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Super Bowl

Contrasting Behaviors in Outcomes

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Seth Godin recently wrote a blog titled The Super Bowl is for losers. In it, he describes the reasons why the only winner in Minneapolis’ bid to host Super Bowl LII is not the city or its residents, but the builder of that new $1,129,000,000 stadium. In this particular piece Godin contrasts the decision to pursue grandiose “stadiums” that often lead to a loss versus investing in projects with purpose that would have a less conspicuous result. His description of the human behavior that allows these types of decisions to keep happening is insightful and can be applied to the small-to-medium sized enterprises, the family businesses, that you own and operate.

Below are three of Godin’s version of “valuable lessons about human behavior” (as excerpted from his blog being referenced above) with my insight in how it applies to family business.

  1. The project is now. Investing in long term strategy or knowledge/practice improvement takes time, the results are aren’t always obvious from a quick glance, and usually requires some “not fun” work for the owner/manager. Whereas, that new pickup truck out front or that bigger tractor in the field has immediate impact to our image and our ego. One is tangible (you can see it, smell it, percolate in the feeling you have when driving it) and one is not (no one can see it immediately, or touch it ever…)
  2. The project is specific. We have been conditioned to believe that our businesses must get bigger to survive. This is not absolute. Yes, our businesses (and ourselves) must always grow (and grow all ways) but don’t let yourself get pigeon-holed into the thinking that growth is only “size and scale.”
    Analyzing the opportunity to increase in size is fun (and easy if you limit your parameters) because it’s usually done to justify the desire (IE. we can lower our fixed costs per acre.) Whereas, the work required to analyze the opportunity to “Be Better™” is less intriguing, often subjective, and less sexy. 
  3. The end is in sight. It is easier to sell ourselves on something where we can see the final result. A building, an upgraded fleet, new computers…versus…creating a culture, implementing systems, strategizing cash flow. 

Godin’s final thought: “For me, the biggest takeaway is to realize that in the face of human emotions and energy, a loose-leaf binder from an economist has no chance. If you want to get something done, you can learn a lot (from) the power of the stadium builders. They win a lot.”

To paraphrase, we get caught up in what some people call “shiny object syndrome.” Our decision to chase that which is new and appealing versus what is boring but meaningful is what contributes to results that are less than what they could potentially be.

Plan for Prosperity

As an advisor to business owners and managers, it is my job to draw out the desired results my clients want for their business. While everyone says they want stronger cash flow and improved profitability, behavior often indicates otherwise (Ref. shiny object syndrome.) When actions deviate from what are declared desired outcomes, then we shouldn’t be surprised when actual outcomes deviate from what was desired.

Last week at a presentation I was giving, a woman in the crowd tearfully shared that her farm profitability was not as high as it could be, but the fact that her teenage children could live and work on a farm to develop life skills and work ethic was something she felt was more valuable. This is an example of how different each business owner views success, and will therefore determine what is a desired outcome. Understanding what is most important for you and your family in business is most often discovered when working on…

(wait for it…)

…A PLAN!

 

 

S&P500

Don’t Panic

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The markets are on a wild ride over the last week. After an elongated bull market, we’ve seen huge drops in the value of the S&P500, which have created ripples in Canada as well as in foreign markets. Right on cue, we hear investment advisors insist that staying the course and not panic selling is the best thing to do. The markets always go up and go down. After every crisis, brighter days returned which left us to quickly forget how we felt during said crisis.

“This, too, shall pass,” I heard an investment advisor say today in the media.

“Markets take the escalator up, but the elevator down,” is what I’ve heard from many commodity market advisors. This also applies to equity markets it would seem.

It must be asked, “Why is the best advice to hold? Why not get out before the market falls any further?”
The answer: because staying in the market is part of your PLAN!

*Anyone getting tired of hearing about planning yet?

If your PLAN is to buy and sell, in other words trying to time the market to maximize return and even “outperform” the market, then you’ll probably have to go it alone because no investment advisor would work with you. CyclesBut your PLAN, when beginning your investment activities, was to create wealth from long term growth. If that wasn’t your plan, you’d need to be a day-trader; I’m going out on a limb here, but if you’re reading this blog, you’re probably not a day trader.

Back to your PLAN: jumping in and out of the market looks more like this graphic, because as weak humans we’re emotional creatures who make dumb decisions when emotion creeps into the equation.

How does this apply to your business? Have you made emotional marketing decisions in the past? Have you tried to time the market? Read through every point on the graphic; tally up how many apply to you (as in, how many of those have you said in your career?)

