Analyze Profitability Down to the Field Level

Farmers know the last really profitable year for agriculture was 2014, with foreign competition, changes in American dietary habits, and rising costs making the intervening years a challenge. So, when COVID-19 hit in the spring, it impacted an agriculture industry already dealing with multiple economic challenges.

It’s fair to say most small farms will suffer losses this year because of COVID-19. But the difference between those that survive and those that are forced to sell may be the business management practices of their owners. Chief among those practices is the use of cloud-based technology to analyze farm production data and costs.

Farm management technology that was adopted early by large corporate farms is now filtering down to the family farm environment, enabling smaller farm owners to squeeze profits out of their land that eluded them in the past. The days of planting a crop and hoping for the best are over for those who are embracing technology tools to help manage their land, their crops, and their equipment.

Consider this scenario:

You have 10 fields and you expect to plant seven of them in wheat and three in corn because that’s what you have traditionally done and the current prices on those crops look like they’ll hold for a while.

But technology is now available that, utilizing current price data, can calculate “what if” scenarios such as the profitability of planting five fields of milo and five fields of corn instead of wheat, enabling you to find opportunities to boost your profit. And if you have that information early enough in the season, you can lock in favorable fertilizer and fuel prices, knocking down your costs and pushing profits even higher.

Managing a Farm Like a Business

Managing a farm like a business rather than a lifestyle is essential to farming profitability today. You wouldn’t continue using a 40-year-old tractor that is broken down and can’t do the job anymore. You would invest in newer equipment for planting and harvesting as often as needed.

The same is true when it comes to technology. That cell phone you’re carrying around in your pocket is good for more than just texting and making calls. It can run powerful applications that are customized to your farm, right down to each field you plant. This technology can calculate which crops will be most profitable for each field you plant, forecast yields, help you figure out when to lock in fertilizer and fuel costs, and tell you exactly how much seed is needed.

With software that can calculate the need for seed, fertilizer, and water for each field you plant, and project the yield that each field will produce based on past performance, you can control costs and make planting decisions more effectively.

The technology tools available today can help farm owners boost the profitability of fields and crops that may have just broken even without real-time data. Rather than planting a field and hoping for a good price at harvest time, you can manage your farm in a more deliberative way with a deeper understanding of costs, overhead, yields, and prices. It is a way to rely on data and analysis – rather than luck – to keep your farm going.

This type of information makes it a lot easier to manage cash flow and to work out financing. Your banker is more likely to work with you if you come in and share a spreadsheet that shows you will be short on cash flow in a few months than if you walk in with bills already due.

Increasingly more farmers are using data technology as we enter the sixth year of poor financial performance in the agriculture industry. The ones who have embraced technology – particularly younger generation farmers who learned about technology tools in college – are generally outperforming their peers.

Marriage of Farm Management and Accounting Technology

One of the best performing technology tools available to farmers is Figured, which is the first integrated technology platform that brings together farm management and financial accounting in one tool, enabling users to manage a farm like a business.

Figured integrates farm management software with the Xero accounting platform. Many farms have used farm management technology for years, and they have used accounting technology. But farm management has never been integrated with an accounting platform until Figured. Farm managers had to enter their data twice on two different platforms, and they still didn’t have truly integrated data.

Willingness to Switch Gears

Getting the most out of Figured requires a good understanding of the prices you need to lock in for seed, fertilizer and fuel, as well as a willingness to run the what-if models and switch gears if the data says a different crop will be more profitable. Figured also can analyze the potential impacts of crop damage from a hailstorm, calculating your likely profit on the reduced crop and enabling you to weigh that against the amount of crop insurance you would receive.

Figured has been in the U.S. marketplace for more than five years, but recent improvements have enhanced the value significantly. For example, the software now syncs with John Deere equipment. So, if you are using John Deere equipment to plant a corn field, it will upload to Figured the data on exactly how much seed is planted in each field, enabling you to allocate fertilizer and fuel costs on a per field basis. It’s no longer a guessing game.

Once you get into year two, you’ve got all the previous year’s information in there. You use the actual yield data to determine what needs to be changed. Fertilizer, seed, and fuel prices have changed, so you input that data and Figured calculates your new forecasted results. You can do in a couple of hours what used to take weeks.

Are You Ready for Figured?

Adams Brown has entered into a partnership to bring Figured into this part of the country and introduce it to our clients at a reasonable cost.

Currently, the software is designed primarily for grain farmers who also may have livestock, and it is best utilized for farms of under 10,000 acres or larger operators who have not already embraced a real-time farm management software that they believe performs at a high detail level.

Farmers who use Figured with the best results are those who keep good accounting records and already pencil out some forecasts but may have difficulty using them effectively.

If you would like to have a conversation about how technology like Figured can help you manage your farm, please contact your Adams Brown advisor.