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Profitability trumps yield — here’s why
Summary:
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Learn the importance of measuring profitability vs yield
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See how measuring profitability can help to control costs
What do you use as a measure to determine your operation’s success? All too often, growers exclusively look to high yields as the answer. Darrin Unruh, a south central Kansas grower and an Indigo agronomist, says if yield is your only measure, you need to reframe your perspective. “The yield is not what matters; what matters is the profit per acre,” he explains.
The profitability equation
Profitability and yield aren’t totally decoupled when you look at your operation’s bottom line. “Obviously, the higher the yield, the lower the cost per bushel, assuming the same inputs,” said Unruh. But with yield varying from year to year, it’s a difficult part of the profitability equation to control. “Just because you raised a 220 bushel corn crop this year, doesn't mean that we're not going to hit some kind of a snag to drop that yield next year, or you could be at 180 bushels. You could be at 250. What I’m saying is, really stop and take a look at your cost per bushel and profitability and let yield fall where it may,” says Unruh. Take care of the cost per bushel, and that will take care of yield. Grower Ben Butcher from Iowa echoes the importance of focusing on profitability. “It's not always about having the highest yield. You want profit per acre. It's not about the bushels in the tank, it's about the profit in the bank. Calculating that isn’t always easy, though. And m,e as an operator, I like to be busy. I don't like to be sitting and pushing a pencil and figuring all those dollar amounts out. But it’s critically important to my business that I do it. That's one thing that I need to improve on myself is figuring out, how is this more profitable than this?” he says.
Indigo’s Practice Change Profitability Estimator can do a lot of that work for you. It helps you determine how your profitability changes as you incorporate new practices.
Cost control
Farming is unpredictable. “There are some things beyond our control, like the weather. We need to be as prepared as we can for extreme events, but it’s a real possibility that we’ll deal with something unpredictable in our farming careers, and even year to year,” says Unruh. To combat these variables, Unruh says you need to focus on the things you can control, like inputs. “If you use large amounts of expensive inputs, including fertilizer, multiple herbicides, extensive pest control, and tillage, that pushes up your cost per bushel, so when you have a hiccup in yields or prices decline, that's when we can really get in trouble,” he explains.
Controlling those costs can more effectively move you towards profitability and operational success. Yield, however, can’t be steadily relied upon and can be greatly impacted by surprise events. More importantly, fixating on yield leads growers to become more willing to sacrifice profitability or to ignore the profitability of individual decisions because they promise higher yields. When we focus on cost per bushel and building better per bushel margins, we begin to look differently at input decisions.
Concentrating on building your soil health can help you control those input prices. Incorporating cover crops and reducing tillage can help you control pests, weeds, and disease, without relying as heavily on chemistry to do it for you. When you focus on soil health, you not only control inputs and build an operation that’s more resilient to weather and supply chain threats, but you also open up a new revenue stream.
These common practices that build soil health, like introducing cover crops and reducing tillage, also help you sequester carbon in your soils. The more carbon you sequester, the more you can earn through a carbon program like Carbon by Indigo. “It's just like anything. A diverse farming system is more resilient, healthier, and is going to be longer-lasting. I see the carbon payment as an indication of a diverse system. Of course, it adds to the bottom line. In addition, it's an indication that we're building healthier soils, and we're being rewarded for it financially, which is great,” says Will Drucker, a rye and soy grower based in Northwest Illinois.
Shifting focus
Unruh acknowledges that moving from yield to profitability as a measure of success can be a difficult mental shift. “Everybody wants to go to the coffee shop or down to the local elevator and brag about their yields,” says Unruh. But he encourages growers to think about a different set of numbers. “I'd rather not brag about my yields or even mention them and worry about what I have in the bank account, instead of what I have in a yield per acre,” Unruh adds. He also says that surrounding yourself with like-minded growers can make a big difference in how you view your own success. “You have to have a paradigm shift or at least an open mind about some of this,” he says.
Instead, he encourages growers to find others who are focusing on profitability through building soil health. “They will help you understand soil health, and at least give you some tips about how to get started,” Unruh adds. It’s all an effort to reevaluate which numbers really matter on your farm, and which numbers you can control to determine success and profitability.