 

Plan for Prosperity

If you find yourself wandering, unsure of how much you might benefit from planning in your business, consider the metaphorical genius found in the children’s fairy tale Alice in Wonderland.

When Alice asks the Cheshire Cat, “What road do I take?” his reply is, “Where do you want to go?”
When she says “I don’t know,” his apt response is, “Then it really doesn’t matter (which way you go), does it?”

In essence, what the Cheshire Cat is telling Alice is that “if you don’t know where you’re going, any road will take you there.” There are many different people who have been attributed to that specific statement, so I cannot confirm who said it first. But nonetheless, it applies…to life and to business…to your investment strategy and to your business strategy…

Don’t panic, just decide where you want to go.

Rayglen 2018_2019 proj crop returns

The Great Profitability Challenge of 2018

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The graphic seen above was shared at a recent CAFA chapter meeting (Canadian Association of Farm Advisors) and forwarded to me by one of my fellow CAFA colleagues who was in attendance. By coming from a reputable commodity trading entity, there is a level of trust we can have in the data presented.

And the (projected) data looks bleak.

With only four crops expecting a net profit to exceed $50 per acre by any respectable amount, the profitable options for 2018 are few and far between. No wonder the common sentiment this winter is “I don’t know what to grow this year; doesn’t look like anything will make a profit.”

Considering the four crops in the Rayglen projection that are close to abundantly profitable are 1 variety of chickpeas and 3 varieties of mustard, it’s pretty clear that your geography becomes part of your challenge. Yes, wheat, barley, flax and canola are also projected to be positive, but are any of them sufficient based on the risk and/or your personal circumstances on your farm?

Here are some questions that I feel must be asked:

  1. Is crop rotation holding you back from loading up on what few profitable options are available?
    I recently heard a lender suggest that those who blow up their crop plan to chase the perceived winner, by his account, usually miss out.
    This can be often true because of the long cash conversion cycle in production agriculture. Farmers bet on a crop plan that they expect will make them money, but a lot can happen between February and harvest…the market giveth and the market taketh away! If there is one thing Western Canadian grain farmers can do, it’s produce! We can overproduce a commodity in as little as one crop cycle, and as such in July or August drive down what was a winning price back in February!
    The lender referenced above went on to say that sticking to your proven crop plan is the way to hit a winner most years, maybe even multiple winners!
  2. Is $50 per acre or even $75 per acre net profit realistic, or even sufficient?
    How much was expected yield and/or price “padded” in that projection? How much were total costs “softened”? Were there 4-6 applications of fungicide built in to those chickpea projections?
    Generalist type of prognostications like this one need to be taken with more than just a grain of salt. Do the “variable” and “total” expenses displayed reflect your farm? What is included in each category? Are they including all expenses, including the PAPERCLIPS? There is much ambiguity in figures like these.
  3. Do whole farm expenses reflect the capability of the crop plan, or is the crop plan now expected to meet the ever-increasing farm expenses?
    Recently, I’ve overheard a couple of pundits suggest that whole farm expenses are now nearing $400 per acre. If true, that relegates many crop plans into the underworld of “operating loss.” I’ve gone on record several times suggesting that the elongated commodity boom recently ended has allowed many bad habits to form at the farmgate. The habits in question surround the insatiable appetite for newer/bigger farm equipment, larger land base, and higher living standards. It wasn’t long ago that top tier farmers kept their operating costs (described by some as labor, power, & equipment) in the range of $90-$100/ac, and these pundits now suggest that the best of the best are in the $140-$150/ac range. That $50/ac increase in what is the most controllable facet of farm expenses clearly has shaken the profitability potential to its core on many farms. And that only applies to those whose operating costs have increased by ONLY $50…

Plan for Prosperity

The recipe for profitability is simple:

  • Have a plan (how/why/what you do);
  • Run lean;
  • Know your numbers & market to your numbers;
  • Maintain discipline.

Of course, if it was as simple to do as it is to describe, everyone would simply do it. Also, did you notice that nowhere was there anything in that recipe about production or farm size? In the commodity business, the winner is the one who produces at the lowest cost per unit of production; the best way to achieve that is to have a plan and maintain discipline to it, get lean and stay that way, and finally market your production to your numbers (not to your emotion.) If you’re have challenges with any of the four ingredients in that recipe, why haven’t you picked up the phone and called for help already?

 

Financial data

Questions from Farmers

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Over the winter, I do a number of speaking engagements, usually around finance and management. Here are some questions and comments from the audience, and excerpts of my response.

