Crop producers have experienced record-high prices for their commodities the past few years—so how are some of these producers still losing money? Although weather, and specifically drought conditions, can play a role in crop and profit loss, management also plays a major role in profitability.
An economic analysis conducted by Kansas State University agricultural economists sought to identify factors that make the difference in profits for Kansas’ major crop enterprises. The analysis compared high-profit, mid-profit and low-profit operations using Kansas Farm Management Association crop enterprise data from the past three years, 2011-2013.
Kevin Dhuyvetter, agricultural economist and former K-State faculty member, along with Lacey Ward, K-State agricultural economics graduate student, conducted the analysis. Dhuyvetter said it is an update of studies previously done that examined the same main crop enterprises in Kansas—dryland corn, irrigated corn, sorghum, wheat, soybeans, double-crop soybeans and alfalfa. They had varying numbers of farms, depending on the enterprise.
Three years of data helped smooth through circumstances that might happen in any one year, he said. The analysis required that the farms in each enterprise be included in the data report all three years. The three-year average returns for all farms were sorted and split into thirds. The analysis showed a tremendous difference in the profit, or the returns to management, between the top third and bottom third.
“For example, think of the non-irrigated crops like wheat, corn, milo and soybeans,” Dhuyvetter said. “We’re talking $116 up to $150, $160 per acre difference between the top third and bottom third. There are some soybean farmers out there making $150, $160 more per acre than other soybean farmers. That’s a huge difference when you think of dryland farming, where the average rent across the state tends to be $60-$70 (per acre).”
The difference between the average profit for high-profit and low-profit farms ranged from $113 for double-crop soybeans to $335 for irrigated corn, the researchers found.
Focus on management and yield improvement
Why such large gaps between high-profit and low-profit farms? The 2011-2013 analysis showed a bit different results compared to years past, Ward said. In the past, often times costs was the big driver in the differences between the top third and bottom third.
“This time, the thing that’s different as opposed to some earlier studies is most of the differences between the top and bottom thirds are due to income, not costs,” she said. “Costs obviously are still important, and some crops more important than others, but income is the big driver.”