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Does farm size matter in bottom line profits?

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How does Minnesota farm management data compare to the results from the Illinois FBFM study ? The University of Minnesota FINBIN program analysis was used to look at average costs and returns of grain farm operations from 250 acres and higher, from throughout Minnesota, that are growing corn and soybeans. Similar to the Illinois study, the data is from actual farm financial records kept through the MNSCU Farm Business Management (FBM) program, and other University FBM programs.

Following are some key findings from a five-year (2008-2012) FINBIN analysis of the over 900 crop farms in the Minnesota FBM programs.

·      The five-year average corn yields were almost 172 bushels per acre, with very little difference between the various size categories. Interestingly, the five-year average soybean yields were close to 42 bushels per acre, but were slightly higher (just over 44 bushels per acre) on farm sizes 250-500 acres, and somewhat lower than average on farms over 1,500 acres (37-39 bushels per acre).

·      Corn fertilizer costs for the five years averaged over $142 per acre on all corn acres, but averaged over $150 per acre on farms over 1,500 acres, as compared to averages ranging from $136 to $143 per acre for farms from 250 to 1,500 acres. Corn seed costs averaged slightly over $93 per acre, and chemical costs near $26 per acre, with very little difference between the various farm size categories. Seed and fertilizer costs for soybeans also showed fairly small variations between the farm size groups; however, chemical costs for soybeans averaged just over $25 per acre on all acres, but averaged near $21 per acre on farm sizes over 1,500 acres.

·      The 5-year average total direct and overhead costs per acre for all corn acres was just over $621, but averaged near $660 per acre for farm group sizes above 1,500 acres. However, the five-year average total direct and overhead costs for all soybean acres was just over $338 per acre, but the average costs for the farms over 1,500 acres was below $310 per acre. The five-year average net returns per acre for corn and soybeans were fairly similar for farms in all size categories.

·      Looking only at 2012, average cash rental rates on cash rented acres for corn production was over $194 per acre, but ranged from $227 to $255 per acre for farms in size groups over 1,500 acres. The five-year average cash rental rate for cash rented corn acres was approximately $158 per acre for all farms, and was nearly $179 per acre for the farm size groups above 1,500 acres.

While the University of Illinois farm management study and the five-year (2008-2012) FINBIN analysis of the Minnesota Farm Business Management program do not include all crop farm operations, they do provide a good comparison of the various sizes of crop farming operations. There do not appear to be any advantages to larger farm sizes over small to medium sized farms, from a standpoint of lower cost of production and higher return per acre. The final analysis is that well-managed crop farms of all sizes that control production costs and machinery expenses can be profitable. It also appears that land costs, especially cash rent paid, is a big factor in profitability of crop operations.

The analysis also shows that crop operations of any size can face financial difficulty if the farm operators do not pay attention to cost of production, machinery costs, and land expenses, as well as having a handle on their short-term and long-term farm debt. These studies did not factor in the importance of a good grain marketing plan, which can also have a significant impact on a farm’s financial well-being. In the end, a farm operator of any size that pays close attention to all aspects of farm management can have a profitable crop farming business.

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