 

Farmer: How do I improve my working capital and current ratio?

Kim: Simply put, either reduce your current liabilities or increase your current assets…or both! Considering current liabilities, what makes up the lion’s share? Typically it’s lines of credit, cash advances, and loan payments due in the current year. So to achieve the goal of reducing current liabilities, over time (because it will take time) wean yourself off of operating credit. Protect, even hoard, your cash over time so that you can achieve working capital equal to 50% of your annual cash costs. By the time you achieve that level of working capital, your current ratio should be very strong.

 

Farmer: As someone who is still in growth phase, I can’t expect the kind of return on my cash costs that you’re suggesting. Isn’t it okay to run at zero because I’m in a growth phase?

Kim: First, your business and the industry are cyclical, so yes there will be years when your return is zero, but don’t accept being at zero year over year for any length of time. That being said, your growth phase is likely running your cash to zero, and what I’m prescribing as “return on cash costs” is a profitability measure; they’re different. A business can be profitable and have no cash because the cash might be immediately fed directly into the growth of the business. Yes, you’re going to run tight on cash during a growth phase, but don’t accept poor profitability.

 

The following are a sample of comments made by participants:

  • Mentioning “Mission” and “Vision” statements is interesting. I don’t think having one makes you more money, but it’s funny how those that have one are doing better than those that don’t.
  • I’m trying to figure out how to value unborn calves when looking at my working capital.
  • This current ratio figure is going to swing widely depending on when (what time of year) you do it.
  • Don’t buy (something like equipment or pick-up trucks) just because you have some cash.
  • We’ve got someone doing our books for us, and we review all our ratios monthly.
  • I never viewed HR as a risk before.
  • Every farmer should attend this seminar. Even if they know everything you’ve discussed, it’s a good refresher.

 

Plan for Prosperity

There is a reason I use the heading “Plan for Prosperity” for my closing comments: we need to plan our businesses. Whether that be our 10 year strategy, the next 18 months of cash flow, or determining how our growth aspirations would be affected by a rising dollar or rising interest rates, planning is key to your business. And the planning must, yes…MUST, go beyond the crop plan. That crop plan is but one aspect of your business. Don’t ignore the others unless you don’t want prosperity.

When considering how to approach the plans you must address in your business, consider the following three questions in order:

  1. Why do we do what we do?
  2. What do we want to achieve?
  3. How will we do it?

If you’ve managed to provide honest and detailed answers, the rest of the “planning” becomes much more clear.

 

Goal Congruence_LI

Goal Congruence

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Have you been beat up enough yet about “defining your goals”? Every article I read relating to business management and every presentation I attend relating to business management always brings up the need for you as the businessperson to “define your goals.” For the record, “business management” in the context of this piece also include business transition (succession) planning.

The beatings will continue. They’ll continue as until everyone doesn’t just listen to the advice, but acts on it.

More often than not, when I ask a client (or even a prospective client) what are their goals, I get a blank stare, as if the concept is a foreign language. Far too many business owners have given little consideration to what they are trying to achieve in the business.

If it’s just a place to work and/or a lifestyle to enjoy, then declare it as your goal.
If it’s a family legacy that has been left to you that you intend to leave to your children, then declare it as your goal.
If it’s to achieve the largest scale in your market area, then declare it as your goal.
If it’s to create financial wealth and prosperity for you and your family, then declare it as your goal.

Don’t just tell the advisor you’ve hired, and paid well, that your goal is “to make more money.” That’s everyone’s goal, whether employed for someone else or self-employed like you. Let’s get serious.

There are four sample goals described above. These four have been chosen because they are the most common goals I have identified in working with entrepreneurs for the last 15 years. What I mean by “identified” is that while some of these goals have been declared, it’s more common that the goal is insinuated by (or surmised from) the behavior of the owners. The problem is when business owners try to combine more than one of those four sample goals listed above; this happens almost all the time.

The first goal listed, lifestyle, is not congruent with any of the other three.
We’ve learned that largest scale does not automatically equate to increased financial wealth and prosperity; again, not necessarily congruent.
The only congruity among the four samples is between family legacy and financial prosperity.
– yet behaviors often do not follow those goals.

It is advisable to have multiple goals in business and in life. In business, none of the goals we may have can be achieved without prudence in financial management. Remember, profit feeds your business, it feeds your family, and it feeds your ability to spend time with your family & on other things you enjoy. If you feel uncomfortable declaring one of your business goals to be financial wealth because you don’t want to be thought of as a greedy person, then don’t declare it, but for the sake of your business’ and your family’s future, behave like it. If you’re not profitable, if you’re suffering under the pressure of non-existent working capital, or worse, then none of your goals are achievable. Period. Hard stop. I’m sorry to have to deliver that cold truth in such a harsh manner.

