Top-Third vs. Bottom-Third
The Kansas State University Department of Agricultural Economics periodically produces a recap of the high 1/3, mid 1/3 and low 1/3 of various farms in their state. They just released the latest analysis for corn, sorghum, wheat, soybeans and alfalfa for the three years 2006-2008. The total number of crop farms reporting for all three years during this analysis was 629 farms. There are several pages of producer returns, but I thought I would try to recap the major trends that I spotted. These trends are based upon the differences between the top 1/3 and the bottom 1/3.
CORN
- The yield per acre difference was about 16 bushels for non-irrigated corn or about 18% while the price difference was only 13 cents or 3.6%. The total average revenue difference was $61 per acre.
- Major costs variances were in fertilizer and machinery with these costs being about $49 lower for the top 1/3.
- The overall net return to management in the top third was $150 more than the bottom third.
SOYBEANS
- Yields for good producers was about 6 bushels higher or about 20%. The net selling price was about 55 cents higher or about 7%.
- Total revenue was $72 higher or about 31%
- Again, machinery costs were materially lower for good producers at about $30 per acre lower.
- Good producers returned $130 more per acre than the low producers.
WHEAT
- Yield was about 6 bushels higher or about 19% better for the top 1/3.
- Prices were only about 4% higher than the bottom third or 23 cents overall.
- Again, machinery and fertilizer costs were about $46 lower for the better producers.
- Overall, the best producers gained $120 per acre over the bottom producers.
Other trends are:
- In all cases, the lower 1/3 of farms reporting had negative net income for this three year period, with wheat and corn growers being the worst off compared to the other crops.
- For non-irrigated crops, soybeans appeared to be the best return per acre compared to the other crops, however, the difference between returns for each 1/3 was only about $25 plus or minus per acre.
- As we have discussed in other posts, it appears that the best way to increase your return per acre is to minimize your equipment cost per acre. This is by far the most consistent cost that is almost always higher for the lower third than the top third.
How does your operation stack up.
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.
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