Management (FBFM) records that break down returns by dollars to make the most sense. It’s available at {farmdocdaily.illinois.edu}.

“A lot of behaviors, once a producer gets into doing things a certain way, can sometimes be awfully hard to change,” said Dale Lattz, U of I farmdoc research associate. “If you haven’t looked closer at alternatives and you’re just doing the same thing, it’s always good to re-evaluate, especially when margins are tight.”

One key trait of high-profit farms involves more steady output. High-profit farms averaged between 7 to 20 additional bushels per acre for corn and 4 to 7 more bushels of soybeans than low-profit farms from 2015-19.

The larger yields helped boost gross farm returns by $80 to $132 per acre for high-profit farms compared to their counterparts during that five-year stretch.

On the flipside, high-profit farms had lower production expenses which improved overall efficiency. Crop costs averaged $24 to $39 less per acre on high-profit farms from 2015-19, while power and equipment costs averaged $36 to $40 less per acre compared to low-profit farms.

A key to reducing costs appeared to be size of each operation. Higher profit farms averaged 400 to 700 acres of additional ground in central and northern Illinois, while higher profit farms in southern Illinois averaged just 47 more acres.

“The larger farms are able to spread their labor and machinery costs over more acres, contributing to lower costs per acre and higher profitability,” authors of the study noted.

But many other factors contribute to different profit levels on each farm. Therefore, farmers should analyze factors they can control on their own operations in the ongoing pursuit of improved efficiency.

“There isn’t one single thing (that guarantees better returns). It’s not like somebody is just doing an excellent job marketing or with production,” Lattz said. “It’s a combination of good management, production practices and cost control.”

The analysis also showed higher profits in northern and southern Illinois in 2019 for those with more corn and soybean acres. Lattz believes that reflects the record amount of prevented plant acres last season.

IFB submits comments regarding CFAP eligibility

Illinois Farm Bureau recently submitted comments to the USDA on behalf of IFB members whose commodities did not qualify for the Coronavirus Food Assistance Program (CFAP).

The commodity and industry areas addressed in the letter included greenhouses, horseradish, striped bass, game pheasants, dairy heifers, herbal remedies and blackberries.

Due the State of Illinois’ March 16 shelter-in-place order, financial impacts were felt immediately by the greenhouse industry. One suburban Chicago greenhouse lost Easter, Mother’s Day and school-related sales totaling roughly $250,000.

Horseradish producers typically enter contracts with processors for the following year’s crop. But because food service demand fell so quickly during the coronavirus outbreak, processors indicated they have a lot of horseradish in storage. This means it is unlikely that processors will purchase much or any of the 2020 crop.

Illinois aquaculture producers were also not immune to losses. One striped bass producer who sells directly to wholesale and restaurant markets faced a complete closure of his market.

Game pheasant producers who supply birds for hunt clubs also lost their sales during the shelter-in-place order. One business, Briney Bird Farm, had 2,072 birds in inventory that could not be sold and were set free at a loss of almost $30,000 to the farm.

The price of dairy heifers dropped considerably from November 2019 to April 2020. At a sale barn in Springfield, Missouri, the sale price of Jersey dairy heifers fell from $1,270 to $779 per head in that time frame.

Herbal remedy growers and blackberry producers also lost thousands of dollars in profits as their markets closed during the onset of the pandemic.

In closing, the letter stated:

“Clearly, the financial devastation caused by the ongoing pandemic has gone well beyond bulk commodity and livestock production into many specialty areas of U.S. agriculture. Our association appreciates the opportunity to comment on this NOFA (Notice of Funding Availability) and hope you can provide sufficient financial relief to each of these producers – and their impacted segments of agriculture – over the coming weeks and months.”

Corn in a LaSalle County field exhibits healthy growth. As of June 21, 59% of Illinois corn rated good to excellent compared to 63% the previous week. (Photo by Catrina Rawson)