Net Revenue Per Acre Trumps Yield Per Acre
I was watching Agday yesterday and noted in the business section that Mark Gold of Top-Third Marketing was the guest and had a discussion on how gross revenue per acre was more important than yield per acre. His insight is that it can be more important to budget for getting top marketing dollars for your crop than to worry about the greatest yield per acre. With the improvements in technology, a farmer can get great yields on their crops, however, if they end up with the bottom third for their price, they will end up net losers for the crop year.
I believe that you need to take this concept one step further and key in on net revenue per acre, not gross revenue. My definition of net revenue per acre is to take your gross revenues from crop sales and government payments and then subtract all direct input costs related to this crop. For example, lets take two farms. One farmer is able to achieve 175 bushels of corn per acre and sells it for $3.75. The farmer spends $300 per acre on direct inputs (fertilizer, oil and gas, labor, etc.). The other farmer only gets 160 bushels per acre, however, they sell it for $4.00 per bushel and only spends $250 per acre on direct input costs. Which farmer makes the most money?
The answer is the second farmer. Farmer number 1 has gross revenue of $656.25 per acre and net revenue per acre of $356.25. Farmer # 2 only has gross revenue per acre of $640.00 per acre, however their net revenue is $390.00 per acre which is about $34 higher than farmer number 1.
As you can see, a farmer needs to key in on maximizing their net revenue per acre, not just the yield per acre.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
Very good advice. Equal to my brokers advice. “Buy low, Sell high.”