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2016 Grain Benchmarking Report: How Does Your Operation Compare?

Date: 
Author: 
Nathan Kromann
Educational Opportunities: 
Articles
Interests: 
Grain, Young, Beginning Farmers, Women in Ag
Home > Education & Events > July 2017 > 2016 Grain Benchmarking Report: How Does Your Operation Compare?
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If everyone is facing $3.50 corn, aren’t all grain farmers in the same economic position? The short answer is “no.” Depending on cost of production (COP), yields, marketing and other factors, one producer might be able to squeak by a profit while their neighbor takes a loss.

Do you know how your operation compares to your competitors' operations? What areas of your operation are a strength and what areas need improvement? The answers to these questions may lie in benchmarking or peer data.  This information allows you to visualize the health of your operation in relation to your competitors' operations and helps you identify potential gaps in performance where you can improve.

Compeer Financial recently finished the 2016 grain benchmark report. The peer group represents 196 grain clients scattered throughout our territory in Minnesota and Wisconsin.  While the peer group is small in comparison to the many grain farms in Minnesota and Wisconsin, it does provide some key takeaways. 

Yields
It's no surprise that yields were very strong in 2016. Robust yields impact the bottom line and the health of your operation. Based on the peer group's data, the average yield was 205 for corn and 60 for soybeans. This was an average increase of 10 bushels for corn and 5 bushels for soybeans over 2015. These strong yields drove an improvement in working capital, increased earnings and lower breakeven. Yields in 2016 won the day. Will 2017 have equally strong yields?

Working Capital and Earnings
Benchmark numbers for working capital (WC) averaged $258/acre, an increase of $14/acre from 2015. Working capital affords you the ability to manage volatility, and in today’s environment any improvement is welcome. Producers should aim for $250 of WC per acre, and the average producer in 2016 met that goal.  The second result of strong yields impacted total earnings, which were up $13 from 2015, at an average of $22/acre. On average, the peer group was profitable in 2016. (Total earnings are your total income after family living costs; it includes depreciation and interest but not principal.) 
 
Breakeven
The last major result of strong yields is lower cash flow breakeven (BE). BE has two major components: yield and cost. It's basically a global view of your operation, including all farm and non-farm expenses offset by non-farm and non-grain income, includes family living costs, includes principal and interest payments, and excludes deprecation. Understanding and calculating your breakeven is the single most important task in managing the financial health of your operation. Once understood, it will affect every decision you make on the farm. BE averaged $3.74 for corn in 2016. This is a 30-cent drop from 2015.

From the benchmark report you can see the scatter chart for BE. 
 benchmarking-chart-2017-(1).png
The inconsistency in BE is quite amazing. Breakevens ranged from $1.85 to $6.10. Some of your direct competitors are making strong incomes and some have large losses.  

Costs
In grain farming it is vital to know your cost of production. Once you do, you can target certain areas of your operation to reduce your breakeven.   

Costs in the 2016 grain benchmark remained mostly flat. Total land cost (P&I, rent and tax) dropped $6/acre to a total of $228/acre. Rent dropped $14/acre while owned cost remained neutral. Machinery cost, which is machinery principal, interest and lease payments, decreased by $7 to a total of $73/acre. Crop inputs actually increased an average of $4/acre to a total input cost of $349/acre.

So, where do you stand? Do you know your BE? Do you know how you rank or compare to your direct competitors? Do you know your operational strengths and weaknesses? All of this information helps you position your operation for long-term health, and grain benchmarking could be a tool that can assist you. 

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