What can you control on your farm that will have the greatest impact on your bottom line? Is it input price? Is it a marketing plan? Is it tillage? Is it participation in government programs? Is it overall yield? That is the point of the conversation today as we visit with ag economists from Kansas State University and from the University of Illinois. Surprise! Surprise! Surprise!

Economists Terry L. Kastens and Kevin C. Dhuyvetter at Kansas State looked at the past ten years worth of data about profitability in farm management. The elements included profits, yields, costs, prices, less-till adaptation, planting intensity, rent, government payments, and farm size. To evaluate the more than 750 farms, all of the values were averaged for the farm management elements, to develop a projection of profitability that would carry a high degree of confidence.

The Kansas State study computed the averages “to determine if the management measure was statistically different from 0 (from the average farm in that area). With nearly 84% of the farms statistically different from 0, the percent of acres rented (Rent) is shown to be highly persistent among farmers.” When looking at other factors, it was found that farm program payments are not really manageable, “Therefore, of the more manageable traits, the next most persistent measure, with 68% of the farms statistically different from 0, is planting intensity (Plant). That is, producers tend to have consistently low or high planting intensity relative to their neighbors, not jumping about from year to year. Less-tillage technology adoption (Tech) and cost were the next most persistent management traits, where around 59 (Tech) and 58 (Cost) percent of the farms were persistently better or worse than their neighbors on average.”

Kastens and Dhuyvetter found that:

• A 1% decrease in costs raises per acre revenue by $0.97; however a 26.3% decrease in costs raises per acre revenue $25.51.
• A 1% increase in yields raises per acre revenue by $0.45, but a 14.6% increase in yields means an extra $6.53.
• A 1% increases in prices means an extra $0.70 per acre, but an 8.7% increases will raise prices by 6.14%
• A 1% increase in percent of acres rented raises revenue $0.20 per acre, but a 44.9% increase in percent of acres rented means an additional $9.13.
• A 1% increase in government payments means $0.11 more per acre, but a 46.3% increase in government payments is only $4.93 more per acre.
• A 1% increase in farm size above average means only $0.19 per acre, but a 76.8% increase in size provides an extra $14.82 per acre.
• A 1% increase in farm income variability means $0.41 more per acre, but a 67.9% increase in farm income variability resulted in $27.63 more revenue per acre.

The Kansas State study determined that “a smaller number (44%) of farms were significantly better or worse at yields than their neighbors. This should not be too surprising given that crop yields are so weather dependent.”

That is where the University of Illinois survey fits in, which set out to look at the diminishing yield variability in recent years, to determine if it is a function of crop traits, or weather. Economist Gary Schnitkey analyzed the data from some of the more than 6,000 farms enrolled in the Illinois farm records program. Specifically, he compared the 2005 yield with the average of the four prior years, to develop a “relative yield.” If the “relative yield” was 100%, then the 2005 yield equaled the four year average. You can see how it will vary over time.

For all farms, averaged over the past 28 years, Schnitkey found a 4% yield increase, however different parts of the state expressed great variability, and some of it was certainly impacted by severe drought years, particularly 1983 and 1988. When Schnitkey divided the 28 year span into segments, and looked for the worst yielding years in the various segments, relative yields took a significant drop. He concluded, “Better genetics and farming practices may have caused less severe losses in recent years. It also may be that weather conditions that resulted in low yields in 1983 and 1988 have not occurred since 1988.”

His exercise is important, since it shows how a farm’s crop insurance APH is compared to the more current yield. If a farm has a relative yield of 78%, “yield insurance would pay if an 80 or 85% coverage level had been selected while payments would not have occurred for coverage levels of 75% or below.”

Summary:
Farm operators take pride in being managers, but what can really be managed. Certainly not farm program payments, but a Kansas State study found that making only minor adjustments in numerous management issues would make minimal progress. However, making large adjustments will yield increased revenue. A somewhat related study at Illinois indicates that yield variability is diminishing, but there are ways to compare yields that will allow a producer to determine how aggressive to get in buying up crop insurance coverage.