Production is still the pathway to profitability - even in a year when volatile markets offered early season profits then dived below production costs at harvest.
Bushels per acre, or yield, made up 51% of the profit difference between the top 20% and the bottom 20% of farmers enrolled in the Iowa Soybean Association's Producer Profitability Program (PPP) in 1998. The top group outyielded the other by 13.3 bu/acre.
Reducing costs accounted for nearly 24% of the profit difference ($37.22/acre) between the groups, although the lion's share of the cost difference was due to land costs. Better marketing (89 cents/bu) made nearly a 26% difference in profitability.
"The numbers show that farmers need to first do their best job of controlling factors that affect yield, then look at reducing costs and marketing," points out David Larson, PPP coordinator.
"It's also important to remember that while we compare the top 20% of the participants to the bottom 20% to see the differences, these are all good farmers," Larson adds. "The bottom 20% still had an average yield that matched the state average of 48 bu/acre. The question is, is that enough to make a profit year after year?"
A number of production factors could account for the yield differences. You can't look at this as scientific data because there is so much variation among the farms. But you can see trends when you compare the group averages.
High-profit farmers tended to plant in narrower rows, although 30" rows were the predominant choice in both groups. The top group planted about a week earlier (May 10 vs. May 16), and planted higher seed populations (168,385 seeds per acre vs. 156,871 seeds per acre.)
Sixty percent of the top group no-tilled their soybeans compared to only 7% in the low-profit group. Both of the groups had similar soil-test results, although the top group tended to have slightly higher levels of fertility but slightly lower levels of organic matter.
Roundup Ready soybeans were planted by 67% of the top-profit group, compared to 40% for the other group. The Roundup Ready beans averaged 2 bu/acre less than conventional beans (54.8 vs. 56.8 bu/acre), but netted producers nearly $10/acre more profit ($53.31/acre vs. $43.78/acre). Those figures include a fixed marketing price of $5.12/bu, the state average, to eliminate marketing as a variable.
On the cost side of the equation, top farmers spent more for seed. That's partly due to higher seeding rates, but also includes technology fees. A higher usage rate for no-till dropped preplant tillage costs for the top group, but didn't result in higher herbicide costs.
The high-profit group reported an average herbicide cost of $25.94/acre compared to $28.72 for the lower-profit group. Fertility costs ran about $5/acre higher for the high-profit group ($23.18 vs. $17.92).
Land costs made a significant difference in the bottom line between the two groups. The lower profit group reported an average land charge of $127.17/acre compared to $87.28/acre for the high- profit group. That's nearly a $40-an-acre deficit farmers in the lower-profit group faced before they made any other decision about their crop year.
The spread between the average market price increased dramatically in 1998. Only a dime per bushel separated the two groups in 1997. That dime nearly became a dollar in 1998 when the average selling price was $6.25 for the top 20% and $5.37 for the lower-profit group. Ironically, the lower-profit group had the higher selling price in 1997.
It would be easy to assume that the difference between the two years was the market volatility of 1998. However, the data show a $2/bu difference both years between the high and low selling prices.
The real differences are in marketing style. It really depends on when you sell that first bushel, says Larson.
Harvesttime prices rewarded farmers who sold for cash in 1997. Last year, of course, you had to sell your crop early to hit the season highs. Numbers prove again that you can't out-guess the market, so you need to sell grain when it offers you a profit opportunity.
If you're interested in being part of next year's Producer Profitability Program, contact the Iowa Soybean Association (ISA) at 800-383-1423. The program is free to ISA members. Non-members pay a $25 fee per field enrolled. The program is open to soybean farmers from all states.