Category: Farm Management

Agricultural producers constantly seek opportunities to improve their businesses by implementing new technologies and practices. In this quest for growth and improvement, benchmarking is a crucial tool that progressive and business-minded farmers and ranchers use to measure their performance against similar businesses in the industry.

Benchmarking allows producers to identify their strengths, weaknesses, and areas where they have room to grow and improve. It should cover all management aspects, production costs, production systems, marketing, finance, and human resources. By benchmarking against other producers within the same group or the industry, one can see the production or economic results that can be achieved and understand the limitations that may prevent them from attaining them. Further, producers should also be able to analyze trends and see the results of their decisions.

Producers should use a similar way to calculate results to ensure effective benchmarking. As a renowned agricultural economist, Danny Klinefelter, stated, “One of the most significant issues is to make sure the data is comparable and that you’re comparing apples to apples.”

One effective benchmarking system for beef cattle producers is the Beef-Cattle Standard Performance Analysis (SPA) used in Texas and some southern states since 1992. SPA developers used the Farm Financial Standards Guidelines created by a national task force to prepare farm or ranch financial statements as a framework for analyzing and benchmarking cow-calf enterprises. Similar systems could effectively be implemented to compare all types of ag production.

Ag Peer Advisory Groups have a long history of benchmarking, given their group culture of discussing and learning from each other.  One such example is a group of ranchers from North Texas and Oklahoma that meet monthly to critique each other’s operations, share ideas, and benchmark production and economic performance.  The group is facilitated by leadership from Texas A&M AgriLife Extension and supported with funding from the Southern Risk Management Education Center.       

While informal peer advising is common, the advantage of formal groups or associations is the development of production and financial management standards to ensure they compare the same information.  Developing and implementing effective benchmarking systems across all types of ag production will enable producers to continually improve their performance.  Check with your state’s Extension Economists to learn more about performance benchmarking opportunities. 

---

Abello, Francisco Pancho. “Benchmarking.” Southern Ag Today 3(16.3). April 19, 2023. Permalink

David Anderson wrote yesterday about markets reaching record-high cattle prices as cattle supplies tighten and some of the questions out there about the market later in the year. Cow-calf producers certainly welcome higher prices anytime, but what about the producers who don’t have anything to sell right now? Nearly 75 percent of the calves born in the U.S. are born during the first half of the year, which means many producers are calving or have already finished calving for the year. These calves are still nursing and most likely won’t be sold until later in the summer or fall. While it may be months before the spring calves are sold, producers do have opportunities to utilize price risk management tools now.  

Not only are cattle prices surging to high levels now, but there is also optimism that cattle prices could continue to gain steam as we move through 2023. The chart above plots the contract price for each Feeder Cattle Futures contract month traded on the CME Group. The spring contracts are trading near $200-$205 per cwt, but the summer and fall contracts are trading above $220. Some of this increase is seasonal, but much of it is also driven by the expectation of continually tighter cattle supplies. Importantly, these expectations of high cattle prices mean there are price risk management opportunities not seen since 2014-2015. 

There are a few price risk management tools that cow-calf producers selling later this year could consider. Selling a futures contract or purchasing a put option are potential strategies. One thing to consider about these choices is the contract size is 50,000 pounds which might be a little large for many cow-calf producers. Forward contracting is worth considering – this simply means a producer would lock in a sales price with a buyer in advance. USDA’s subsidized Livestock Risk Protection (LRP) tool is also worth considering and can be used on as few as one head which makes it worth a look for producers of all sizes. Your local crop insurance agent may be well equipped to help you in any LRP decisions.  Each of these tools has their own design and tradeoffs to understand before jumping in, and there are certainly other risk management strategies out there. However, all tools are currently offering risk management opportunities at price levels not seen in the past eight years. Even if a producer doesn’t have any calves to sell now, they can still take advantage of the optimism in the market by managing their price risk. 

---

Maples, Josh. “Managing Price Risk for Cow-Calf Producers.” Southern Ag Today 3(15.3). April 12, 2023. Permalink

Rice planting can be very stressful during the spring in Arkansas and across the rice belt, as weather greatly affects the timing of planting. Extreme weather events like excessive spring rainfall and cooler-than-average temperatures can reduce the number of days available for planting rice early. Excessive rainfall and flooding events have delayed the timing of rice planting in Arkansas in three of the last four years (2022, 2020, 2019). The years 2019 and 2020 also had the largest and second-largest numbers of rice prevented planting acres on record. Optimum planting dates in Arkansas range from March 28^th to May 20^th in eastern Arkansas based on the Arkansas Rice Production Handbook. Planting rice outside of these dates can significantly reduce rice yields. A late planting season can also lead to delayed harvest in the fall, where rain and dew could lead to reduced rice kernel quality and additional drying costs associated with the late harvest.

Given these reasons, an analysis of historical weekly Crop Progress and Condition Report data from 1981 to 2022 was undertaken to better understand the number of suitable fieldwork days that have been available for planting the Arkansas rice crop by (USDA-NASS, 2023). We calculated a frequency distribution from these data to determine historical probabilities for the number of suitable fieldwork days per week available during the recommended rice planting window in Arkansas. The results are reported in the attached figure. There is a wide range in the number of days available per week, mainly reflecting extreme weather conditions during the recommended planting window. However, four days per week have the highest percentage of chance occurrence (29% likelihood), followed by five or six days per week (21% likelihood each). The likelihood of having three or fewer days per week to plant rice is 23% (approximately 1 out of four years), while the likelihood of having a whole week to plant the rice crop is 7%. 

