From time to time I ask experts in certain fields to provide us with their thoughts and insight.  I recently asked Dominique Depaz, an analytics consultant to the agricultural industry, to share his process and insight on risk analysis and crop selection.  I found it intriguing and have provided his words below.

FARMING BY THE NUMBERS

It is my observation that farmers are by far the greatest gamblers on earth, willing to put their entire assets on the auction block season after season; and yet they are highly risk adverse when it comes to changes in cultural practices. Most grow the same way over and over, (expecting different results); or follow a few mavericks willing to share their success stories.

Why is that?

I think part of the reason is that many farmers do not keep good data. And that is understandable. When harvest season hits, there is no time for anything else but to get the grains or vegetables off the fields. Who has time to track yield from field to field? But image the strategic value of data going back twenty two or more years? I am talking about weather information such as rain, wind, solar index on the farm, yield by fields, seed varieties, fertilizer applications and chemicals applied and pricing for the commodity.  This information can be extremely valuable on two fronts: first for planning purposes and secondly for changing cultural practices.

Planning Purposes

Data mining can be extremely useful in developing risk probabilities and as a result it can guide a farmer’s planting schedule, type of crop to rotate and changes in farming practices. If you have thirty or more years of data from your farm, in a spread sheet you can analyze your yields relative to prices, weather and changes in growing practices. Even a few years can be very helpful. For example, you would discover that at the bottom of every eleven year solar cycle a La Nina event is likely to occur. This may cause droughts or excessive rains depending on your location. An El Nino event would have the opposite effect. You could then compare your yields during those periods and see how you fared in terms or production and in terms of market prices. Did the climatic change cause prices to move and by how much?  You may find that droughts may have a huge impact in your region, but because the commodity you produce is also grown in other regions of the country, there is no significant change in price. Conclusion: you would loose money growing this crop with no chance to make up the losses at a later date. The strategic question then is: Can I grow an alternative crop which would fare better under the probable circumstances?

I have found that a simple probably matrix can be very useful. Here is how to develop it:

Based on your yield data, price and weather, you assign probabilities across a spectrum. After reviewing your data you may find that if you get more than six inches of rain within a week, you will loose 50% of your crops, whereas if you get three inches, you will loose less than 20%. Likewise the price of your commodity goes up 10% in the first case and only 2% in the second. Now, based on where you are in the solar cycle, you can go back several cycles and see how well wind and rain data correlated and you can make a projection that, for example, there is a 30% chance of getting six or more inches of rain within a week during the season, a 60% chance of three inches and a 10% of no rain. Of course you can break these probabilities further to obtain a smoother curve.

The final probability will look like this.

(0.50 (crop damage) X 0.30 (chance of 6” of rain) x 0.10 (price change) + (0.20 (crop damage) x 0.60 (chance of 3” of rain) x 0.02) + (0.10 (crop damage from drought) x 0.10 (no rain) x -0.05 (drop in price)* = 0.0169 or 1.69% financially better.

Note: * to mean that even though the farm had a drought the commodity price went down 5% because other areas of the country or other regions of the world over produced.

You may argue that this is a meaningless exercise, but it is not and I have used it many times to determine if it makes financial sense to replant after a frost, or a devastating rain, or early season drought.

Changing Cultural Practices

I have found that one of the reasons many farmers are slow to embrace yield enhancement products or to even trial them aside from not keeping good data is the belief that there are too many factors at play and the factors can not be differentiated.

One of the statistical tools used by researchers to overcome this issue is multiple regression analysis, which is available in an Excel spread sheet. For example, this analysis allows you to compare yield, against many variables such as rain fall, seed variety, wind, day light hours, growth enhancement products, disease etc.; and to factor the contribution of each variable to yield. As a result, a farmer can very precisely determine how effective a new product is in spite of changes in weather and other factors.

Most extension agents are familiar with this statistical tool and can help farmers set up trials and interpret the data for them. From experience, I have used this approach and have trialed and altered cultural practices each year based on this analysis. Multiple regression analysis is a very powerful tool which allows a farmer to determine what works with a high degree of confidence.

Farming by the numbers may not alter the risk of farming. Weather, disease, market prices and other factors beyond the farmer’s control drive the outcome. However, analyzing the risks and formulated alternative plans can have a very positive impact on the farmer’s bottom line.

~Dominique Depaz

Bio:

Originally from Martinique, Dominique Depaz comes from a family of banana, pineapple and sugar cane growers. Right out of college he was among the first designers of drip irrigation systems in the western hemisphere. He then joined the Navy and flew jets aboard carrier for many years. Dominique has owned numerous businesses in and out of agriculture and has written many risk analysis software and a very complex, task driven farm management software. He is currently an analytics consultant to the agricultural industry.  Dominique can be reached at: Dominique (at) SmartFarmingSolutions (dot) com

Looking to boost your farm’s income over the next few years? You can always hope for higher commodity prices – although things have been softening up there recently so that might not be a winning strategy. Unlike some other businesses, farmers generally don’t get much input in the prices they receive for their products. So improving the farm’s bottom line generally means either making and selling more product, or cutting costs. Here are a few ideas for doing the latter.

