"We're in business to make money, not just break even," says Shane Sand, of Emerado, North Dakota. "We record everything we do so we can manage better."
Sand and his father, Steve, farm 4,500 acres on the edge of ancient Lake Agassiz, in the Red River Valley. Soils on the operation vary from sand to heavy clay in the same field. Crops in their rotation include corn, soybeans, sugar beets, spring wheat, pinto beans, navy beans, red kidney beans and black turtle beans.
Handling all this data from a diverse operation and to maintain profitability, Sand simply uses Excel spreadsheets, which he finds easy to compile and maintain. And, with keeping them stored in the cloud, they're always accessible.
"We record cost of production down to the penny," he says. Each field and each enterprise, he adds, has a separate Excel sheet "to help me make informed marketing decisions. Knowing my precise cost of production [COP] makes marketing a lot easier." In one column, Sand lists North Dakota State University Farm Managers Association averages to benchmark each line item. "Fortunately, I beat them, but it's good to reference," he says.
His projected 2019 COPs include corn at $3.30 (his five-year average), soybeans at $8 and spring wheat at $5.90. His final yields will modify his actual figures.
Sand also uses Excel to fine-tune his rotations. He uses it to calculate which wheat or soybean price and yield equals the profits from corn. For example, to match the profit from 150-bushel corn at $3.50, he calculates that he needs $9.20 soybeans and a 34-bushel yield, or a 70-bushel wheat yield at $5.25. He tweaks this with the added labor costs of trucking unstorable corn to the elevator during the crunch labor season.
"Excel is inexpensive and provides a lot of processing power," Sand says. "Logging and recordkeeping can tell you the true cost of anything you dream up, such as a simple freight analysis versus cost of drying corn. I used to think our applicator's fertilizer application rates were too high until I projected cost of floater ownership, maintenance, interest, skilled driver wages, fuel, a nurse vehicle and the time to operate it. The local fertilizer spreader is a better bargain than what I can do."
To track equipment cost, Sand divides each implement's cost by hours operated annually divided by acres covered, then adds prorated labor, repairs and fuel. The cost range runs from a low of $1.81 per acre to own and operate his sprayer to a high of $38.27 per acre for his beet lifter (including labor, fuel and machine ownership cost). These figures are supported by another Excel sheet tracking each implement or engine's hours/miles operated annually to arrive at ownership cost per acre. "My equipment cost sheet is nitpicky," Sand says. "If your planter covers 24 acres per hour, that isn't the figure to put on the log sheet, because you spend time filling it and driving to the next field; that's maybe 80% efficient."
Grain drying and storage costs get equal scrutiny: "Drying corn has to reflect your dryer interest and principal cost, your electricity and propane cost, plus repairs. How many people do that?" Sand says.
His marketing plan sheet by crop keeps running tallies on average price per bushel to reach his profit goal, percent sold, bushels sold, average cash price, percent hedged at what price and breakeven (COP). There are columns for target orders, futures contracts, anticipated and actual basis, priced date, contract number, delivery date, fee, target cash price for near-term sales, which elevator's involved and delivery date. "It's important to remember that December corn has no storage and interest charges against it compared to July corn. Bin cost is never free."
Another sheet tracks average cash rent, whether it's sharecrop or not, rental rate and rent due date. This flows into the master sheet of average cost per acre, reflecting owned and rented land cost averages.
Another Excel sheet tracks crop storage needs by year and crop, monitoring usable bin capacities and projected yields, for a bottom-line projected storage shortage.
Time and expense devoted to crop scouting, repairs, mowing ditches and surface drainage are based on actual hours logged, not a guesstimate. For example, a 30-minute round trip to the elevator versus a 3.5-hour round trip translates to a $0.08- to $0.18-per-bushel difference, Sand says. He designates skilled and unskilled labor hourly rates.
He also inventories shop supplies and parts, with part numbers, price and number on hand.
A master Excel sheet summarizes family living expense, income tax, land cost, operating loan, shop costs, repairs, rent, grain storage, freight, drying and storage fees.
Agronomic records on hybrids and various treatments reveal which decisions add to yields but not profits: Sidedressing corn, for example, does not pencil out for him. By contrast, installing tile drain easily pays for itself, but sooner in dry beans than in wheat.
Yield-monitor data is his most valuable information, Sand says. "It's my report card. It allows me to investigate what caused low-yielding areas -- was the problem drainage, alkali or compaction?" He also investigates correlations with planting populations, hybrids/varieties and spray rates.
Other particularly good investments are grain dryers, swath control/row shutoff, RTK (Real-Time Kinematic) and continuing education. For example, simply learning about the importance of recording standard operating procedures for employees "prevents us from planting at the wrong depth or breaking down at a busy time because someone didn't set something properly. It's money in our pocket." Benchmarking his figures with others has also been helpful.
Evaluating his farm's strengths, weaknesses opportunities and threats (SWOT analysis) was another payoff from taking the two-year TEPAP (Texas A&M Extension Executive Program for Agricultural Producers) course. And, it doesn't require a spreadsheet, just a simple sheet of paper. His operation's strengths are having detailed marketing plans, budget and cost analysis, and good logistics plans. Weaknesses included the financial leverage accompanying his father's impending retirement.
Opportunities include the potential to pick up acres as the tough economy weeds out local higher-cost farmers. Threats include low commodity prices and heavy leverage.
"Shane will survive this shakeout," says local farmer and former University of Minnesota-Crookston adjunct professor Gary Wagner. He's mentored Sand for 18 years. "Knowing your costs that well and what it does for your marketing plan takes you a long way."
Only about 20% of Sand's banker's clients keep records to this extent, his banker says. "Operating without detailed records makes it hard to know when it's profitable to sell," Sand says.
Lessons From Records:
Shane Sand's recordkeeping experience helped him sharpen his business acumen. Here a few lessons
> Know your true cost of production, and use it to inform marketing decisions. "I'll never forget the time we had a bumper wheat harvest that exceeded our storage capacity," Sand uses as an example. "Because I knew the elevator price comfortably exceeded our cost of production, I sold all the bushels exceeding our storage and made a nice profit. I never would have done it without knowing I was going to make money."
> Don't store unpriced grain. "You can bet that factories don't produce widgets without having quite a few of them sold in advance, so why would we?"
> Have a disciplined written marketing plan with price and date triggers. "If you sold your crop one year in advance the last five years, you probably did pretty well," Sand says.
> Capitalize upon seasonal price-cycle tendencies, and forget 2012 price anomalies.
> A five-year replicated soybean population study showed Sands had been overplanting. He cut back to 150,000 seeds per acre from the 175,000 population. It also revealed the most profitable time to apply 28% N to spring wheat to capture a protein premium is at the postanthesis stage.
> Adding dark red kidney beans to his rotation adds no extra costs beyond more precise harvest timing but captures a 40% premium over other beans.
> Knowing your true cost of production enables you to walk away from additional acres that won't profit. If a parcel becomes available, Sand knows whether he has the equipment, manpower and storage to operate profitably, what he'd need to add and where his weakest link would be. It may not necessarily add to profits. "Attention to detail is the only way this will work, though," Sand says. "Farm less/make more equals less stress."
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