Knowing the numbers puts money in the bank

Last month we covered some cost-tracking basics. This can be a boring topic, but knowing your costs can be extremely important in today’s low-price environment.

First off, putting sorghum in the ground is easy on the pocketbook. The price of a bag makes the concept pretty easy to grasp, but the cost advantage needs to be broken down on a per-acre basis and recorded to the cent. The average pound of sorghum has 16,000 berries in it. If you drop 48,000 seeds, you’ll be able to plant almost 17 acres with one bag. If a bag costs $180, your seed cost is only $10.80 per acre.

With 95% emergence, respectable head size (2,000 berries) and a tiller on every second plant, your yield could be as high as 153 bushels per acre. At a $3.25 cash price, that’s $497.25 in gross revenue — on only $10.80 in seed costs. Exact costs matter.

One of my clients is a big believer in minimum till. Abandoning tillage isn’t an option for him because of his cropping system and soil types, but he has been able to realize significant value by reducing his number of trips across the field each year. As pigweed resistance started moving into his area, several of his neighbors who had also reduced tillage started doubling down on herbicide applications.

Faced with the same weed pressure as his neighbors, my client sharpened his pencil. His labor costs per tillage trip turned out to be a pretty reasonable $2.50 per acre, and his diesel costs per trip were similar. After stepping through this math, he decided to add a trip for $5 and forgo at least one application of the costly herbicide cocktail used in his area with limited success.

To be sure, tillage isn’t for everyone, and these costs might not apply to everyone. But this is a great example of the conventional wisdom being incorrect, mathematically speaking. In reality, it doesn’t matter what your neighbors spend. The only thing that matters is the number of dollars actually leaving your bank account.

Seed and chemical industry investment in sorghum started to decline in the mid- 1990s, reducing the number of management tools available to sorghum growers. But recent weed-resistance problems have turned this technology gap into something of an asset, from both chemistry and financial standpoints.

A couple of years ago another client used a split pre-emergence application of Lumax EZ herbicide on his sorghum. It wasn’t cheap — he spent twice as much on one split application as he did on seed. But his neighbors without chemistry diversity fought pigweeds all summer and racked up twice as much cost per acre. My client didn’t have to spray again.

Another financial benefit of sorghum is lower risk. Like with seed costs, this is fairly intuitive. However, many in agriculture don’t think in terms of risk exposure. This is one of the most important measures of risk, and it’s also an area where sorghum really shines.

Sometimes producers and their bankers balk at sorghum and other crops with lower insurance guarantees. But does a lower guarantee really matter? If you have a $200-per-acre guarantee for sorghum and total costs of $250 per acre, you have $50 of risk exposed. Maybe you have a $250 guarantee for another crop, but you have total costs of $350. Which option makes more sense from a risk management standpoint?

Again, the pencil often proves the conventional wisdom wrong. But before your pencil can be completely accurate, you must get to know your actual costs. You won’t regret it.

Chris's columns appear in Kansas Farmer magazine monthly. You can view this column published in the online edition here.