Tip 1: Go Organic

Organic farming techniques are more labor-intensive, but zero out some of your largest line-item costs. No pesticide spray passes, no weedkiller applications – it adds up. If you’ve got more time/hands than you have work, and less money than you have bills, a switch to organic production methods can make hard financial sense.

Tip 2: Let Mother Nature Feed Them

If you’re maintaining a dairy herd, consider moving to natural pasturage rather than confining your herd and providing the feed. This interesting article details some of the findings of research around grazing, and it may surprise you. The conventional wisdom is that naturally grazed cows produce less milk – and they do. The surprising part is, they don’t produce much less milk – and the net financial output per cow is as much as two or three times higher, even after taking into account the increased management work of keeping track of pasturage and moving animals around.

Natural grazing doesn’t just mean letting the herd out onto the first open field you see and trusting to luck – you’ll need to understand what your soil conditions are, ensure that there’s enough nutritional energy in the available forage, etc.

Tip 3: Get Bigger or Change Businesses

The simple truth is that for conventional farming techniques, small herds lose money. If a herd has less than 500 animals, then you’re not likely to be at the break-even point for your fixed operational costs. If you can expand into the profitable range, then that might be worth looking into. If you can switch to organic production, that’s one way to keep a small herd viable. Otherwise, sell your small herd and the associated equipment and use the money to optimize your other farming activities.

Tip 4: Get a New Lease on Life

If you are leasing your land, one way to cut costs is to change the terms of your lease. Rather than a cash arrangement, consider going to a share-lease arrangement. The downside is that if you have a great year, you don’t keep all the profits – but the upside is that a portion of your operational costs get charged to the landlord instead of to your bottom line. If your farm steadily makes a profit, this is a bad option – but if like most farmers you have good years and bad, then a share-lease can make the bad years much more survivable.

Turning a profit is the goal of every farming operation large and small.  In times like these, when the cost of daily inputs are skyrocketing, it is more important than ever to be as profitable as possible.  The most obvious step is cutting costs.  The tricky part is cutting costs while maintaining quality and ample productivity to keep the whole business functioning cohesively.

Here are a few ideas to help you get lean and mean…

1.       Do you really need to own it?  Let’s face it, most people are not very big on sharing.  You may be surprised though how much good it can be to share which cuts your capital expenditure.  Owning a lot of specialized equipment is expensive.  When you consider operating, maintenance and purchase costs, it’s a lot more than you think it is.  Now take that same piece of expensive equipment and share it with your neighbor and/or father in-law, the numbers aren’t quite so painful.  To be on the safe side, it is always a good idea to have something in writing should there be any confusion as to who gets it when and for what explicit purpose. 

2.       To till or not to till?  This is a topic that could be argued over for days.  From the cost cutting perspective though, it is one of the best things going - for your wallet as much as the environment.  Not tilling saves about 3.5 gallons of diesel per acre.  Based on a 1,000 acre tract of land and today’s diesel prices of about $4.50 per gallon that results in a $4,5000 savings.  (Try this calculator for your farm: Clink Here to Launch Calculator )

3.        Plant a tree!    It may not seem like a lot but just planting a trees and shrubs can save you boatloads on heating and cooling costs in addition to providing wind breaks to reduce erosion.  During the summer you get shade and during the winter trees function as a natural and attractive windbreak.  Evergreen trees like cedars are ideal because they have flexible limbs and are resistant to wind damage that may occur with more brittle types of trees.  Evergreen’s also produce very little mess and grow in a variety of soil types. 

4.       Managing the muck.   Every year huge amounts of money is poured into the soil as fertilizer.  All the while, the manure heap at the barn grows and grows producing it’s own realm of problems.  Cure both problems and reuse the manure as field fertilizer.  By using manure as fertilizer, you can cut costs by up to $85 an acre based on a 1,000 acre tract.  (Source: NRCS)

5.       Use Precision Ag.  New technology has proven useful to the farmer as well as the techie.  (The boys at NASA are actually behind this idea, hunting for a practical application for satellite technologies).  GPS (Global Positioning) Technology has been tailored to provide farmers with an accurate aerial view of crop land.  By doing this, input needs can be more accurately estimated, as well as sowing density.  The big idea is to be more flexible in crop management.  Considering the money and expertise involved in this endeavor, it is important to work closely with others in the area to make it a benefit across the board.  (http://southeastfarmpress.com/mag/farming_precision_agriculture_study/)

These are just a few ideas to help you cut some costs and maximize profits. Feel free to add some other cost cutting tips to the comments below.  Good luck!