To Plan for Prosperity

The challenge I lay out for all entrepreneurs is this: be clear on why you do what you do, establish working parameters and behaviors that support it, and evaluate your progress & results regularly to ensure you’re still on track. How sad would it be to never check the map for the entire journey only to end up somewhere you never meant to be?

Not only must your goals be congruent, but your behaviors must be as well. You and your business face enough turmoil, challenges, and risks. Don’t create more challenges by making decisions that aren’t congruent with your goals.

Changing Paths

Changing Paths

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Two summers ago, 5 friends gathered to undertake a 2-day back country mountain hike. All the plans were finalized well ahead of time. Everyone invested in proper gear for such an adventure: backpack, drinking water storage, hiking boots, etc. The weather was perfect. The gear lived up to its expectations. No one got hurt. The entire excursion truly was a success.

The best intentions ahead of such a trip were evident, yet preparations had to be made for unpredictable scenarios such as encountering a bear, inclement weather, or getting lost. There is no cell service in the back country…

In this case, everyone was prepared for challenges along the way.

Contrast the story above with a trip into the city, or even a longer trip to location out of province. If it’s a day trip or a short run, as long as there is enough fuel in the vehicle, all you might grab is a jacket on your way out the door. Longer journeys might lead you to give the vehicle a servicing beforehand, fuel it up, and load it with some luggage and possibly snacks for the drive. You know what route you’ll take and you know how long it takes to get there. Off you go…

Along the way,

  • you find your primary gravel road is getting a culvert replaced (forcing a 5 mile detour);
  • you drive through an unmarked rough patch on the highway that causes your coffee to spill on your lap;
  • you come up to a minor collision where the emergency vehicles (tow trucks, police) have slowed traffic which is now backed up one-eighth of a mile;
  • The total drive time of 1 hour (or 2 hours, or 7 hours) other than the 3 points above were “ideal driving conditions” with smooth roads, light traffic, and a tail wind.
  • You arrive at your destination 20 minutes later than planned but safe and sound.

We might describe this story as a terrible excursion where nothing went right. Yet, we did arrive safely, without injury (or worse.)

In the first story, about the mountain hike, the friends were later discussing doing another such trek in the future. It is good for the soul, after all. In that discussion, comments were made about not needing to “over-pack” next time (because the first trip had no significant challenges likes bears or snow.)

In the second story, unforeseen obstacles hindered progress and challenged our perspective of what a successful trip really is.

To Plan for Prosperity

The journeys above are a metaphor for your business.

When tackling something new, it is common to over-prepare. Then if the venture is successful, it is easy to shuck all the preparedness that wasn’t needed the first time around which could put you and your business at significant risk. What in your business is equivalent to running into a bear on a back country mountain path?

Conversely, when setting out on a familiar trek, any glitch (no matter how small) can cause us to get upset, even angry, and wonder “why is this happening to me?” We fail to recognize that we didn’t plan for any contingencies, and left ourselves at risk. What in your business is equivalent to a 5 mile detour, or hot coffee spilling in your lap?

How do you respond when revenue falls short of expectations, or when a key employee resigns? In business, and in life, we have to be willing and able to change paths, sometimes by choice while other times we are forced.

Our ability to adjust is critical to our success.

 

Complex Decision Making

Complex Decision Making

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On October 21, 2017, Seth Godin wrote the following:

Decision making, after the fact

Critics are eager to pick apart complex decisions made by others.

Prime Ministers, CEOs, even football coaches are apparently serially incompetent. If they had only listened to folks who knew precisely what they should have done, they would have been far better off.

Of course, these critics have a great deal of trouble making less-complex decisions in their own lives. They carry the wrong credit cards, buy the wrong stocks, invest in the wrong piece of real estate.

Some of them even have trouble deciding what to eat for dinner.

Complex decision making is a skill—it can be learned, and some people are significantly better at it than others. It involves instinct, without a doubt, but also the ability to gather information that seems irrelevant, to ignore information that seems urgent, to patiently consider not just the short term but the long term implications.

The loudest critics have poor track records in every one of these areas.

Mostly, making good decisions involves beginning with a commitment to make a decision. That’s the hard part. Choosing the best possible path is only possible after you’ve established that you’ve got the guts and the commitment to make a decision.

