Find trends and outlooks, education and more on financing rural America from Farm Credit Services of America.

More Content

Driving Down Costs to Remain Competitive: Part 2

Today’s tight margins are leading to a lot of conversations about reducing the cost of production for long-term success. Our financial officers and customers open these conversations in similar ways – by identifying costs within a producer’s control. The resulting strategies, however, are anything but similar.

“We’re trying to tailor solutions to their operations,” says Justin Septer, vice president of our Ottumwa office in southeast Iowa. “The art comes in spending time with our producers and identifying specific solutions.”

As noted in a previous blog, farming has entered an “agriculture efficiency cycle” that offers both challenges (projections of falling farm incomes) and opportunities (growth for the well positioned). In this second installment, our financial officers highlight some of the business practices and cost-cutting measures that could benefit producers.   

Calculate your ratios

While operators readily know their input costs on a per acre basis, fewer tend to know their fixed costs per acre, a ratio that accounts for expenses related to land, equipment, even real estate taxes. Added into the mix of other critical ratios, fixed costs per acre give producers a fuller, more detailed picture of their operating costs. Eric Lantis, a financial officer in our Columbus office in northeast Nebraska, said fixed costs per acre serve as one of the starting points for all his conversations about production costs.

Sharpen your record keeping

Times demand that producers know their break-evens to the penny. If that extra application of herbicide will make a difference in your margin this year, you need to know that, says Sandy Priest, a financial officer in our Broken Bow office in western Nebraska. Some of the best record keepers enter every purchase they make and track it by enterprise. That doesn’t work for everyone, Priest says, but producers should aim to be more precise and more thoughtful in whatever record-keeping system they use.

Nail down family living expenses

Average living expenses for farm and ranch families hit $100,000 in 2012, according to data collected by Nebraska Farm Business. While one family might decide this is too much, another family might be able to justify every expense as necessary. The important thing is to fully account for family living costs so you can decide what is too much or just right for you.  Many financial officers have stories of customers who consistently miscalculate their living expenses, in some instances by half the true cost. One such producer is working to eliminate “fluff” and has delayed some improvements to the operation. Living expenses still are more than twice the producer’s original calculation, but they are coming down through more intentional and deliberate purchasing decisions.

Control equipment expenditures

Equipment dealers might be knocking $60,000 off the ticket price of a new combine, but that doesn’t necessarily make it a good deal, says Tami Campbell, a financial officer in our Grand Island office in central Nebraska. Farmers understand the reality of the situation and, if they’re struggling to service debt, aren’t buying equipment. If an old piece of equipment breaks down and the cost of keeping it operating is too great, they tend to shop for used rather than new. Some producers also could benefit from refinancing equipment loans to lower their payments with a longer term.

Read Driving Down Costs to Remain Competitive: Part 1


Load more comments
Your comment has been received and is being reviewed.

Comments are moderated and reviewed before they are posted on the site. View our terms of use.


Jul 2, 2022 | The Business of Agriculture

The Challenges Ahead: 5 Market Summaries in 5 Minutes

Insights and updates on some of the most important factors shaping the agricultural economy as we move into July.

Sep 1, 2022 | The Business of Agriculture

What You Need to Know for 2023: 5 Market Summaries in 5 Minutes

Now is a good time to start penciling in 2023 budgets. Our economist, Matt Erickson, looks at costs, prices and market trends to jump-start your planning.

Jan 20, 2023 | The Business of Agriculture

Farmland Values Up, Pace of Increase Slows

Benchmark farmland values continued to tick up in the last half of 2022, supported by high commodity prices and demand from buyers with strong liquidity.

Ready to Talk?

Contact us if you have questions or need more information. Fill out the form, or connect with your local office using the Office Locator.

FCSAmerica serves farmers, ranchers, agribusinesses and rural residents in Iowa, Nebraska, South Dakota and Wyoming. For inquiries outside this geography, use the Farm Credit Association Locator  to contact your local office.