The average number of fieldwork days per week during the recommended planting window is 4.5 days.  Rice producers can use this information to estimate the number of days available to complete a rice planting in years when planting has been delayed. For example, if most of a producer’s rice acres have not been planted by the end of April due to weather conditions, the rice producer has roughly three weeks left to complete rice planting within the optimal planting window. Assuming the average of 4.5 suitable fieldwork days over the next three weeks, the rice producer would expect to have approximately 13.5 days available to plant the remaining rice acres. The producer then can decide whether to plant rice or soybeans on the remaining acres based on the economic feasibility. 

References and Resources

University of Arkansas System Division of Agriculture, Cooperative Extension Service. 2021. Arkansas Rice Production Handbook. https://www.uaex.uada.edu/farm-ranch/crops-commercial-horticulture/rice/

USDA-NASS. 2023. United States Department of Agriculture, National Agricultural Statistics Service, Arkansas Field Office. Crop Progress & Condition Report. https://www.nass.usda.gov/Statistics_by_State/Arkansas/Publications/Crop_Progress_&_Condition/index.php

---

Badarch, Bayarbat, and Brad Watkins. “Days Suitable for Planting Rice in Arkansas.” Southern Ag Today 3(14.3). April 3, 2023. Permalink

Photo by Pixabay: https://www.pexels.com/photo/rice-grain-164504/

Baling wheat straw following harvest is seen as a way of utilizing a bi-product, with the only cost being baling and removal from the field. The straw could then be sold as bedding for livestock, mulch, or other uses that provide value. However, the cost may be larger than you think.

The cost of fertilizer and increased focus on soil health makes it essential that we know what nutrients we are removing from the field when we take away the wheat straw. Research has shown that removing 6,000 pounds of wheat straw per acre removes valuable nutrients (6,000 pounds is the approximate amount of straw associated with an 80 bushel per acre wheat yield.) Removing this quantity of wheat straw removes 60 pounds of Nitrogen (N), 10 pounds of phosphorus (P2O5), and 135 pounds of Potash (K2O), per acre¹. This is in addition to the nutrients removed when the wheat grain is harvested.  Putting a monetary value to the pounds of N, P, and K taken away by baling the straw shows that the straw does have significant value. A price of $.86 per pound of nitrogen, $0.70 per pound of phosphorus, and $0.61 per pound of potash² were used to reflect the approximate cost of the nutrients. The table below shows the value of the N, P, and K removed on a per acre basis when the wheat straw is removed. The value of the wheat straw needs to be greater than $125.47 per acre or $25.09 per 1200-pound round bale. Adding the cost of baling (1200 lbs. round bale) of $14.50³ per bale and moving³ the bales out of the field at $4.35 per bale. The total of these costs is $43.94 per bale or $219.72 per acre. It should be noted that this is just the value of N, P, and K. There are some micronutrients as well as the organic matter that wasn’t considered in this analysis that have value if left in the field.

There are caveats. The amount of straw could be different depending on numerous factors, including limited yield, variety of wheat, the efficiency of the baler, and soil type. The value of N, P, and K will vary depending on your location as well. Check local resources in your area to estimate the value/cost of the removal of wheat straw. 

Information for the values included in this article can be found in the following resources.

1. https://www.aces.edu/wp-content/uploads/2019/01/ANR-0449.REV_.3.pdf
2. https://www.ams.usda.gov/market-news/production-cost
3. http://agecon.ca.uky.edu/files/custom_machinery_rates_applicable_to_kentucky_2022.pdf

---

Runge, Max. “Wheat Straw Nutrient Removal.” Southern Ag Today 3(13.3). March 28, 2023. Permalink

Long-term loans are a valuable financial tool that producers can use to purchase large capital investments, including farm equipment, land, or housing. These types of loans are typically paid off over a period of time lasting longer than one year. Long-term loan payments are made up of principal and interest. The principal is the original amount of money borrowed. Interest is set by the terms of the loan and accrues over the lifetime of the loan based on the interest rate, the principal balance remaining, and the length of the loan. 

Loan amortization is the schedule for how payments will be made over the lifetime of the loan. The loan amortization schedule tells borrowers the beginning period loan balance, the regular payment, the amount of the payment that goes towards interest and the principal, and the remaining loan balance. A fixed payment schedule is the most common, where each payment is the same amount. 

When considering securing a long-term loan, it is important to consider not just the monthly payments but the overall amount you will be paying over the lifetime of the loan. Since interest accrues on the loan, the amount you pay will be more than the initial loan amount. Table 1 is an example of a loan amortization schedule for a 5-year, $30,000 loan, with a 5% interest rate and payments made annually. In that example, the initial loan was $30,000, but total payments equaled $34,646.22. The loan amount, interest rate, and length of the loan can all have large impacts on how much you end up paying in total. A lower interest rate will decrease the overall amount paid, so it is important to search for a lender that will charge you the lowest interest rate. But, most lenders will likely offer a similar interest rate. A more effective way to reduce the total payment amount is to take a loan with a shorter payment schedule. This will increase the payment made each pay period but will reduce the total amount paid over the lifetime of the loan. Lastly, putting down a larger down payment and reducing the loan amount will also decrease the total amount paid. Since interest accrues based on the principal, a reduction in the loan amount will result in less interest accruing, and the total amount paid on the loan will decrease.            

There are several tools available that can help you evaluate a loan and the total costs involved. Mississippi State University has a free loan amortization calculator Excel tool that can be found at: https://www.agecon.msstate.edu/whatwedo/budgets.php. The Farm Credit Services of America also has a free loan amortization calculator at: https://www.fcsamerica.com/products-services/digital-tools/loan-payment-calculator.Understanding how your loan payments are constructed and what factors impact total payments is essential in getting the right loan for your farm business. 

---

Mills, Brian, and Kevin Kim. “Loan Amortization.” Southern Ag Today 3(12.3). March 22, 2023. Permalink