 

With the benefit of hindsight, none of us is ever wrong. We can, without fear of reprisal, predict what just happened 5 minutes ago.

In business, we can not afford to avoid the complex decisions. Leaving it to chance or following the crowd is about as solid of a strategy as allowing “hope” to be your business plan…

In the next breath, we must cut ourselves some slack; large and complex decisions are daunting. It can seem easier to do nothing than to tackle a complex decision and risk making the wrong choice. But, as Godin wrote, “making good decisions involves beginning with a commitment to make a decision. That’s the hard part.”

To Plan for Prosperity

“Paralysis by analysis” is an old adage that accurately and humorously describes our inability to make a decision (and act on it) because we never stop considering different options. We might feel like a failure, or inept, if we don’t get the decision right.

In reality, more opportunities are lost from perfect inaction than there are mistakes made from imperfect action.

Halloween

Happy Halloween

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Let me first get this off my chest.

In this age of hyper-political-correctness, to hear of some schools that are “cancelling” Halloween because of the risk that some costumes might “offend” or “scare” someone is taking us down a path that we may not be able to come back from. I’m not a proponent of Halloween, but I’ll gladly encourage anyone who wants to take part in it to do so, and anyone who doesn’t can also do so. What we need to remember is why we do it, even if we don’t love it…IT’S FOR THE KIDS!
It’s THEIR imagination and THEIR excitement that must not be squelched just to satisfy our guilt over ________ (fill in the blank).

Thank you; now onto the real business at hand.

Getting dressed up in a costume creates an outlet for us to be something we’re not, or maybe something we wish we could be. (As a kid, I wanted to be a pro-football player and might have dressed up as such for Halloween.)

Over the last several years in western Canadian agriculture, “average management” has been dressed up in a costume of “excellence.” With high yields and high commodity prices, even average managers were more profitable than they had been in the long term…maybe ever.

Dr. David Kohl uses the term “black swan” to describe the recent commodity super-cycle because, like a black swan, it is “not the norm.”

A black swan is an event or occurrence that deviates beyond what is normally expected of a situation and is extremely difficult to predict;

Source: www.investopedia.com

While we might be inclined to associate black swan occurrences with negative deviations from normal, in the case of the last 10 years in agriculture, we’ve experienced a positive deviation from normal. The danger came when many participants in the industry believed that what was happening wasn’t actually a black swan but “the new normal.” Many long term decisions were made based on short term results. True to the black swan definition, the onset of the commodity super-cycle was predicted by very few, and even fewer still predicted it would last as long as it did. Maybe it was the fact that it did last longer than a year or two is why people started to believe it would never end…?

The unpredictability of this black swan continues to cause angst among players in the industry. Some are soldiering forward as they have for the last several years with full expectation that the black swan will return. Others are are in full damage control mode, or even panic mode. Others yet are patiently waiting for the opportunity that always follows the economic cycles.

Market cycles will hurt some, but offer opportunity to others.
The difference between who suffers and who prospers is…Who’s Ready.

– Kim Gerencser

I started making that statement way back in late 2012. The message then was to take advantage of the current up-cycle to solidify your business in preparation for the upcoming down-cycle (because bulls are always followed by bears, which are followed by bulls…it is how cycles work.) Being greedy during an up-cycle brings up another old adage, “Pigs get slaughtered.”

To Plan for Prosperity

When preparing your 2018 projections, compare your projected expenses to your worst revenue in the last 10 years. Is there a negative gap? How big is it? What needs to be done to cover it? Alternatively, is there a positive gap? How big is it? What needs to be done to protect it, or even to leverage it so as to make it wider?

The exercise proposed above is comparable to removing a Halloween costume. While things look one way outwardly, what is actually happening underneath, at the surface, can sometimes be much different and will tell the true story.

Happy Halloween!

PS. Don’t wear your Halloween costume to your banker meeting.

Perspective

Perspective

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What do you want to accomplish between now and Oct 1, 2018?

If I had asked many of you that question one year ago, you might have provided a response that would make you cringe using the lens of today. Last year, may farms were suffering from excess moisture, and long drawn out harvest. On this date one year ago, there were millions of acres yet to be harvested in western Canada. If one year ago you were hoping for a hot dry 2017, well…you got it.

How has your perspective changed over the course of a year? What is affecting the change in your perspective? If you’re more concerned about short term fluctuations rather than big picture issues, such as a recent market correction versus the tax changes currently proposed by our federal government, then you’re probably looking down the hood of the truck instead of down the road.

