It’s called the five percent rule, and it can make farmers a lot of money.
Can you achieve five percent better yields?
Most of us can identify agronomic shortfalls that could easily raise yields from 40 to 42 bushels per acre. It might be slightly higher macronutrients, a more timely fungicide application or just setting the combine better to avoid losses.
Using seed treatments, higher quality seed and thousand kernel weight when setting seeding rates can also provide a yield edge.
Could you achieve five percent better prices?
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Rather than getting 20 cents for your lentils, might 21 cents have been possible with better timing and calls to more buyers? Rather than averaging $9.40 for your canola, was $9.87 within reach? We all strive for the best prices possible, but with hindsight we can usually identify errors.
Effective marketing starts with a firm knowledge of the cost of production. From there, you need to access good information and advice. Educating yourself on how to use various marketing tools can also pay dividends.
Can you cut your costs by five percent?
On the surface, that may seem counterintuitive. Cutting inputs is certainly not the way to higher returns. However, sectional control to reduce overlap, straight cutting canola and not being over-equipped can go a long way to shaving your total cost per acre.
Fixed costs vary dramatically from one producer to the next. Coffee shop discussions often revolve around the latest price of fertilizer, diesel and crop protection products, but it would actually be more useful to talk about total equipment costs per acre.
So, let’s say we achieve five percent better yields, five percent higher prices and five percent lower costs. That would logically seem like a 15 percent improvement in overall returns, but instead it’s a 117 per cent increase in net income.
Kristjan Hebert demonstrated the five percent rule at a presentation during Ag Days in Brandon using typical canola yields, prices and costs. Running through the math, Hebert used the three marginal improvements to change the net income from $50 an acre to $108.50.
Imagine what this improved return can do when compounded over time. It isn’t just a fancy theory. Accountants and farm management specialists all say that some farm operations consistently achieve better returns than their neighbours because they do so many little things right.
The five percent rule originated with farm management icon Danny Klinefelter of Texas A & M University, but Hebert does a great job of explaining how baby steps lead to bigger profits. He is involved with a grain farm operation at Fairlight, Sask., and has extensive experience in farm business management.
Hebert is a big proponent of accrued financial statements. The cash basis system on which farmers can file income tax returns tells us little about a farm’s true financial situation. Hebert says a mass conversion to accrual would be akin to the benefits of the direct seeding revolution.
Hebert recommends on-farm trials to sort out which have value for your farm operation. Current technology makes it easier than ever for farmers to do their own evaluations.
Finding those five percent improvements is a big deal. In major league baseball, a .300 hitter is a star while a .250 hitter will barely keep his job. This is only a five percent difference: one more hit every 20 times at bat.