If you’re more concerned about short term fluctuations rather than big picture issues, then you’re probably looking down the hood of the truck instead of down the road.

My best client relationship has evolved from our original work of clarifying Unit Cost of Production by drilling down operating and overhead costs, so that we are now pursuing 5 year expansion strategies and establishing tactics for handing off management activities as part of a transition plan that is still 5-10 years away.

In the next breath, when asked “What is the greatest challenge on farms today,” I regretfully cutoff whoever is asking the question by blurting out “cash flow.”

I see numerous farms who do not suffer cash flow challenges. They experience the same weather, the same markets, the same interest rates. Yet somehow these farms do not suffer under the same cash flow pressure. Why is that?

Perspective.

Successful businesses have a long term perspective. Those businesses recognize the variability in the aspects affecting their business that they cannot control (like weather, markets, interest rates), and as such, they prepare themselves and their businesses for what’s coming “down the road.”

Looking down the hood instead of down the road doesn’t give you time to prepare and react to what’s coming up ahead.

Here is an easy recipe to help prepare for what’s coming up “down the road”:

  1. Understand cost of production, right down to the paperclips.
  2. Get lean in how you manage your operating and overhead costs.
  3. Maintain modest personal drawings.
  4. Eliminate unnecessary assets and the debt they bring with them.
  5. Build working capital to a minimum of 50% of annual cash costs.

By implementing these 5 steps into your action plan before spring, you will instantly be miles ahead of your competitors one year from now.

To Plan for Prosperity

There is no crystal ball in my possession, so I cannot predict what is coming down the road. What I can tell you is that I have seen the effects of business cycles on the unprepared, I have seen the effects of poor perspective on the oblivious. Conversely, I hold great admiration for the business people who had the foresight to control all that they were able to control, including how they were affected by that which they couldn’t control.

What’s your perspective?

Canola 100 fail title

Why the Canola 100 Challenge is So Wrong

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Announced two years ago around this time, the Canola 100 challenge baits farmers into taking part in a “moonshot”: an attempt to produce a verified canola yield of 100 bushels per acre. It isn’t that efforts to increase yield aren’t a good thing, because they are. But by what means are we attempting to achieve these yields?

This “contest” may be virtuous in spirit, but it overlooks the not-so-old adage that “better is better before bigger is better.” That applies to this argument too.

The rationale behind my position is supported in this Western Producer article that describes a farmer’s chase of this moonshot, throwing everything including the kitchen sink at his crop in an attempt to cash in on the Canola 100 prize. (Spoiler alert: it failed miserably.) This particular attempt can be summarized in this quote from the article:

The fertility program cost $300 per acre more than what was done to the check field but yielded only 70 bu. per acre, which was 1.4 bu. per acre more than the check field.

The driving factor behind efforts to maximize yields should be ROI (Return on Investment) and Gross Margin. Doing so would focus on maximum economic yield, not maximum production yield. There’s something about that pesky law of diminishing returns that gets overlooked when trying to shoot for the moon…

If maximum economic yield is the target, then Gross Margin is the focus. How that gross margin is achieved is up to each producer, but make no mistake about where the focus needs to be. In my experience, minimum gross margin, that is gross revenue less seed, chemicals, and fertilizers, at MINIMUM needs to be 65% to sustain the business. High cost operations need greater gross margin to cover all those costs.

To put that in reverse, if 35% of your gross revenue can go to crop inputs, then each $1.00 invested into inputs should return $2.86 in gross revenue. To apply this to the example above, the “extra $300 per acre” in fertility should have delivered $858/ac in gross revenue. If Canola was $10/bu, that’s nearly 86 bushels per acre above the check field.

Canola 100 fail

Let’s push the argument harder: if the example above actually hit 100 bushels per acre, and acknowledging the control field yielded 68.6 bu/ac, the gross margin on the Canola 100 plot was $14 per acre, or about 4.67%.

This is IF the 100 bushel yield was achieved…and face it, $14 gross margin doesn’t pay many bills; in fact, it wouldn’t even buy the fuel for the contest plot.

To Plan for Prosperity

Make no mistake about the messaging here: as a producer of commodities, you need the bushels!!! But do not lose sight of the fact that as a producer of commodities, your only chance of remaining sustainably profitable is to produce at the lowest cost per unit. Period. Chasing maximum yield at a 1:1 ROI won’t get it done.

1. What is your historical gross margin?
2. What are your operating and overhead costs?
3. Know these to be able to plan for maximum economic yield.